Why do HMO’s Cost Less?—Is It Worth it For My Company?
HMOs are increasingly becoming a popular option for employers and employees. The Kaiser Family Foundation reports that employers pay as much as 82% for their employer-sponsored plans. While most companies offer at least two plan options for employees, determining which one is best for their team can be difficult. Add to that high costs for PPO plans and other benefits, and health insurance can quickly turn into a budget crunch.
But what about HMO’s? Most employees and employers are familiar with their basic functioning, but much of what is reported spins them in a poor light.
How might HMO’s prove beneficial for small and large companies? How might employees benefit from having them? What are the downsides of offering an HMO?
HMOs What Are They and How Do They Work?
HMO stands for Health Maintenance Organization. They require you to select a Primary Care Physician (PCP) in the network. That doctor is responsible for referring you to in-network specialist and hospitals as needed. Each time you require medical assistance you must see your PCP first.
After that initial visit, they determine where to send you next if your medical issue requires further treatment. HMO’s also do not cover out-of-network medical care except for extreme emergencies. You are also required to contact your PCP as soon as possible to inform them of your emergency.
Patients who already have a PCP whom they trust and prefer, might not like HMO plans simply because they are no longer allowed to use that physician without paying out of pocket. There is also typically no limit to how much your health-care costs are per year under the plan. Depending on the plan, specialized treatment may or may not be covered.
Additionally, instead of deductibles, HMO plans frequently charge a minimum amount or copayment for each doctor’s visit. That copayment may be as little as $5 or as much as $50 for visits. This amount is also applied to prescription medications, making more serious illnesses more expensive as the cost can be dictated by the percentage.
Now that you know the basics of what an HMO is, let’s talk about the benefits it offers to both employees and employers.
Benefits for Employees
The greatest benefits of an HMO is cost-savings. HMO’s dictate what providers can and cannot charge. This eliminates unnecessary spending and doctor’s visits along with outrageous costs for standard services. Employee’s benefit in the form of lowered copayments for the services they receive. Healthy families and single folks benefit most from HMO plans.
Preventive health care is another huge bonus for using HMO’s. HMO’s cover virtually all preventive health care services. The end goal is to keep patients happy and healthy so they avoid higher and unnecessary medical costs down the road. HMO’s also attempt to avoid high costs by rewarding doctors for providing only the necessary medical coverage required to keep patients healthy.
HMO’s, despite what some might say, have a healthy network that allows employees to select the best PCP for them and their families. Additionally, low prescription costs and all basic preventive care allow employees to take their health into their own hands.
Dental, vision and other wellness benefits can be offered separately, which further lowers costs since most employees will opt to keep costs low rather than tack on unnecessary coverage.
HMO Costs for Employers
HMO’s cut costs by as much as 20% of the final premium. Additionally, employers aren’t limiting their employees to certain doctors or providers, as there are usually thousands of capable and qualified physicians. Lower monthly premiums require lower employer contributions, which overall lowers the costs for employers.
Another factor many don’t consider is claims data. If employer groups are hoping to explore their options for level-funded or self-funded plans in the future they need solid claims data to get a better rate. HMOs provide some of the best claims data because they are cost-containment focused. Physicians focus on the quality of the treatment instead of offering unnecessary services thereby reducing claims.
PPO’s, on the other hand, often result in higher claims data simply because of the vetting process for each claim. HMO’s make it more difficult for employees to be subject to fraud in any way as well. Fewer claims also equal a better claims experience, which in turn leads to better rates for level funded or self-funded plans.
In terms of costs for employers, while they may have to pay upwards of 90% for the costs, HMOs are considerably less costly on premiums. Also, if employees would like to add out-of-network care and opt not to use the PCP in-network, they can still do so but will be paying out-of-pocket. Employers are not responsible for paying the difference or paying for service, neither is the HMO.
The downside to offering an HMO plan is that many employees are looking to work for companies that provide comprehensive insurance benefits. HMO’s don’t include vision and dental, and the copayments can increase for specialized services. Additionally, there are fewer drugs on their formulary and the process of seeing a specialist can be frustrating at times. In terms of keeping employees happy, an HMO doesn’t always do the best of jobs.
Should Your Company Offer an HMO?
The answer to that question should be based on several factors. These include:
- Analysis of your group. Do they have specialized requirements that make an HMO more frustration than it is worth?
- Claims Data. Do you hope to offer level-funded or self-funded plans in the future? If so, an HMO is a good option.
- How important are benefits to your company and employees?
- What are other plan options you might want to provide to your employees?
While a PPO always seems like the best route to take, simply because employees have greater options, it can cost far more than it is worth. PPO’s can climb in expenses because there is no cost-containment. However, HMO’s via employer-sponsored plans can also leave employees dissatisfied with a lack of control over their own health. Premiums are more affordable, but they leave something to be desired in the realm of specialized services.
Does all this have your head scratching yet? If so, we want to help.
As Healthcare Consultants, we strive to provide high-quality advice your company can count on. HMO’s and PPO’s are complicated. We’ll work with you to demystify the selection process and give you a greater overview of what you and your employees can expect from each plan.