Health Insurance Demystified: Choosing the Best Options for Your Team
Offering employees the right health insurance is key to attracting top talent and employee retention. In fact, 88% of employees consider health insurance a deciding factor in job choice and retention.
However, understanding the nuanced details of health insurance plans is no easy feat.
Luckily, you’re in the right place to gain clarity about the key details you need to consider when choosing health insurance options.
We will cover:
The different types of health insurance plans
5 key considerations when choosing the best health insurance coverage for your team
Regulatory considerations for employers
Continue reading to ensure your team has access to health insurance that fits their needs.
Understanding the Types of Health Insurance Plans
Employee health plans are the most common form of healthcare coverage in the U.S. by an impressive margin, standing at 55%. The distant number 2 is Medicaid at 19%. MEdicare is 17%, and individual plans are 7%.
Employer-offered health insurance plans come in various formats, each catering to employees' healthcare needs and preferences. The primary types include Health Maintenance Organization (HMO) plans, Preferred Provider Organization (PPO) plans, Exclusive Provider Organization (EPO) plans, and High Deductible Health Plans (HDHPs), often paired with Health Savings Accounts (HSAs).
Let's take a closer look at these below.
HMO plans require members to choose a primary care physician (PCP) as the gatekeeper to specialist services. These plans restrict coverage to care from doctors who work for or contract with the HMO, except in emergencies. The emphasis is on preventive care to keep health care costs low. Members usually pay less out-of-pocket but have less flexibility in choosing healthcare providers. In 2024, 13% of covered workers were enrolled in HMOs.
PPO plans offer more flexibility, allowing members to see any healthcare provider without a referral, including out-of-network specialists, albeit at a higher cost. These plans tend to have higher premium costs than HMOs but are valued for their flexibility and vast network of providers. As of 2024, 48% of covered workers were enrolled in PPOs, making it the most common plan type.
EPO plans are a hybrid between HMO and PPO plans. They offer a moderate network of providers and do not require PCP referrals for specialists. However, EPOs generally do not cover out-of-network care except in emergencies, combining the lower cost of an HMO with the provider flexibility of a PPO.
HDHPs are characterized by higher deductibles but lower premiums. These plans are designed to make members more mindful of their healthcare spending. They are often paired with HSAs, which allow individuals to save money tax-free for future medical expenses. HDHPs appeal to those who prefer lower monthly premiums and are comfortable with higher out-of-pocket costs. In 2024, 27% of covered workers were enrolled in HDHPs with a savings option.
Each plan type offers a different balance between cost, flexibility, and coverage. To choose the most appropriate plan, you must evaluate your patients' healthcare needs, financial situation, and preferences for provider choice and plan flexibility.
That brings us to the next point.
5 Key Considerations When Choosing the Best Health Insurance Options for Your Team
Let’s get straight into it.
1) Employee Demographics and Health Needs
Your employees can be broken down into several broad demographic categories according to factors like their age, gender, and location. Here are some examples of demographics:
Employee demographics and health needs significantly influence the selection of health insurance options for several reasons:
Age diversity: Different age groups have varying health needs. Younger employees may prioritize reproductive health, mental health, and preventive care, whereas older employees might need more comprehensive coverage for chronic conditions and specialist care. Tailoring health plans to these needs ensures all employees benefit.
Family composition: Employees with families may require plans that offer better pediatric care, maternity benefits, and family coverage options. Single employees might prefer plans with lower premiums and essential health benefits.
Health conditions and risks: Workers with prevalent chronic conditions or high-risk health behaviors need plans that include strong disease management programs and lifestyle support. According to the CDC, chronic health conditions account for 90% of healthcare costs in the U.S.
Geographical location: Employees' locations affect the availability of healthcare providers and facilities. Insurance plans must have an adequate network of local healthcare providers accessible to all employees.
Employee preferences and expectations: Understanding employee preferences through surveys or feedback sessions can guide you toward plans that meet the workforce's expectations, increasing satisfaction and retention.
Financial implications for employees: The cost-sharing aspects of health plans, such as deductibles, copays, and out-of-pocket maximums, need to align with your employees' financial capabilities. Plans that are too expensive for employees to use effectively offer little real value.
Legal and regulatory compliance: Different regions have varying legal requirements for health benefits. Ensuring compliance while addressing the diverse needs of employees is crucial.
Insider Tip:
We recommend conducting a detailed demographic analysis of your workforce to identify specific health needs and preferences. That way, you can select health insurance options that comply with legal requirements and maximize employee satisfaction and health outcomes.
