Types of Health Insurance Plans

Selecting the right health insurance plan requires understanding the trade-offs between cost, flexibility, and provider access. This section covers the major plan types—HMO, PPO, EPO, POS, and HDHP—along with the tax-advantaged accounts (HSA, FSA, HRA) that can help reduce healthcare costs.

Managed Care Plan Types

Managed care plans use networks of healthcare providers to control costs while maintaining quality. The main distinctions involve provider access, referral requirements, and out-of-network coverage.

Health Maintenance Organization (HMO)

An HMO provides care through a network of doctors, hospitals, and other providers. HMOs emphasize preventive care and typically have the lowest premiums.

Key Characteristics:

• Primary Care Physician (PCP) required — You must choose a PCP who coordinates your care
• Referrals required for specialists — Your PCP must refer you to see specialists
• In-network only — Generally no coverage for out-of-network care except emergencies
• Lower premiums — Cost savings come from network restrictions
• Low or no deductibles — Focus on copays rather than deductibles

Best for: Budget-conscious individuals who prefer predictable costs and don't need frequent specialist visits or out-of-area coverage.

Preferred Provider Organization (PPO)

A PPO offers more flexibility than an HMO, allowing you to see any provider without referrals, both in and out of network.

Key Characteristics:

• No PCP requirement — You can see any doctor without a referral
• No referrals needed — Direct access to specialists
• In-network and out-of-network coverage — Higher cost-sharing for out-of-network care
• Higher premiums — Flexibility comes at a cost
• Higher deductibles — Typically have deductibles and coinsurance

Best for: Those who want flexibility to choose providers, see specialists without referrals, or need coverage while traveling.

Exclusive Provider Organization (EPO)

An EPO combines elements of both HMOs and PPOs. Like a PPO, you don't need referrals; like an HMO, you generally must stay in-network.

Key Characteristics:

• No PCP or referral requirements — Direct access to any in-network provider
• In-network only — No coverage for out-of-network care except emergencies
• Moderate premiums — Between HMO and PPO pricing
• Moderate flexibility — More freedom than HMO, less than PPO

Best for: Those who want to avoid referrals but can stay within a provider network.

Point of Service (POS)

A POS plan is a hybrid of HMO and PPO features. You have a PCP and need referrals, but can go out-of-network at higher cost.

Key Characteristics:

• PCP required — Must choose a primary care physician
• Referrals required for specialists — Like an HMO
• Out-of-network coverage available — Like a PPO, but at higher cost
• Moderate premiums — Falls between HMO and PPO

Best for: Those who want PCP coordination but occasionally need out-of-network access.

Plan Type Comparison

High-Deductible Health Plans (HDHPs)

A High-Deductible Health Plan (HDHP) is a health plan with higher deductibles and lower premiums than traditional plans. HDHPs are designed to work with Health Savings Accounts (HSAs), providing tax advantages for healthcare expenses.

HDHP Requirements for 2025 and 2026

To qualify for HSA contributions, an HDHP must meet specific IRS thresholds that are adjusted annually for inflation:

Key HDHP Rules:

• The plan cannot pay benefits (except for preventive care) until the minimum deductible is met
• Preventive care can be covered at 100% without meeting the deductible
• For family coverage, one family member's expenses can satisfy the entire family deductible, or deductibles may be structured per individual

Best for: Healthy individuals who rarely use healthcare services and want to maximize tax-advantaged savings through an HSA.

Tax-Advantaged Health Accounts

Health Savings Account (HSA)

An HSA is a tax-advantaged savings account available only to individuals enrolled in a qualifying HDHP. HSAs offer triple tax benefits:

1. Tax-deductible contributions — Contributions reduce taxable income (or are pre-tax through payroll deduction)
2. Tax-free growth — Investment earnings grow tax-free
3. Tax-free withdrawals — Distributions for qualified medical expenses are tax-free

HSA Contribution Limits 2025 vs. 2026

HSA Eligibility Requirements:

• Must be enrolled in a qualifying HDHP
• Cannot be enrolled in Medicare
• Cannot be claimed as a dependent on someone else's tax return
• Cannot have other non-HDHP health coverage (some exceptions for dental, vision, disability, and certain permitted insurance)

Qualified Medical Expenses Include:

• Doctor visits, hospital services, prescription drugs
• Dental and orthodontic expenses
• Vision care (exams, glasses, contacts)
• COBRA premiums and long-term care insurance premiums
• Medicare premiums (after age 65)
• Over-the-counter medications (no prescription needed since 2020)

Non-Qualified Expenses:

• If under age 65: Subject to income tax PLUS 20% penalty
• If age 65 or older: Subject to income tax only (no penalty)
• Cosmetic surgery is never a qualified expense

Flexible Spending Account (FSA)

A Flexible Spending Account (FSA) is an employer-sponsored account that allows pre-tax contributions for healthcare expenses. Unlike HSAs, FSAs do not require HDHP enrollment.

FSA Contribution Limits 2025 vs. 2026

*The One Big Beautiful Bill increased dependent care FSA limits starting in 2026.

Key FSA Rules:

• Use-it-or-lose-it — Unused funds are forfeited at year-end (subject to grace period or carryover provisions if offered by employer)
• Employer choice — Employers may offer carryover (up to $680 in 2026) OR a 2.5-month grace period, but not both
• Not portable — FSA funds typically forfeit when you leave employment
• Available immediately — The full annual election is available on day one of the plan year

Healthcare FSA vs. HSA Comparison:

Health Reimbursement Arrangement (HRA)

An HRA is an employer-funded account that reimburses employees for qualified medical expenses and sometimes health insurance premiums.

Key HRA Characteristics:

• Employer-funded only — Employees cannot contribute
• Tax-free reimbursements — Qualified expenses are tax-free to employees
• Employer designs the plan — Determines eligible expenses and rollover rules
• Various types — ICHRA, QSEHRA, GCHRA, and retiree HRAs each have different rules

Individual Coverage HRA (ICHRA):

• Allows employers to reimburse employees for individual market health insurance premiums
• Employees choose their own coverage on the individual market or ACA Marketplace
• No annual contribution limit
• Makes employees ineligible for ACA premium tax credits

Choosing the Right Plan Combination

On the CFP Exam

Expect questions testing:

• Differences between HMO, PPO, EPO, and POS plan structures
• HDHP minimum deductible and maximum out-of-pocket requirements for HSA eligibility
• HSA contribution limits and catch-up provisions
• Triple tax advantage of HSAs
• FSA use-it-or-lose-it rules and carryover limits
• HSA eligibility requirements (HDHP enrollment, no Medicare, etc.)
• Qualified vs. non-qualified medical expense treatment