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Employee Benefit Plans Defined

Consumer Driven Health Care Plan (CDHP)
CDHC is not so much a type of plan as it is an approach to healthcare: the burden of making cost-effective healthcare decisions is shifted from the employer to the employee. CDHC, defined narrowly, refers to health plans in which employees have personal health accounts to pay routine health care expenses directly, while a high-deductible health insurance policy protects them from catastrophic medical expenses.

Deductible Reimbursement Plan / Medical “Wrap” Plan
A employee benefit program where an employer purchases a fully insured medical plan with a higher deductible than their current benefit level, while still providing employees the same or similar benefit levels of the previous plan. An employer will lower their fixed premium dollars and would self insure the difference in plan design through a third party administrator.

For example, if a group currently has a $250 in-network deductible, they may elect to purchase a program that has a $1,000 in-network deductible (at a premium savings) and use a TPA for the deductible reimbursement. After an employee meets the first $250 of the $1,000 deductible, the TPA would reimburse the employee for any additional deductible amount incurred (up to $1,000 maximum) as each expense occurs. If employees never exceed their deductible responsibility of $250, there is no cost to the employer group.

Exclusive Provider Organization (EPO)
A more restrictive type of preferred provider organization plan under which employees must use providers from the specified network of physicians and hospitals to receive coverage; there is no coverage for care received from a non-network provider except in an emergency situation.

Flexible Spending Accounts (FSA)
Accounts are available for both medical and dependent care expenses. They are offered by employers to provide a way for employees to set aside, out of their paycheck, pretax dollars to pay for unreimbursed medical and dependent care expenses. Employees can spend the money on approved healthcare and dependent care expenses. An employer may also make contributions to a FSA.

Fully Insured Plan
A health benefit plan where the employer contracts and pays a fixed premium to an insurance company who then assumes financial and legal responsibility for all medical claims and administrative costs.

Health Maintenance Organization (HMO)
A health care system that assumes both the financial risks associated with providing comprehensive medical services (insurance and service risk) and the responsibility for health care delivery in a particular geographic area to HMO members, usually in return for a fixed, prepaid fee.

Health Reimbursement Arrangement (HRA)
A type of CDHP, HRA’s allow employee’s to use the employer's money solely for medical expenses. The funds are owned by the employer, not the employee, and they may not be withdrawn for non-medical expenditures. HRA’s are similar to FSA’s except that employees never lose their money at the end of the year because unused dollars are automatically rolled-over into the next year.

Health Savings Account (HSA)
Another form of CDHP, designed like FSA’s to help individuals pay for medical expenses on a tax-free basis, these accounts may be funded by both employee and employer and are tax deductable for each. Contributions to the HSA by an employer are not included in the individual's taxable income, and contributions to the fund amounts distributed are not taxable as long as they are used to pay for qualified medical expenses. HSA’s are open to everyone with a high deductible health insurance plan.

At the end of each year unused money stays in the accounts, earns interest tax-free, and remains available for later years.

Indemnity Plan
A type of medical plan that reimburses the patient and/or provider as expenses are incurred.

Point-of-Service (POS)
A POS plan is an "HMO/PPO" hybrid; sometimes referred to as an "open-ended" HMO when offered by an HMO. POS plans resemble HMOs for in-network services. Services received outside of the network are usually reimbursed in a manner similar to conventional indemnity plans (e.g., provider reimbursement based on a fee schedule or usual, customary and reasonable charges).

Preferred Provider Organization (PPO)
A plan where coverage is provided to participants through a network of selected health care providers (such as hospitals and physicians). The enrollees may go outside the network, but would incur larger costs in the form of higher deductibles, higher coinsurance rates, or non-discounted charges from the providers.

Self Insured Plan
A health benefit plan where the employer assumes the risk of paying for their employee’s health care expenses and pays fixed fees towards administration and stop loss protection. Some employers bear the entire risk, while the majority insure against large claims by purchasing stop-loss coverage. Claims processing and plan administration are usually administered by either an insurance carrier or a third party administrators. All types of plans (Indemnity, PPO, EPO, HMO, and POS) can be financed on a self-insured basis.

Third Party Administrator (TPA)
An individual or firm hired by an employer to handle claims processing, pay providers, and manage other functions related to the operation of health insurance. The TPA is neither the policyholder nor the insurer.

For more information on how we can serve your insurance needs, please call A.E. Mourad Agency at (248) 336-1600.
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