Group health plans, in plain language
Four plan structures cover most of the group market: PPO, HMO, HDHP with HSA, and level-funded. Each one balances cost, flexibility, and network access differently. Here is what actually sets them apart.
PPO: the flexible network plan
PPO stands for preferred provider organization. It is built around a large network of doctors and hospitals that have agreed to set rates. Employees can see any doctor in that network without a referral, including specialists.
The defining feature is choice. If an employee wants to see a doctor outside the network, the plan still helps pay, just at a lower rate. That means people keep more control over where they get care, and they rarely have to switch doctors when they join the plan.
The trade-off is cost. All that flexibility usually makes a PPO the most expensive structure for both the employer and the employee. Teams that value doctor choice above all else tend to accept that trade.
HMO: the coordinated care plan
HMO stands for health maintenance organization. Each employee picks a primary care doctor who acts as their home base. That doctor handles everyday care and sends them to specialists with a referral when needed.
The network is smaller and more local than a PPO network, and that is by design. Because the plan keeps care inside one system, it can keep costs down. Monthly costs are usually lower than a PPO, and so are many copays. A copay is the flat amount an employee pays at a visit.
The trade-off is that care outside the network is generally not covered at all, except for true emergencies. Employees who already have doctors outside the network would need to switch. HMOs work best for teams based in one area who care most about predictable costs.
HDHP with HSA: the savings-focused plan
HDHP stands for high-deductible health plan. The deductible is the amount an employee pays for care before the plan starts sharing costs. On an HDHP, that amount is higher than on a PPO or HMO, so employees carry more of the early costs themselves.
In exchange, the monthly cost is lower, and the plan can be paired with a health savings account, or HSA. An HSA lets employees set aside pre-tax money for medical expenses. The money rolls over year after year, it earns interest or can be invested, and it stays with the employee even if they change jobs. Employers can add money to employee HSAs too, which makes the higher deductible easier to handle.
This structure rewards people who are generally healthy and want to build savings. It can feel risky to employees who expect frequent care, so it often works best offered alongside education or a second plan option.
Level-funded: the hybrid plan
A level-funded plan sits between a fully insured plan and self-insurance. The employer pays the same set amount every month, just like a regular plan. Behind the scenes, that payment is split into three parts: expected claims, plan administration, and stop-loss insurance. Stop-loss insurance protects the business if claims come in much higher than expected.
Here is the interesting part. If the team stays healthy and claims come in lower than expected, part of the unused claims money can come back to the employer at the end of the year. With a traditional fully insured plan, the insurer keeps that difference.
Level-funded plans often make sense for small and mid-sized teams with generally healthy employees. The application usually involves health questions for the team, and results vary based on those answers. It is a structure worth comparing, not a guaranteed win, which is exactly why side-by-side review matters.
What to weigh when you compare
No plan type wins on every measure. The right choice depends on your team and your priorities. These are the questions that matter most.
Where does your team live?
A tight local network works for a team in one metro area. A remote or multi-state team usually needs the broader reach of a PPO network.
How does your team use care?
A team with frequent doctor visits or ongoing prescriptions may do better with lower deductibles. A younger or healthier team may prefer lower monthly costs and an HSA.
How much cost risk can you take?
Fully insured plans are fully predictable. Level-funded plans add a chance of money back with a small amount of process to manage. Decide how much variability feels comfortable.
What do employees expect?
Benefits are part of hiring and keeping people. If competitors offer flexible networks and low deductibles, a bare-bones plan may cost you in turnover instead.
One plan or several?
Many employers offer two options, such as a PPO next to an HDHP with HSA. Employees pick the one that fits their life. It adds a little admin and a lot of goodwill.
What happens next year?
Plans renew annually and terms can change. Pick a structure you can stick with, then review it each year at renewal instead of starting from zero.
See how these options get compared for a real team
Plan types are the vocabulary. The process is where the decision happens. Walk through it step by step.