Page 283 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 6. Employee Benefits and Perquisites 269

• Health maintenance organization (HMO) An HMO typically provides covered
employees (subscribers) with a list of doctors and hospitals the person may use.
Normally, each patient is assigned a primary care physician, who controls access to
specialists. For this reason, the doctor is sometimes called a gatekeeper.
The employer pays the HMO an agreed-upon amount per employee; the employ-
ee may be required to make up the difference between that amount and the total cost.
Such forms of medical care are quite attractive when the employee’s residence and
work site are both within easy commuting distance of the HMO center, although
some are disappointed with the less personal nature of treatment than that provided
by a family doctor. In addition, many executives are not eager to relinquish the
ability to make a free and independent decision on the provider of needed medical
services. In spite of the fact that an HMO virtually assures that needed services will be
available, many executives want to be certain that a doctor or surgeon is the best in
the field—not simply one capable of adequate care! While a number of very qualified
surgeons are in HMOs, not all of the established top names are affiliated with such
organizations.
• Preferred provider organization (PPO) The PPO is a variation of the HMO per-
mitting patients to opt out of the prescribed list of doctors and hospitals in exchange
for a greater fee and/or larger deductibles. The deductible is the amount paid by the
patient before any expense coverage by the plan.
• Point-of-service plan (POS) The POS plan permits a patient to delay the decision
of staying within the network or going outside of it until the time service is needed.

Fee for Service. This type of medical care coverage includes Blue Cross and Blue Shield,
commercial insurance, and self-insurance.
Because of a close relationship with the American Hospital Association and the American
Medical Association, Blue Cross and Blue Shield respectively were able to negotiate procedural
fees and hospital charges. First-dollar coverage is provided, although the length of hospital stays
is typically limited to control costs. Although there are a number of “Blues,” they typically
operate independently within a defined geographic area. Blue Cross covers hospital charges,
where-as Blue Shield focuses on surgical and other medical expenses. Blue Cross and Blue Shield
plans were set up by hospitals and physicians, respectively, in the 1930s because of an inability of
patients to pay their bills. Individuals would be entitled to service by paying a monthly fee.
Health-care benefits provided by a commercial insurance company obligate the carrier to
pay all covered expenses in exchange for a monthly premium. Under a self-insured plan, the
company uses no outside insurer and is responsible for determining the legitimacy of claims
and making payments. Since some companies find it unpalatable to personally deny a
claim, they engage insurance companies for “administrative services only” to determine the
appropriateness of the claim with the company then making the payment.
Insurance contracts provide coverage under either a comprehensive or a schedule plan.
Comprehensive payment consists of four levels of payment: the portion paid by the employee,
the portion paid by the plan, the portion in which expenses are paid by both, and the remaining
portion paid in full by the plan. As an example, the employee may be liable for the first $500
of covered expenses during the year. The plan will pay the next $1,000 in full. Next, the plan
will pick up 80 percent of the expense with the employee paying the remaining 20 percent,
and finally, any covered expenses in excess of $5,000 will be paid in full by the plan.