2) Coverage Options and Flexibility
Selecting the right health insurance involves more than just finding affordable premiums. It's about ensuring the coverage options and flexibility match the unique needs of your workforce. In the graphic below, you can see a few examples of potential healthcare benefits:
Finding the right coverage options is so important for lots of reasons. As we explained in the previous section, employees have diverse medical needs based on their health conditions, lifestyles, and family responsibilities. Flexible plans can cater to these varying requirements, ensuring everyone can access necessary services.
Also, some employees may have established relationships with specific doctors or specialists. Plans that allow access to a wide range of preferred providers increase satisfaction and utilization of benefits.
Offering a range of plans, from high-deductible health plans (HDHPs) to more comprehensive options, allows employees to choose the coverage level that best fits their financial and medical needs.
The option to add or opt out of certain benefits, such as dental, vision, or wellness programs, personalizes the health insurance experience and allows employees to tailor their benefits package.
As telehealth becomes more prevalent, offering health care plans that include digital health services meets the modern demands for convenience and accessibility. In 2021, 95% of firms with 50 or more employees included telemedicine services in their largest healthcare plan, up from 85% in 2020.
What’s more, some employees value the option to carry over their insurance if they leave the company. Flexibility in portability can be a deciding factor for employee retention.
3) Cost to the Employer and Employee
The cost of health insurance to employers and employees directly impacts financial well-being and satisfaction levels.
Here’s why it’s essential:
Budget constraints: You must balance offering competitive benefits with maintaining financial health. The cost of health insurance plans must align with your company’s budget without compromising on quality.
Employee affordability: The financial burden on employees influences their participation and satisfaction. Employees might opt out if premiums or out-of-pocket costs are too high, leaving them uninsured. In 2024, the average annual premium for employer-sponsored family coverage is over $20,000, with workers contributing an average of $6,296. High costs can deter participation.
Value for money: You must ensure that the costs incurred provide value to employees. Plans with comprehensive coverage at a reasonable price are more likely to be appreciated and utilized.
Competitive benefits package: To attract and retain talent, you need to offer health insurance that is not only affordable but also competitive within the industry.
Impact on salaries: High health insurance costs can limit your ability to offer competitive salaries or wage increases. That’s why you should find a cost-effective balance.
Tax considerations: The structure of health insurance benefits can have significant tax implications for both you and your employees. Understanding these implications can help you select the most cost-efficient plan.
Employee financial stress: Financial stress due to high medical costs can affect employee productivity and satisfaction. Offering plans that mitigate these concerns will enhance your workplace’s overall well-being.
The graphic below shows the typical premium payments employers make for health insurance:
Insider Tip:
Based on our experience, we suggest conducting a comprehensive cost-benefit analysis of various health insurance options. This approach helps identify plans that offer the best value for the employer and employees, ensuring a satisfied and financially healthy workforce.
4) Provider Network and Accessibility
The provider network and accessibility are critical components when choosing health insurance plans. This aspect directly affects where and how employees can receive medical care.
Why is this so important? For one thing, a robust provider network ensures employees access to a wide range of high-quality healthcare services and specialists, which is crucial for their health and well-being.
On top of that, plans with extensive local and national networks make it easier for employees to find convenient care options, whether they’re at home or traveling. Employees with existing healthcare providers or ongoing treatment plans must know they can continue seeing their current doctors without interruption or additional costs.
In-network services usually come with lower out-of-pocket costs for employees, making healthcare more affordable and preventing financial strain from unexpected medical bills. Knowing they can access a wide range of healthcare providers increases employee satisfaction and trust in their employer's benefits package.
Another key point is that access to diverse specialties within the network can be critical for employees with specific health conditions, ensuring they get the care they need without long waits or travel. A survey found that 78% of respondents gave their health plans high marks for provider networks, underscoring the value of comprehensive networks.
Finally, networks that include mental health professionals and wellness services support the overall well-being of the workforce, addressing a comprehensive range of health needs.
5) Wellness and Preventive Care Benefits
Wellness and preventive care benefits are vital in the overall health insurance package. They are not just additional perks but essential components contributing to employees' health and productivity. Employee wellness is becoming more and more important, as shown in the graphic below:
Here’s why wellness and preventive care matter:
Preventive care: Early detection of diseases through routine screenings and check-ups can prevent serious health issues, reducing long-term healthcare costs for employees and employers.
Chronic disease management: Programs that support the management of chronic conditions like diabetes or heart disease can improve your employees' quality of life and decrease absenteeism.
Mental health support: Including mental health services and stress management programs addresses the growing need for comprehensive mental wellness care in the workplace.
