Putting Health Options in Alphabetical Order

This open-enrollment season, many employees will have to decipher a confusing alphabet soup of options. Do you stick with an HMO, a PPO or a POS? Or should you switch to an increasingly popular CDHP, which can include an HDHP paired with an HSA or an HRA?

As employers struggle to contain health-care costs by paring their contributions to employee health coverage, that alphabet soup is here to stay. So you will need to figure out what these options mean to you as a consumer.

I'll start with the increasingly common CDHPs, or consumer-driven health plans, which are anything but driven by consumers because if they were, they'd be much easier to understand.

Let's not kid ourselves: These plans are being driven by employers desperate to reduce their health-care contributions. Employers and health-care companies selling these plans argue that they give consumers a greater opportunity to control what they spend. Only time will tell.

A CDHP allows you to choose you own health-care providers, although out-of-network services may cost more. Depending on the account, unused dollars can be rolled over to the next year .

Within a CDHP, you can have a high-deductible health plan, or HDHP, which when you boil it down is really a catastrophic insurance plan. The premiums are low, but in some cases you may have to pay several thousand dollars of your health-care expenses before your plan pays any benefits. The deductibles are at least $1,050 for single coverage and $2,100 for family coverage.

An HDHP can be coupled with a health savings account, or HSA, which is a tax-advantaged account that allows you to set aside money before taxes to help with medical expenses. The total annual out-of-pocket expenses, not counting premiums, can be as much as $5,250 for a single person or $10,500 for a family.

A health reimbursement arrangement, or HRA, is an employer-paid benefit in which an employer agrees to cover health-care costs up to a set amount. The funds, which can range from $1,000 for singles to $3,000 for families, are available to pay for deductibles, co-payments and other qualified medical expenses. Once the allotted money is spent, you cover health-care costs at 100 percent until you reach your deductible, typically $1,000 for single coverage and $2,000 for a family. Once the deductible has been met, another level of co-payments kicks in, and that can vary depending on the plan established by your employer. Out-of-pocket expenses at this point are usually capped.

As with all CDHPs, the cost of preventive care, such as annual physicals, immunizations, and OB/GYN visits, may be completely covered and won't count against your health-care account.

Let's move on to some of the more-familiar options. A health maintenance organization, or HMO, requires you to select a primary care physician from a network of physicians who work for the HMO. That physician has to refer you to a specialist, should you need one. Depending on the plan, an HMO is typically the cheapest, usually requiring a co-payment for most visits. One of the biggest disadvantages of an HMO is that you are limited to the physicians and specialists in the plan.

A preferred provider organization, or PPO, allows you to choose any provider you want. With this plan, you get higher benefits for using preferred or in-network physicians and hospitals. PPOs generally have slightly higher premiums for comparable benefits or require that you pay slightly more out of pocket than HMO plans.

A point-of-service plan, or POS, is a hybrid of an HMO and PPO. With this plan, you use both in-network and out-of-network providers. Like an HMO, you choose an in-network doctor to be you primary care physician, and like a PPO, you can go outside of the network for health-care services. However, if you choose an out-of-network provider, you'll get a lower benefit.