Risk 3501 topic 4

Types of Products or contracts

traditional indemnity plans

traditional indemnity plans

• Role of insurer: Indemnify insured for covered losses

• In 2024, <5% of market had indemnity plans

• Full freedom to choose providers

• Insurer not heavily involved in managing losses

Most employers have ..

Managed Care Plans

(HMO,PPO,Pos-HMOs,EPOs)

increasing number of ER are offering

CDHPs

WHEN IS supplemental coverages FOR

Typically for low frequency, low severity events

WHEN is insurance best suited for catastrophic losses

low frequency, High severity

example of supplemental coverage

-Dental Insurance, Vision insurance

-these are not insurance but we call them insurance

The following are more like true insurance

Prescription drug plans

long term care insurance

Types of third party payers ( who sells)

The blues- Blue cross (IBX) and Blue shield

Blue Cross offered the first Hospital insurance plan

Pre paid hospital plan to Baylor University hospital

The blues are a

• Nonprofit organizations

• State regulation differs for Blues

• Some say regulations are easier for Blues

The blues have a social mission

-insurer of last resort

-community-rated premiums

the blues have contracts with

participating hospitals and participating physicians

what is the blues market share?

70% of the market

the blues sell

-ONLY health insurance

-no life or disability

Commerical Insurers

-not the blues

-primarily life insurers historically- eg, CiGNA, Aetna, United

what insurers dominate in PA?

Independence Blue Cross and Aetna.

Out of Pocket expenses (OOP)

-deductible

-Coinsurance

why does a health plan have deductibles and coinsurance

to control moral hazard

Most health care plans have an

Out of pocket maximum ($ amount)

what happens once you reach the out of pocket maximum?

Individual deductibles count toward the family deductible; each member only needs to meet their own deductible before benefits apply.

Many plans have seperate

OOP maximums for single vs family coverage

an insurers role is to

indemnify their insurerds

two ways that insurers indemnify people

-cash or indemnity based benefits

- Service benefits

-cash or indemnity based benefits

Insurers pay/reimburse/indemnify up to $X for a specific item/service.

(-cash or indemnity based benefits)

what if the charge of hospital exceeds $X dollars?

possibility of being balanced billed

Service benefits

insurer agrees to pay for a particular item or service

implication that there is no possibility of being balance billed

How can an insurer provide service benefits

Insurer contract: provider accepts payment + patient cost-sharing as full payment – no balance billing

Or shorter:

Insurer pays full charge – provider cannot bill extra

Who provides service benefits?

• Blues – participating providers

• HMOs – network providers

• PPOs – network providers

• EPOs – network providers

Policy Period

the time employees are insured; usually a Calendar Year, but can be any 12-month period.

Accumulation Period

Time when insured’s expenses count toward Annual Deductible or Out-of-Pocket Maximum. Usually same as Policy Period.

Benefit Period

time within Policy Period when insurer pays all or part of medical claims.

embedded deductible

Individual deductibles count toward the family deductible; each member only needs to meet their own deductible for benefits to begin.

(Holman)

HDHP $5,000 (Embedded)

Individual deductible: $5,000

Family deductible: $10,000

Rule: No single person pays more than $5,000

(Holman)

Tiered Network PPO (Embedded)

Individual Deductible: $2,500 (Max Savings) / $5,000 (Standard Savings)
Family Deductible: $5,000 (Max) / $10,000 (Standard)
Rule: Embedded — each person capped at their own deductible

(Holman)

Traditional PPO (Embedded)

Individual Deductible: $1,000
Family Deductible: $2,000
Rule: Embedded — VERY low individual cap vs family

(holman)

HDHP $1,650 →

Non-embedded family deductible. Its an aggregate deducible

Type	How it works	When insurance pays
Aggregate	One total deductible for the whole family	Only after family reaches total deductible
Embedded	Each member has an individual deductible plus a family maximum	Insurance pays for any member who meets their own deductible, even if family total isn’t met

Women's Health and Cancer Rights Act

Provides health insurance coverage for breast reconstructive surgery due to breast cancer

Limitations are often placed on the following expenses

-Hospital room and board

-dental care,vision,hearing

-ambulance service

-rental or purchase of durable equipment

Deductible

Amount you pay before insurance covers benefits.

Initial (straight) deductible

Used in major medical plans: covered person must meet deductible before benefits paid.

all cause deductible

the insured only has to meet the deductible amount once during the benefit period

reasons for increase in premiums

-tech advances

-increase in malpractice suits

-increase in mandates by ACA and certain states

-an aging population

aggregate deductible

One combined deductible amount that applies to all covered members on a family plan — the plan starts paying only after the total family deductible is met.

What is the difference between Policy Period

Policy Period = time employees are insured (usually calendar year).

