Group Health Insurance Basics

What is Group Health Insurance?

Group health insurance is a type of health insurance coverage that is made available to members of an association or company.  Most insurance companies will offer group coverage when that group has 2 or more bona fide employees.  In other words, a husband and wife would not be a group unless they were both bona fide employees of the company, each earning income from their job and providing services to the company. Given the option, most people would prefer to have their employer provide group health insurance coverage because, in most cases, the employer must pay a minimum of 50% of the cost of the single coverage for an employee. For most major medical insurance plans, employees will be priced based on age and physical location.  There are still some of the "old style" group plans in the market but since the Affordable Care Act, any new group plan will be goverened by the new rules of the Affordable Care Act.

What kinds of plan designs and policies are available?

In a very broad sense, the most common types of health plans are (1) Co-pay plans, (2) High Deductible plans, (3) Combination or "Saver" type plans, and (4) Limited medical plans.

Co-pay plans have co-pays for doctor office visits, prescriptions, urgent care facilities and some other services.  They usually have a deductible for some services and/or prescriptions and coinsurance for services once you reach your deductible and until you have paid your maximum out of pocket amount of claims (see definitions below).  These plans are typically the most expensive of the choices because coverage kicks in at often lower levels of claims relative to the other types of plans.

High Deductible plans are typically less expensive than the co-pay plans because the deductibles that you must cover before the plan kicks in are much higher.  One of the basic rules of insurance is that the higher the deductible the lower the premium cost.  Sometimes these plans have no co-pays at all until you meet your deductible and then, only for prescriptions.  Some High Deductible Health Plans are designed to work in conjunction with a Health Savings Account, which provides additional tax incentives on the money you use to pay your claims.

Combined plans as they are sometimes called, are often a combination of the co-pay and high deductible plan features.  There may only be a limited number of doctor visits, for example, that can be paid with a co-pay each year.  Once those are used, the deductible and coinsurance will apply for all future visits.  Often there are other exclusions for services that aren't qualified by Health Care Reform as "essential benefits."  These types of plans will continue to change during Health Care Reform as the new regulations and rules are determined.

Short Term Medical Plans or Limited Medical plans are not considered major medical plans.  Short Term plans are typcially available in the individual market and the Limited medical plans are available in the group market.  They have less coverage than the other plan types, and it is feasible that you will reach those limits within a particular year if you have a significant number of claims.  There are also many exclusions in these plans of claim types that aren't covered at all.  Most plans do not cover prentive care and pre-existing conditions.  Many people consider these plans as basic coverage for those who might not be able to afford major medical plans, might be in an industry with high turnover, or feel that some coverage is better than no coverage.  The cost of these plans can be significantly less than those of the other plan types and there are many plan designs from which to choose.  These plans are not considered qualified health plans for the Affordable Care Act so you will have to pay the penalty as if you had no insurance at all.  Before too long, the Limited Medical plans will disappear in the light of the Affordable Care Act.

Other examples, to name a few, of plans that are available to groups include: dental, vision, life, accidental death & dismemberment, short term disability, long term disability, accident, cancer, critical illness and flexible spending accounts

Health insurance policies and other ancillary policies (think "dental" or "vision") are usually described as either "indemnity" or "managed-care" plans. Put broadly, the major differences concern choice of healthcare providers, out-of-pocket costs and how bills are paid. Typically, indemnity policies offer a broader selection of healthcare providers than managed care plans. Some indemnity policies pay their share of the costs for covered services only after they receive a bill (which means that you may have to pay up front and then obtain reimbursement from your health insurance company). Some providers will file a claim with the insurance company for you and be paid directly by the insurance carrier.  These are more common with Vision, Dental, Supplemental plans (such as Cancer, Accident, Critical Illness) and Limited Medical plans.  There are several different types of managed-care health insurance plans. These include HMO, PPO, and POS plans. Managed-care plans typically make use of healthcare provider networks. Healthcare providers within a network agree to perform services for managed-care plan patients at pre-negotiated rates and will usually submit the claim to the insurance company for you. In general, you'll have less paperwork and lower out-of-pocket costs with a managed care health insurance plan and a broader choice of healthcare providers with an indemnity policy.

How does a PPO plan work?

As a member of a PPO (Preferred Provider Organization) plan, you'll be encouraged to use the insurance company's network of preferred doctors and hospitals. These healthcare providers have been contracted to provide services to the health insurance plan's members at a discounted rate. You typically won't be required to pick a primary care physician but will be able to see doctors and specialists within the network at your own discretion.

You will probably have an annual deductible to pay before the insurance company starts covering your medical bills. You may also have a co-payment for certain services or be required to cover a certain percentage (coinsurance) of the total charges for your medical bills.

With a PPO plan, services rendered by an out-of-network physician are typically covered at a lower percentage than services rendered by a network physician so it will cost you more out-of-pocket.

How does an HMO plan work?

Though there are many variations, HMO (Health Maintenance Organizations) plans typically enable members to have lower out-of-pocket healthcare expenses but also offer less flexibility in the choice of physicians or hospital than other health insurance policies. As a member of an HMO, you'll be required to choose a primary care physician (PCP). Your PCP will take care of most of your healthcare needs. Before you can see a specialist, you'll need to obtain a referral from your PCP.

With an HMO you'll likely have coverage for a broader range of preventive healthcare services than you would through another type of policy. However, this is changing rapidly with Health Care Reform.  You may not be required to pay a deductible before coverage starts and your co-payments will likely be minimal. With an HMO plan, you typically won't have to submit any of your own claims to the insurance company. However, keep in mind that you'll likely have no coverage whatsoever for services rendered by non-network providers or for services rendered without a proper referral from your PCP.

What is a co-payment?

A "co-payment" or "co-pay" is a specific charge that your health insurance policy may require that you pay for a specific medical service or supply. For example, your health insurance policy may require a $15 co-payment for an office visit or brand-name prescription drug, after which the insurance company often pays the remainder of the charges.

What is a deductible?

A "deductible" is a specific dollar amount that your health insurance company may require that you pay out-of-pocket each year before your health insurance policy begins to make payments for claims. In the past, not all health insurance policies required a deductible, but in today's healthcare environment, fewer and fewer of those plans exist.

What is coinsurance?

Coinsurance is the term used by health insurance companies to refer to the amount that you are required to pay for a medical claim, apart from any co-payments or deductible. Coinsurance is usually in the form of a percentage that you or the plan will pay.  For example, if your health insurance policy has a 20% coinsurance requirement (and does not have any additional co-payment or deductible requirements), then a $100 medical bill would cost you $20, and the insurance company would pay the remaining $80.