Chapter 05 – Employer-Sponsored Health Insurance Programs
Chapter 05 Employer-Sponsored Health Insurance Programs
I. Learning Objectives (use PP 5.2)
2. Origins of employer-sponsored health insurance programs
4. Differences between fee-for-service plans and managed care plans
6. The basics of health care reform under the Patient Protection and Affordable Care Act
of 2010
7. Disincentives to offering health care benefits to retirees
II. Defining and Exploring Health Insurance Programs
A. Overview (use PP 5.3)
1. Health Insurance covers the costs of a variety of services that promote sound physical
and mental health, including
a. Physical examinations
2. Insurance policy: specifies the amount insurance companies will pay for particular
health related services
3. Broad classes of insurance programs
a. Fee-for-service plans
4. Health care in the United States is classified as a multiple payer system
a. There is more than one party responsible for covering the cost of health care
5. A multiple payer system stands in contrast to a single payer system in which the
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6. Single payer systems are often referred to as universal health care systems because
the government ensures universal access to high quality health care to all its citizens
irrespective of ability to pay
B. Origins of Health Insurance Benefits (use PP 5.4)
1. Predecessor to company-sponsored insurance benefits appeared in the late 1800s for
2. Response to The Great Depression in the 1930s
a. Social Security Act of 1935
2. Response to WW II
a. Wage freezes expanded use of benefits to promote productivity and increase
morale
b. Welfare practices established
i. “Anything for the comfort, and improvement, intellectual or social, of the
employees, over and above wages paid, which is NOT a necessity of the
industry NOT required by law”
ii. Health insurance coverage dropped after end of war
3. 1960s
4. 1970s
5. 1980s
a. Unions made concessions on wages and benefits for job security
b. Decline in manufacturing, increase in service and information industries eroded
C. Health Insurance Coverage and Costs (use PP 5.5 & 5.6)
1. Both employers and employees place significance on employer-sponsored health
insurance benefits
3. Companies stand to gain in several ways
a. Benefit to companies for providing coverage
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c. Access to health insurance vary by
4. Costs
$367.18 per employee
$853.41 per employee
e. Since the 1980s, many insurance plans have extended family coverage to
unmarried opposite sex or same sex domestic partnerships
i. Evidence of living together
ii. Financial interdependence
iii. Joint responsibility for each other’s welfare
D. Individual vs. Group Insurance Coverage
1. Individual coverage (use PP 5.7)
a. Extends insurance protection to an employee, possible family dependents
2. Group coverage
a. Covers employees and dependents under a single contract
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iii. Trust funds
c. Underwriting by Experience Ratings
1. Main actions (use PP 5.9)
a. HMOA (Health Maintenance Organization Act of 1973)
2. HMOA
a. HMOs regulated at both the federal and state levels
b. Amended in 1988 to encourage employers to offer HMOs as a benefits choice
c. Requires employers to offer HMOs, if they qualify to minimum wage provisions
of Fair Labor Standards Act (FLSA)
d. HMOs must follow Department of Health and Human Services guidelines
e. Dual Choice Requirement
i. Stated that employers with at least 25 employees had to offer an HMO as
alternative to fee-for-service plan
ii. Eliminated in 1995, so employers could negotiate rates based on expected
experience of employees and so employers could NOT discriminate
(premium co-pay) against employees who chose an HMO
iii. Promotes more equal competition because employers may not financially
discriminate against employees who choose an HMO option and must make
the same contribution toward an HMO premium as with other plans
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3. ERISA
a. Focuses on pension and welfare plans
b. Four relevant parts in Title I
i. Reporting and disclosure
4. American with Disabilities Act of 1990
a. Prohibits illegal discrimination in employment based on a disability
5. Patient Protection and Affordable Care Act of 2010
a. Was enacted on March 23, 2010
b. Is a comprehensive law that has been in the implementation phase since its
passage
c. Applies to a multitude of issues surrounding health care in the U.S.
d. PPACA is expected to extend coverage to more people by
i. Providing incentives to businesses to offer health insurance or by imposing
e. Many provisions of the law will have a broad impact on employment-sponsored
health insurance plans.