How does the claims adjudication process differ between in-network and out-of-network providers?

In-network: Provider files claim electronically at point of service, patient pays cost-sharing only, no balance billing.
Out-of-network: Patient files claim, insurer reimburses UCR, payment to patient, balance billing possible, higher OOP.

If a plan has 80/20 coinsurance, a $500 deductible, and a $2,000 OOPM, and a patient incurs a $3,000 expense after satisfying the deductible with $1,500 already paid toward OOPM, how is the claim adjudicated?

• Coinsurance: 20% × $3,000 = $600

• Patient pays: $500 (OOPM $2,000 reached → $1,500 + $500)

• Insurer pays: $2,500 ($3,000 − $500)

• After OOPM met: Insurer pays 100% for remainder of benefit period

What is the difference between aggregate deductibles and embedded deductibles in family health plans?

Aggregate: Full family deductible must be met before benefits (one member can pay all).
Embedded: Individual deductibles count toward family; each pays own deductible for benefits. Once sum = family deductible, all get benefits.

For a family plan with $1,500/$3,000 deductible and embedded structure, how is a $2,000 claim adjudicated for one family member?

• Patient pays $1,500 embedded deductible

• Remaining $500 subject to coinsurance (80/20):

  • Insurer: $400

  • Patient: $100

• Post-deductible benefits start for this member

• Other family members must meet $3,000 family deductible

What are the 2025 HSA-compatible HDHP requirements for deductibles and OOPMs?

Minimum HDHP Deductible: $1,650 (individual) / $3,300 (family)
Max OOPM: $8,300 (individual) / $16,600 (family)
Critical: Embedded deductible ≥ $3,300 or plan becomes HSA-ineligible.

Why would a family HDHP with a $4,000 family deductible and $1,650 embedded deductible be HSA-ineligible in 2025?

Embedded deductible $1,650 is below minimum family HDHP deductible $3,300 → plan pays before minimum → not HSA compatible.

What are the 2025 ACA OOPM limits, and how do they interact with HDHP limits?

ACA OOPM: $9,200 individual / $18,400 family. Since 2016, family plans must have embedded individual OOPM – no one pays >$9,200. HDHPs use lower of ACA vs HDHP limit.

If an out-of-network provider charges $3,000 for a procedure with a discounted in-network amount of $2,000 and UCR of $2,500, how much does the insurer reimburse under an 80/20 plan after deductible is met?

• Provider charge: $3,000

• UCR (allowed amount): $2,500

• Insurance reimbursement (80% of UCR): $2,000

• Patient pays upfront: $3,000

• Balance bill (provider charge − UCR): $3,000 − $2,500 = $500

• Coinsurance (20% of UCR): 0.2 × $2,500 = $500

• Net out-of-pocket (balance bill + coinsurance): $500 + $500 = $1,000

What expenses count toward satisfying the Out-of-Pocket Maximum in a typical health plan?

Deductibles, coinsurance, and copayments count toward OOPM.
After reaching it, benefits cover 100% for the rest of the period.
Premiums do NOT count toward OOPM.

A plan has a $500 deductible, 80/20 coinsurance, and $2,000 OOPM. After five claims totaling $1,580 in OOP expenses, a patient incurs a $5,000 claim. What does the patient pay?

Coinsurance owed: 20% × $5,000 = $1,000 → Patient pays $420
Reason: $1,580 already paid + $420 = $2,000 OOPM reached
Insurer pays: $4,580
After OOPM: 100% covered for rest of benefit period

What is the key disadvantage of aggregate family deductibles for employees, and why were embedded OOPMs mandated by the ACA?

Aggregate deductibles: One sick family member may pay entire family deductible (e.g., $3,000) before benefits start. ACA embedded OOPMs (since 2016) protect individuals—no one pays more than individual OOPM ($9,200 in 2025) even on a family plan.

How do benefit designers balance embedded deductibles (employee-friendly) with plan costs and HSA eligibility requirements?

Embedded deductibles lower individual costs but raise plan costs. For HSA-eligible HDHPs, must be ≥ $3,300 (2025). Designers balance employee protection, HSA eligibility, and premium costs.

What happens to cost-sharing and claims processing once an insured satisfies their Annual Out-of-Pocket Maximum?

Post-deductible: Insurer pays 100% of covered expenses for rest of benefit period. Patient pays $0. In-network: Provider bills insurer directly, no payment at point of service.

Why is understanding UCR (Usual, Customary, and Reasonable) charges critical for out-of-network benefit design?

UCR sets insurer payment for OON care, not provider charges. This causes OOP exposure via balance billing (provider charge − UCR). Benefit designers should educate employees on the OON vs UCR gap to promote in-network use.

What are the key differences in employee healthcare costs between small and large firms?