Employee engagement: Offering wellness programs can increase employee engagement by showing a commitment to their health and well-being. As such, you will boost loyalty and job satisfaction, shooting two proverbial birds with one stone.
Productivity: Healthy employees are generally more productive. Investing in wellness and preventive care allows you to see a positive impact on your workforce’s performance. Investing in wellness and preventive care can lead to a 66% increase in overall productivity within a company.
Healthcare cost savings: Preventive care and wellness programs can lead to significant healthcare cost savings by reducing the need for more expensive treatments and interventions down the line.
Attracting talent: A robust benefits package that prioritizes wellness and preventive care can make you more attractive to potential hires.
Insider Tip:
We advise you to actively promote and encourage participation in wellness and preventive care benefits. Educating employees on the availability and advantages of these programs can lead to higher utilization rates, fostering a healthier, more engaged workforce.
Regulatory Considerations for Employers
If you’re currently tackling the selection of health insurance options for your employees, you must consider complex regulatory obligations. These considerations are critical for compliance, ensuring employee well-being, and managing costs effectively. Let’s take a closer look below.
Compliance with the Affordable Care Act (ACA): The ACA imposes specific requirements on employers, particularly those with 50 or more full-time equivalent employees. If that’s you, you must offer affordable health insurance that provides minimum value. Failure to comply can result in substantial penalties. It's essential to understand the definitions of affordability and minimum value under the ACA and ensure your chosen plan meets these criteria.
State-specific mandates: Beyond federal regulations, you must be aware of state-specific health insurance mandates. Some states have additional requirements regarding the benefits that must be covered, contribution ratios, and eligibility criteria. These mandates can vary significantly, so they need a thorough review based on your location(s).
Mental Health Parity and Addiction Equity Act (MHPAEA): This act requires that health insurance plans offer mental health and substance use disorder benefits that are no more restrictive than the benefits for medical/surgical services. You must ensure that your chosen insurance plans comply with these parity requirements regarding financial requirements and treatment limitations.
Employee Retirement Income Security Act (ERISA): ERISA sets standards for health plans offered by private-sector employers. It requires plan fiduciaries to act in the best interest of participants, provide plan information, and establish a grievance and appeals process. Ensure your health insurance plans operate according to these principles and adequately document and disclose plan information.
Health Insurance Portability and Accountability Act (HIPAA) Privacy and Security: You must also consider HIPAA requirements when selecting and managing health insurance options. This includes ensuring the privacy and security of protected health information (PHI) and providing notices of privacy practices to employees.
Consolidated Omnibus Budget Reconciliation Act (COBRA): COBRA gives employees and their families who lose their health benefits the right to choose to continue group health benefits under certain circumstances. You must ensure that the health insurance plans they select are COBRA-compliant and that they follow COBRA notification and election procedures.
Insider tip: As you can see, selecting the best health insurance options for employees involves navigating a complex regulatory environment. This necessitates a thorough understanding of these regulations, so you may need to consult with legal and health insurance experts to ensure all regulatory considerations are met.
Choose the Right Health Insurance Plans with Confidence
In this article, we've broken down the complex world of health insurance into simple, actionable steps to help you navigate the variety of options available for your team.
When choosing the right medical plans for your employees, the key is to focus on their needs while considering your budget. Start by evaluating each plan's coverage, then weigh the costs against the benefits to find the best balance for your team.
Remember, the effort you put into selecting the right health insurance plan shows your employees that you value their well-being and contributions to your company. Take your time to digest the information we've shared, and you'll be well-equipped to make a choice that benefits everyone involved.
FAQ — Choosing the Right Employee Health Plan
What factors should you consider when choosing health insurance for employees?
Consider employee demographics, health needs, and preferences, as well as plan affordability, medical coverage options, provider networks, and compliance with legal requirements. Balancing cost-effectiveness with comprehensive coverage ensures a strong benefits package.
What percentage do most employers pay for health insurance?
On average, employers cover about 83% of premiums for single coverage and 73% for family coverage in employer-sponsored health insurance plans.
What is the difference between HMO and HMO POS?
An HMO (Health Maintenance Organization) requires members to use in-network providers and have a primary care physician (PCP), while an HMO POS (Point of Service) offers slightly more flexibility, allowing limited out-of-network care at higher costs.
What are some common pitfalls when it comes to employee medical insurance?
Common pitfalls include inadequate provider networks, failure to consider diverse employee needs, high out-of-pocket costs, and non-compliance with regulatory requirements. Poor communication about plan benefits can also lead to low employee satisfaction and utilization.
