Choose health insurance options and providers

The legal landscape for employer-sponsored health coverage is changing rapidly. Choosing health insurance plan coverage options and insurance providers can be a daunting task. Below are three important factors to consider when considering your options for the upcoming plan year.

Funding. The two basic types of employer-sponsored health insurance plans are self-funded and fully insured. Small businesses typically choose fully insured plans where the employer pays a non-refundable premium
to a health insurance provider who assumes the risk of paying health claims. Large companies, which typically have 200 or more employees, generally choose to be self-financing. In a self-funded plan, the employer assumes the risk of paying employee health claims and pays an administration fee to a health insurance company to administer the claims. Self-funded employers often purchase a stop-loss insurance policy to insure against large health claims above a fixed amount.




Focusing on funding, type of plan and provider
network, bonuses and cost sharing, businesses can focus on plans that fit their needs and budgets.

Employers with self-funded plans have more flexibility in designing the details of health coverage, but also face greater compliance risk and administrative complexity. Fully insured plans often limit or exclude coverage for certain expensive treatments for conditions such as autism and gender dysphoria. However, they are required to comply with state insurance requirements such as mandatory autism treatments for children up to a certain age. Although self-funded employer plans are not subject to state insurance mandates and therefore have more freedom to exclude costly treatments, these coverage design choices still carry compliance risks because they are subject to federal laws such as Mental Health Parity and the Addictions Addiction Equity Act. 2008. The Department of Labor’s Employee Benefits Security Administration stepped up its investigative efforts regarding mental health parity this year, and employers are ultimately responsible for any breaches of compliance.

Type of plan and provider network. There are many basic plan design types that employers can choose from. Most health insurance plans use provider network agreements with the health insurer or administrator. Common types of provider network arrangements are:

  • Health Maintenance Organization (HMO): An HMO provides care within the network of providers. Participants must choose a primary care provider, and specialist visits often require a referral. Out-of-network care is usually limited to emergency departments.
  • Preferred Provider Organization (PPO): A PPO offers a large network of providers for a higher monthly premium. Covered employees can choose in-network or out-of-network care. Referrals from specialists are generally not required.
  • Sole Supplier Organization (EPO): With an EPO, employees have access to a smaller local supplier network. Premiums are generally lower than PPO premiums, and specialist referrals may or may not be necessary.
  • Point-of-Service (POS) Plans: POS plans are a hybrid between HMO and PPO plans. Out-of-network coverage is limited and often comes with higher cost sharing with the patient. Visits to a specialist require a referral to primary care.

Less common plan design offerings that are marketed with an emphasis on cost savings for employers may come with increased compliance risks. Two of these designs are benchmark or value-based plans and “lean” plans designed to cover Affordable Care Act (ACA) essential health benefits.

Referral-based health plans do not use provider networks. They reimburse claims up to a certain authorized amount, which is often a percentage of the Medicare reimbursement amount. Some employers have a traditional network-based plan and limit the referral-based model to out-of-network emergency and lab claims. While these plans may reduce costs for the employer without reducing the number of services covered, they carry a higher degree of administrative risk due to uncertainties regarding compliance with new legislation such as the No Surprises Act, which prohibits the invoicing of the balance in certain situations.

“Lean” health plans are designed to cover the emergency and preventative care needed to meet the ACA’s “minimum essential coverage” requirement, but often exclude most or all inpatient and outpatient care. While these plans may be marketed as ACA-compliant, they often don’t provide the ACA’s “minimum value” by covering such a small selection of medical services. Employers with 50 or more full-time or full-time equivalent employees should not choose lean health plans due to the risk of assessing employer shared responsibility payment penalties.

Premiums and cost sharing. One of the most important considerations for all businesses when choosing health coverage is the cost to employees and the employer. Employee costs are split between premiums and cost-sharing elements such as copayments, co-insurance, deductibles and maximum disbursements. Employers should carefully compare all of these cost elements for each level of coverage (Bronze, Silver, etc.) and level (Employee Only, Family, etc.) when considering options to find a plan that strikes a balance between affordability for the employer and competitive in the company’s labor market.

Higher deductible plans generally have lower premiums and vice versa. Deductibles for family coverage can be built in, where an individual deductible applies to each family member in addition to the overall family deductible. With a comprehensive or non-integrated deductible, only the family deductible amount applies before the plan begins to pay claims. The deductibles for medical and prescription benefits can be combined or separated. Co-payment models also require careful consideration, particularly with respect to prescription drug benefits. Copayment Maximization, Accumulation, or Optimization programs seek out and apply drug manufacturer coupons for high-cost specialty drugs to a participant’s cost-share amounts. These programs may have issues with compliance with federal guidelines on ACA essential health benefits, high-deductible health plans and health savings accounts (HSAs), and mental health parity.

Selecting or renewing employer health coverage can be a daunting task, with many options and factors to consider. However, by focusing on funding, plan type and provider network, as well as premiums and cost sharing, companies can focus on plans that fit their needs and budget. Additionally, insurance brokers and other third-party advisors can help employers choose a health plan that meets their criteria. Some states also offer helpful health insurance resources for small businesses.

Hillary Sizer is an attorney at Ogletree Deakins, Atlanta. The American Rental Association (ARA) has a partnership with Ogletree Deakins to provide human resources assistance and guidance to ARA members. Learn more at ARArental.org/manage-business/HR.

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