Small firms (<200 workers): $7,556/year family coverage
Large companies: $5,580/year
$2,000 difference = economies of scale benefit large employer workers

What are the core plan design features of Walmart's Premiere health plan?

100% preventive care, 20 free mental health sessions/year
Copays (before deductible): $35 primary / $75 specialist
Deductible: $2,750 individual / $5,500 family
75% coinsurance after deductible
Centers of Excellence: surgery, cancer, fertility no cost

How do deductible structures vary across Fortune 5 companies, and what does this reveal about plan design philosophy?

• Amazon: $300/$900 – low barrier, not HSA-eligible

• ExxonMobil: $300–$500/$600–$1,000 – moderate

• Walmart: $2,750/$5,500 – high cost-sharing

• Trade-off: premium costs, affordability, benefit richness

• HDHP: 32% offer, 28% choose – employees prefer flexibility (PPO) over lower costs (HDHP)

What innovative benefit design strategies distinguish top Fortune 5 employers from standard plans?

• HSA contributions (Apple: $750/yr → lower deductible)

• On-site clinics/fitness (reduce costs & access barriers)

• Wellness incentives (UnitedHealth: up to $1,750/family)

• Zero-copay specialty programs (diabetes, fertility, Centers of Excellence)

• Enhanced mental health (Walmart: 20 free sessions vs. Amazon: 5)

How do Centers of Excellence programs combine cost-containment with quality improvement in benefit design?

Direct employees to high-quality, high-volume providers for complex procedures
100% employer-paid → no employee cost, encourages use
Negotiated rates → lower costs, remove financial barriers
Covers high-cost services: surgery, cancer, fertility, bariatrics

What does the universal 100% preventive care coverage across all Fortune 5 companies demonstrate about modern benefit design principles?

Value-based design: removes cost barriers for high-value services (screenings, vaccinations, checkups), reduces long-term costs, addresses behavioral hazard. Standard for competitive employers.

How do mental health benefit structures vary across top employers, and what does this signal about prioritization?

Walmart: 20 free sessions/person/year (most generous)
Amazon: 5 free sessions/issue/year
ExxonMobil: 75–80% coverage with cost-sharing
Variation: From zero-barrier access to traditional cost-sharing, reflecting strategic priorities and cost tolerance

What specialty benefits and lifetime maximums reveal about managing high-cost, lower-frequency services?

ExxonMobil: $25K lifetime max for bariatric surgery
• Multiple employers: Fertility coverage (treatments, egg-freezing, specialists)
→ Shows targeted benefit management — access to high-value care with caps on elective/specialty costs

How do wellness programs with financial incentives (like UnitedHealth's Rewards) exemplify the shift in benefit design philosophy?

• Up to $1,750 family incentives for participation
• Moves from passive coverage → active engagement
• Uses behavioral economics to encourage prevention
• Reduces future claims costs via early intervention & healthier behaviors

Why do top employers offer multiple plan options (Walmart: 8 plans, Amazon: 7 plans), and what benefit design challenges does this create?

Accommodates diverse needs: young/healthy, families, chronic conditions
• Employee choice & risk segmentation
• Geographic variation in networks & costs
• Challenges: complex decisions, adverse selection, admin burden

What are the three main traditional health insurance plan types and their key characteristics for small business benefit design?

• HMO: Low cost, network-only, PCP referrals. Best for primary care–focused employees.

• PPO: High cost, no referrals, out-of-network OK (higher cost). Best for complex needs/travelers.

• HDHP + HSA: Low premiums, high deductible, tax-free savings, portable. Best for young/healthy users.

What economic factors should small businesses consider when designing health benefits in 2025?

• 9% projected cost increase for employers (50–499 employees)

• 47% ROI for companies 100+ EEs (productivity, lower medical costs, tax benefits)

• Companies 50+ EEs can negotiate better rates via traditional plans

• Must balance affordability vs talent attraction/retention

How do hybrid and alternative plan designs provide flexibility for small businesses?

• Point of Service (POS): HMO/PPO hybrid – lower cost than PPO, more flexible than HMO, referrals required

• Exclusive Provider Organization (EPO): No referrals like PPO, network-only like HMO

• Health Reimbursement Arrangement (HRA): Employer-funded account for qualified expenses, not portable

• Individual Coverage Health Reimbursement Arrangement (ICHRA): Employer-subsidized individual marketplace plans, employees choose coverage

What are the key differences between self-funded plans and traditional plans for small business benefit design?

Self-funded: Employer pays claims directly (not premiums), uses third-party administrator, needs stop-loss insurance, offers cash savings but higher risk.
Best for: Large firms or fast-growing startups with strong cash flow and risk tolerance.

When should small businesses consider Professional Employer Organization (PEO) arrangements for health benefits?

