Medical Plan Type, Fee Arrangement, and Financial Intermediaries, 2006
by Frank Conlon
Bureau of Labor Statistics

Originally Posted: February 27, 2007

According to the National Compensation Survey (NCS)¹, in March 2006, 52 percent of private sector workers participated in an employer provided medical plan. The fee arrangements in such plans generally fall into one of two types--indemnity and prepaid. BLS defines an indemnity plan, also known as a "fee-for-service" plan, as a medical plan that reimburses the patient or the provider as expenses are incurred. By contrast, prepaid plans are Health Maintenance Organizations (HMOs) whose enrollees pay a set fee whether or not costs are incurred. Approximately 55 percent of participating workers are covered by indemnity plans, while about 29 percent are covered by prepaid plans.² (See table 1.)

A closer look at the data reveals interesting patterns. For example, 9 in 10 participants in indemnity plans are restricted in their choice of service providers. (See table 2.) One such restriction is made through Preferred Provider Organizations (PPOs). PPOs have contracts with certain medical providers known as "designated" or "preferred" providers. The employee may visit any provider he or she chooses, but the reimbursement is more generous when the employee visits one of the designated or preferred providers. Even more restrictive are Exclusive Provider Organization (EPO) plans, in which enrollees must use the EPO providers exclusively in order to receive coverage.

Even when the data are broken down by occupation, industry, employment size, or other variables, it generally remains the case that about 9 in 10 participants in indemnity plans are restricted in their choice of providers. There was one notable exception: Union workers are more likely to be in a plan with unrestricted choice of providers than are nonunion workers. (See chart 1.)

Among employees who participate in employer-provided medical plans, 29 percent are enrolled in prepaid plans (HMOs). According to the BLS definition, prepaid medical insurance plans come with one of two types of restrictions on choice of service providers: Participants can use network providers only (applicable to 3-in-5 prepaid plan participants), or they can use nonnetwork providers but face financial disincentives.

Doctor visits, hospital stays, operations, and all other healthcare services are provided by members of the HMO. Generally, all health services are managed by a primary care provider who is also under contract with the HMO. The insured may change providers, as long as the new providers are members of the HMO network. If the insured opt to go outside the network for health services, they typically will not be covered under the plan (unless they were previously authorized by the primary care provider).

As can be seen in table 3, among private industry workers enrolled in prepaid healthcare plans, those with no option to go outside the network outnumber those with the option to go outside the network by nearly a 3-to-2 margin. Indeed, among the various worker characteristics shown in the table, only nonmetropolitan workers were more likely than not to have the option of obtaining services from providers who are not part of the network.

NCS data also provide estimates on financial intermediaries for indemnity plans. In this context, a financial intermediary is defined as the entity responsible for paying the costs of medical and administrative services to healthcare providers on behalf of the employer and its plan members. Employer-provided medical insurance plans are classified as either self-insured or not self-insured. Self-insured plans are those for which employers directly assume the cost of health insurance payouts for their employees. Plans that are not self-insured are financed through insurance carriers or other independent carriers. (See table 4.)

Approximately 45 percent of workers employed by organizations with 100 or more employees were covered under self-insured plans, while only 17 percent of workers in establishments with fewer than 100 employees were covered under self-insured plans (See chart 2.) Another way to look at this issue is to note that about 3 out of 4 participants in self-insured plans work in larger establishments--those with 100 or more employees.

NOTE: Standard errors have not been calculated for NCS benefits estimates. Consequently, none of the statistical inferences made in this report could be verified by a statistical test.

Frank Conlon
Economist, Division of Compensation Data Analysis and Planning, Office of Compensation and Working Conditions, Bureau of Labor Statistics.
Telephone: (202) 691-6258; E-mail: Conlon.Frank@bls.gov

Notes

1 The National Compensation Survey (NCS) provides comprehensive measures of occupational earnings, compensation cost trends, benefit incidence, and detailed benefits plan provisions. For more technical information on these data, see the technical note in National Compensation Survey: Employee Benefits in Private Industry in the United States, March 2006, Summary 06-05 (Bureau of Labor Statistics, August 2006. pp. 33-35.

2 In the March 2006 NCS survey, 16 percent of workers covered by employer-provided medical plans were in plans coded as "not determinable." The data used in this article, which come from the NCS March 2006 summary database, may differ from those published in the detailed provisions bulletin due to sample, collection method, timing, and other factors.