U.S. BUREAU OF LABOR STATISTICS COMPENSATION AND WORKING CONDITIONS

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Medical Plan Type, Fee Arrangement, and Financial Intermediaries, 2006

by Frank Conlon

Bureau of Labor Statistics

Originally Posted: February 27, 2007

BLS data show that just over half of all workers in private industry participated in some kind of employer-provided healthcare

plan as of March 2006; of those, 55 percent were enrolled in "fee-for-service plans" and 29 percent were enrolled in health

maintenance organizations.

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.)
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Approximately 45 percent of workers employed by organizations with 100 or more employees were covered under selfinsured plans, while only 17 percent of workers in establishments with fewer than 100 employees were covered under selfinsured 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.

Table 1. Percent of workers with employer-provided medical insurance by fee arrangement, private industry, March

2006

Characteristics Fee Arrangement

Indemnity Prepaid Not Determinable

All workers 55 29 16

White-collar occupations 55 30 15

Blue-collar occupations 57 26 17

Service occupations 48 32 20

Full time 55 29 16

Part time 46 31 24

Union 47 27 26

Nonunion 56 29 14

Average wage less than $15 per hour 59 26 15

Average wage $15 or greater per hour 52 31 17

Goods producing 58 26 16

Service producing 53 30 16

1 to 99 workers 57 29 14

100 or more workers 54 29 18

Metropolitan areas 52 31 17

Nonmetropolitan areas 72 16 12
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Table 2. Indemnity medical plans: percent of workers by choice of plan provider, private industry, March 2006

Choice of plan providers

Restricted Not restricted Not determinable

All workers 90 9 1

White-collar occupations 90 8 1

Blue-collar occupations 89 10 1

Service occupations 88 11 1

Full time 90 9 1

Part time 90 8 2

Union 84 14 1

Nonunion 90 8 1

Average wage less than $15 per hour 91 8 1

Average wage $15 or greater per hour 89 10 1

Goods producing 90 10 1

Service producing 90 9 2

1 to 99 workers 91 8 2

100 or more workers 89 10 1

Metropolitan areas 90 9 2

Nonmetropolitan areas 89 11 1

Table 3. Prepaid medical plans: percent of workers by choice of plan providers, private industry, March 2006

Characteristics

Choice of plan providers

Restricted, no option to go outside

network

Restricted, option to go outside

network

Not

determinable

All workers 58 39 3

White-collar occupations 58 39 3

Blue-collar occupations 59 40 2

Service occupations 57 38 5

Full time 58 39 3

Part time 58 41 1

Union 67 32 2

Nonunion 57 41 3

Average wage less than $15

per hour 58 39 3

Average wage $15 or greater

per hour 58 39 2

Goods producing 60 39 1

Service producing 57 39 3

1 to 99 workers 58 39 2

100 or more workers 58 39 3

Metropolitan areas 59 38 3

Nonmetropolitan areas 44 53 3
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Table 4. Indemnity medical plans: percent of workers by financial intermediary, private industry, March 2006

Characteristics Financial Intermediary

Self-insured Not self-insured Not determinable

All workers 32 66 2

White-collar occupations 32 65 2

Blue-collar occupations 31 67 2

Service occupations 37 61 1

Full time 32 66 2

Part time 35 61 4

Union 34 64 2

Nonunion 32 66 2

Average wage less than $15 per hour 31 67 2

Average wage $15 or greater per hour 34 64 2

Goods producing 34 64 1

Service producing 32 66 2

1 to 99 workers 17 82 1

100 or more workers 45 52 3

Metropolitan areas 31 67 2

Nonmetropolitan areas 37 61 1

Data for Chart 1. Indemnity medical plans: percent of workers participating in restricted and not restricted plans by

bargaining status, private industry, March 2006

Restricted Not Restricted

Union 84 14

Nonunion 90 8
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Data for Chart 2. Indemnity medical plans: percent of workers participating in plans, self-insured and not self-insured,

by size of establishment, private industry, March 2006

1 to 99 workers 100 or more workers

Self-insured 17 45

Not self-insured 82 52

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