Too small for competitive rates → PEO pools employees for buying power
Provides Fortune-100 benefits at lower cost
Handles admin & tax liabilities
Best for: Growing startups seeking enterprise-level benefits

What five key considerations should guide small business health insurance plan selection?

Cost: Employer budget + employee contribution
Preferences: Coverage types employees want
Demographics: Age, health, care needs
Regulations: Legal requirements (50+ employees must offer affordable coverage)
Scalability: Can plan expand with company growth

How does the Health Savings Account (HSA) component of High-Deductible Health Plans create unique value for both employers and employees?

• Tax-free contributions, interest, withdrawals
• Portable — stays with employee after job changes/retirement
• Encourages cost-conscious care
• Lowers employer premiums via high deductibles
• Long-term savings for future healthcare costs

What are the trade-offs of using Individual Marketplace + Individual Coverage HRA versus traditional group plans for small businesses?

Marketplace + ICHRA
Advantages: No direct plan management, employee choice, possible tax credits, good for distributed workforce
Disadvantages: Higher premiums (no group rates), more administrative burden on employees
Best for: Employers who can’t afford group plans or prefer no direct benefits management

How do network restrictions differ across plan types, and what does this mean for benefit design strategy?

• Most restrictive: HMO (network only + PCP gatekeeper), EPO (network only, no referrals)

• Moderate: POS (network preferred, referrals for specialists)

• Least restrictive: PPO (out-of-network option, higher cost)

• Design: Match restrictions to mobility, provider preference, cost tolerance

What administrative and financial risk factors must small businesses evaluate when considering self-funding?

Direct claims payment: requires strong cash flow
Third-party administrator: adds complexity/cost
Stop-loss insurance: needed for catastrophic protection
Costs: potential savings but unpredictable
Suitability: for companies with financial stability and risk management

What do employee preference surveys reveal about health insurance as a benefit priority compared to other benefits?

• #1 benefit: 67% of employees, 68% of employers rank healthcare coverage first

• 87% consider it valuable

• Retirement plans: 34% rank first

• Paid time off: 31% rank first

• Small companies (20-49): 74% see as important hiring factor

How does generational cohort affect the value employees place on health insurance benefits?

Boomers/Gen X: 67% rank healthcare highly
Younger gens: 57% rank healthcare highly
Under 35: 25% cite mental health as top concern post-pandemic
Older employees: value healthcare more (higher use, chronic conditions)

What are the four key features employees want in their health plan design according to Marathon Health research?

• Keep primary care provider (41% accept telehealth/virtual care)

• Affordable premiums + low out-of-pocket costs (via HSAs/FSAs)

• Critical illness insurance (employer offering ↑ from 31% → 48%, 2016–2020)

• Mental health access (Top concern <35, but hard to access resources)

What voluntary benefits show the greatest demand increases, and what does this reveal about benefit design priorities?

Highest 5-Year Demand Increases:

• Critical Illness: +45%

• Long-Term Disability: +44%

• Short-Term Disability: +42%

• Dental: +40%

• Vision: +36%

Trend: Shift toward financial protection for catastrophic events and income replacement

What are the three most popular health plan types by employer offering and employee enrollment rates?

PPO: 59% employers offer, 40% employees choose
HMO: 50% offer, 38% enroll
HDHP: 32% offer, 28% choose
Insight: Employees prefer flexibility (PPO) over lower costs (HDHP).

What non-coverage factors do employees prioritize according to McKinsey research on health benefits?

Coverage understanding: Need tools to navigate system, find providers, and address sensitive issues – simple, clear communication essential.

Voluntary benefits: Dental, vision, disability, critical illness – demand ↑36–45% over 5 years. Highlights importance of benefit education and supplemental protection beyond base coverage.

How does the cost of healthcare per person ($13,000 in 2021) impact benefit design strategy for employers?

• Healthcare = largest benefit expense for employers
• In competitive job market, can determine job acceptance
• Requires balance: employer cost control vs employee affordability
• Justifies investment: 67% rank it #1 benefit

What does the 41% acceptance rate for telehealth reveal about modern benefit design opportunities?

Employees prefer virtual care while keeping primary provider
→ Lower-cost care, better access for remote workers
→ Must balance with continuity and provider relationships

Why is mental health access a critical design consideration despite employer acknowledgment?

• 25% of workers under 35 cite as top concern post-pandemic

• Employers prioritize, but employees find resources hard to access

• Gap between benefit offering and actual use

• Needs focus on network adequacy, wait times, benefit communication

What strategic lesson does the PPO dominance (40% enrollment despite higher costs) teach benefit designers?

• Employees prefer flexibility over cost savings

• Network breadth & provider choice > premium differences

• High-deductible cost-shifting may face resistance

• Design strategy: offer multiple plan tiers for diverse preferences & risk tolerance