Employer Health Plans: Some Tough Decisions

America’s health care crisis can be a matter of life and death when it comes to access to an operating-room table, but for many Americans it comes home first in a pile of paper on the kitchen table.

Soaring costs have spurred companies all over the country to revamp their health plans. That means that employees--armed with piles of literature--are being forced into some tough decisions.

Most commonly, the decision boils down to this: Do you pay more--often much more--to maintain coverage through a traditional insurance plan that gives you freedom of choice, or do you switch into a managed care plan that allows fewer choices but costs less?

The answer is a personal one that pivots on factors psychological as well as financial. Before making the decision, you have to get educated. You need to know the difference between the various types of plans, their benefits and their pitfalls. And you need to consider your personal and family health prognosis to determine which plan will best meet your needs.

Although specific health care options vary from company to company, many employers offer three basic types of health insurance--indemnity plans, preferred-provider organizations and health maintenance organizations. Some employers offer a fourth option, called point-of-service plans.

Indemnity plans are, by far, the most popular. About 55% of the nation’s workers opt for these traditional insurance programs, which allow consumers to choose any health care provider and be reimbursed at a set rate, according to Foster & Higgins, a national benefit consulting firm.

Most indemnity plans have deductibles, so you pay the full cost of your health care until the cost exceeds a set limit. After that, the insurer will pay a proportion--usually 80%--and you pay the rest, known as a co-payment. Co-payments are usually capped too, so you seldom have to pay more than a pre-established maximum.

The biggest disadvantage of indemnity plans is that they’re almost always more expensive than the other options.

But they have other disadvantages too. For instance, indemnity insurers usually pay only for “usual, customary and reasonable” (UCR) expenses. If the insurer determines that your doctor or hospital expenses are higher than the UCR, they’ll pay only 80% of the UCR, and you’re responsible for the rest.

What is the UCR amount? It varies by insurer and locale. You can rarely find out the appropriate UCR amount until after you’ve incurred the medical expenses.

Preferred-provider organizations (PPOs) are an overlay to traditional indemnity plans. If you sign up for a PPO, you can usually go to any doctor you wish, but you will be reimbursed at a higher rate if you go to a doctor or hospital enrolled in the plan. Typically, 90% of your costs are covered when going to plan doctors, while 50% to 70% may be covered when you opt for doctors outside the PPO system.

In most other respects, PPOs are identical to indemnity plans. But you needn’t worry about expenses exceeding the UCRs if you go to plan doctors, because the insurer has approved their rates in advance.

Health maintenance organizations (HMOs) are, by far, the least expensive and most restrictive of all the health care options. The cornerstone of an HMO is usually a primary care physician, who sees you when you’re sick and refers you to other physicians when you need a specialist or hospitalization.

Consumers usually pay a nominal fee--often less than $5--each time they see a doctor. Frequently there is no charge for hospitalization. Prescription drugs and emergency care are also comparatively cheap. Families with children, or those with ailments requiring several doctor visits in one year, can save hundreds--sometimes thousands--of dollars by choosing this option.

However, many people complain that HMOs are more difficult to deal with. It often takes longer to see a doctor. And your primary care physician is also your gatekeeper, who can open doors to further medical help--or lock them shut.

For example, if you have a skin problem and fear that it might be serious, you must go to the primary care physician first. If he agrees, you’ll be referred to an HMO dermatologist. But if he doesn’t agree and you go to a dermatologist anyway, you have to pay the dermatologist. You can switch primary care physicians, but many find the system ponderous.

Point-of-service plans are similar to HMOs, but they allow you to leave the HMO system without financial penalty under certain circumstances. Point-of-service plans are rare and they often come with strict limitations.