f. Essential health benefits must include items and services within at least ten
categories
i. Ambulatory patient services
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vi. Prescription drugs
6. Tax Regulations
a. IRC allows deductions for providing health insurance coverage (more in Chapter
3)
b. Rules different for insurance plans and self-funded plans which
B. State Regulations (use PP 5.10)
1. Covers fee-for-service plans or managed care arrangements
3. Four areas of responsibility
a. Extending coverage to particular services, treatments, and health conditions
4. Laws vary from state to state
5. National Association of Insurance Commissioners addresses insurance issues for each
state
C. Health Insurance Programs
1. Fee-for-service plans, managed care plans, and consumer-driven health care differ in
two ways
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IV. Fee-for-Service Plans
A. Three forms of health insurance programs
1. Fee-for-services
3. Point-of-service plans
B. Fee-For-Services (use PP 5.11)
2. Eligible expenses include:
3. Two types
a. Indemnity
4. Three Types of Medical Expense Benefits (use PP 5.12)
a. Hospital, surgical, physician charges
b. Hospitalization benefits
i. Inpatient; room & board, & other related benefits (i.e., physical therapist,
5. Features of fee-for-service plans
a. Common stipulations to control costs (use PP 5.13)
i. Deductible
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b. Deductibles
i. Out-of-pocket expenses paid by employee, before coverage kicks in
ii. Based on a fixed amount, or as a percentage of income
iii. Generally applicable to each type of coverage (i.e., hospital, surgery, doctor)
c. Coinsurance
i. The percentage of covered expenses paid by medical plan after deductible is
met
ii. Insurance company pays the difference between the total covered expenses
amount and the coinsurance amount
d. Out-of-pocket maximum
i. Generally based on yearly expenses using a calendar year, or the anniversary
date of coverage
ii. Designed to protect employees from catastrophic medical expenses, or
recurring episodes of same illness
e. Preexisting condition clauses
iii. Insurance companies have the right NOT to pay for unauthorized hospital
admissions or extended stays
g. Second surgical opinions
i. Designed to reduce unnecessary surgeries
ii. Required by some plans
6. Major Medical Insurance Plans: Supplements and Comprehensive
a. Designed to add to or replace the following medical benefits of a plan
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c. Supplemental Major Medical
i. Acts as a backup to basic coverage by covering expenses that exceed
maximum benefit limits
V. Managed Care Plans
A. 3 Common Forms (use PP 5.15)
1. Health Maintenance Organizations (HMOs)
3. Point-of-Service (POSs)
B. HMOs (use PP 5.16)
1. Provides prepaid medical services for
a. Fixed periodic enrollment fees
2. Either fully covered or requires copayments (nominal payments by participants as a
3. Two main types of HMOs
a. Prepaid Group Practices
4. Prepaid Group Practices
a. 3 forms
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iii. Establish contracts with specialists
iv. Contract physicians compensated according to a capped fee schedule
5. Individual Practice Associations
a. Partnerships or other legal entities to arrange health care services
6. Features of HMOs (use PP 5.17)
a. Similar to fee-for-service plans
i. Coinsurance
ii. Out-of-pocket maximums
iii. Preexisting condition clauses
b. 3 differences from fee-for-service plans
i. HMOs offer prepaid services, fee-for-service operate on a reimbursement basis
c. Primary Care Physicians
i. Usually general or family practitioners
ii. Determine when patients need specialists’ care
d. Roles of primary care physicians include
i. Making initial diagnosis and evaluation of patient’s condition
ii. Identifying applicable treatment protocols and practice guidelines
e. Copayments
i. Most copayments apply to physician’s office visits, hospital admissions,
prescription drugs, and emergency room services
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ii. Usually $10 – $15 per office visit, $50 – $150 per hospital admission and
emergency room visit
iii. For outpatient services the fees are generally expressed as a fixed percentage
of the fee for each visit or treatment, usually 15% – 25%
C. Preferred Provider Organizations (PPOs) (use PP 5.19 & 5.20)
1. A select group of health care providers agree to provide services at a higher level of
reimbursement than that of fee-for-service plans
2. Physicians
3. Employer, insurance company, or third-party administrators guarantee physicians
4. Exclusive Provider Organization
5. Features
a. Out-of-pocket maximums and coinsurance features similar to fee-for-service
b. Nominal copayment features are similar to HMOs.
c. Preexisting condition clauses, preadmission certification, second surgery opinions,
and maximum benefits limits similar to HMOs & fee-for-service plans
D. Point-of-Service Plans (use PP 5.21)
1. Features similar to both fee-for-service plans & HMOs
3. Employees can receive care outside the network (at a higher price) like fee-for-service
plans
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VI. Consumer-Driven Health Care (use PP 5.22)
A. Overview
2. According to U.S. BLS, companies further sought ways to control the cost of health
insurance
4. Consumer-driven health care plans (CDHPs) combine a pretax payment account with
a high-deductible health plan
6. Oftentimes, CDHPs are referred to as three-tier payment systems
a. A pretax account that allows employees to pay for services using pretax dollars
7. High-deductible health insurance plans (use PP 5.23)
a. Flexible spending accounts (FSAs)
B. Flexible Spending Accounts
1. Permit employees to pay for specified health care costs that are NOT covered by an
employer’s insurance plan
2. Qualifying expenses include individual’s out-of-pocket costs for
a. Medical treatments
b. Products, or
3. These generally do NOT qualify for reimbursement
a. Health, life, or long-term care insurance premiums paid for by an employer, or
5. A drawback is the “use it or lose it” provision, which means that if employees
overestimate their medical expenses, they lose the excess contributions