What are the different types of health delivery systems that employers may choose from?

Employer-provided health insurance is typically provided by traditional insurance contracts, health maintenance organizations, preferred provider organizations, self-insured medical plans, or some combination of these. Most employer-provided health care plans may be categorized as:

• traditional indemnity health insurance programs; or
• health care delivery systems, such as health maintenance organizations (HMOs) and preferred provider organizations (PPOs).

Traditional health insurance plans. The traditional health insurance plan may be a fully insured plan under which the employer purchases an insurance policy from an insurer to provide benefits for its employees, a partially insured plan, or a self-insured plan funded by the employer under which benefit payments are made to employees from the insurance provided from the employer's funds.

Alternative health care delivery systems. Alternative health care delivery methods, such as HMOs and PPOs, have evolved and expanded in recent years in response to demands for managed health care plans. These systems are now well-recognized alternatives to traditional fee-for-service insurance health care plans.

Health maintenance organizations. An HMO is an organized health care system providing comprehensive health care services to its members on a prepaid and fully insured basis. Employer contributions are made to the HMO on behalf of employees who select the HMO option. Employees may be required to contribute to the HMO if employees are required to contribute to the employer's non-HMO plan. HMOs generally offer comprehensive health care without deductibles or claim forms, but do require that participants receive their care from HMO providers.

Preferred provider organizations. PPOs are networks of individual physicians and hospitals that discount fees in exchange for an increased volume of business. In effect, PPOs work as brokers to arrange contracts between employer-purchasers and health care providers. PPOs offer employees greater flexibility and freedom to choose doctors and other health care providers than do HMOs. Unlike HMOs, which are maintained under a prepaid basis, PPOs are fee-for-service arrangements.

Plan design. In designing a health plan for the needs of employees, an employer is not locked into only one type of health care delivery system to provide benefits for employees. For example, an employer may purchase an insurance policy from an insurer (an indemnity plan) and add an HMO or PPO option, or both, to the insurance program. Likewise, a self-insured program can also offer the HMO and PPO options.

Reprinted with permission. © CCH