With any business in the United States, the employer will have to navigate offering competitive benefits to their employees. As simple as it sounds, there are complexities and specifics required which can be tricky to navigate. The ever-changing legalities that can affect benefits packages make it hard to stay updated on employer requirements as well.
As a PEO, our job is to be an expert in competitive benefit offerings. Our benefits team provides employers with resources to not only understand the benefits market, but to ultimately help in deciding which benefits would be most beneficial for your workforce. But first, understanding benefits verbiage is crucial to navigating plan summaries, and discussing benefit options with your employees.
Below, we break down the basic terminology used within the benefits world. Here are some key terms you will come across:
Group Health Insurance
There are multiple avenues to secure health insurance. Currently, the most prevalent method is through employer-provided packages known as group health insurance. This option typically offers lower rates due to the risk being spread across a larger number of individuals.
Individual Health Insurance
Individual health insurance is a type of coverage that individuals purchase directly from an insurance company or through a marketplace.
Provider
A Provider is a healthcare professional, facility, or organization that delivers medical services.
Ex: Doctor, Pharmacy, Clinic, Laboratory
Insurer or Carrier
The insurance company providing coverage is known as the insurer or carrier.
Ex: Blue Cross Blue Shield, Aetna, Humana
Policyholder
The policyholder in insurance is the individual or entity that owns the insurance policy and is responsible for paying premiums to maintain coverage.
Insured
The insured is the individual with health insurance coverage (whether group or individual). In the case of individual health insurance, you might fulfill both roles as the policyholder and the insured person. However, with group health insurance, your employer typically assumes the role of the policyholder, while you are designated as the insured individual.
Qualified Medical Expense
A qualified medical expense is a healthcare cost that meets the criteria set by the Internal Revenue Service (IRS) for being eligible for payment or reimbursement under a health insurance plan. The IRS defines medical expenses as payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or payments for treatments affecting any structure or function of the body.
Premium
The premium is the amount of money paid by the policyholder to the carrier in exchange for coverage. Typically referred to as a “monthly premium”, as payments for coverage are calculated as a monthly cost.
Copayment
Copayment, also referred to as copay, is a set amount the insured will pay to the provider for a covered health care service.
Coinsurance
Coinsurance is a term used in insurance policies that means the insurer and the insured share the risk and/or cost of a covered healthcare service. This is typically represented on a plan summary as a fixed percentage. In this situation, the insured would pay a percentage of the medical expenses after the deductible.
Deductible
A deductible is the amount of money that the insured individual must pay out of pocket before their carrier begins to pay for eligible expenses. Deductibles may not apply to all services.
Out-of-Pocket Maximum (OOPM)
The OOPM is the maximum amount of money that the insured individual is required to pay for medical expenses within a specific period, typically within a plan year. After the OOPM has been met the insurer covers 100% of eligible expenses. The OOPM excludes the monthly premium.
Preventative Care
Preventive care refers to healthcare services that are aimed at preventing or detecting potential health problems before they become serious. These services are typically covered by carriers without requiring the insured individual to pay a copayment or meet a deductible.
Ex: routine check-ups, vaccinations, screenings for various diseases (such as cancer or diabetes), and counseling on healthy lifestyle habits.
Annual Limit
An annual limit is the maximum amount of money that an insurer will pay for covered medical expenses within a single policy year. Once this limit is reached, the insured individual is typically responsible for paying all remaining healthcare costs out of pocket until the start of the next policy year.
Lifetime Limit
A lifetime limit is the maximum amount of lifetime benefits the insured may receive from their carrier. A carrier may set a total lifetime dollar limit or limits on specific benefits. Once this limit has been met, the insured individual must pay for medical expenses out-of-pocket.
Preexisting Condition
A preexisting condition refers to any physical or mental health condition, including disabilities, that existed before a health plan took effect. Genetic information without a diagnosed disease or condition, as well as pregnancy, is not considered a preexisting condition. Insurers are generally prohibited from denying coverage or charging extra for preexisting conditions, except in the case of grandfathered individual health plans.
Summary of Benefits and Coverage
A summary of benefits and coverage (SBC) is a concise document that allows you to compare costs and coverage across different health plans easily. It enables you to assess options based on coverage, cost, and other essential features.
Affordable Care Act (ACA)
The “Affordable Care Act”, commonly referred to as ACA, is the name for the comprehensive health care reform law passed in 2010. This law has wide-reaching implications across various sectors but is also known for its impact on employee benefits.
Essential Health Benefits
Essential health benefits are a mandated set of healthcare services that certain plans, including those in the individual and small group markets, as well as all Medicaid state plans, must provide under the ACA.
Grandfathered Plans
A grandfathered plan is a health insurance plan that existed before the ACA was enacted and has remained largely unchanged since then. These plans can continue to enroll individuals and provide coverage while retaining their grandfathered status. They are exempt from certain ACA reforms.
Health Insurance Marketplace
A large component of the ACA is the creation of a health insurance Marketplace, also known as the Affordable Health Insurance Exchange. The Marketplace is for individuals and small businesses to purchase private health insurance and allows for direct comparisons of options based on price, quality and other factors, while coordinating eligibility for premium tax credits and other affordability programs. The Marketplace will be open for enrollment from roughly the start of fall through the end of winter each year.
Benefits Accounts
Several tax-advantaged accounts are available to assist individuals in covering qualified medical expenses. Each type of account has specific rules regarding contribution limits and eligible expenses. The following section outlines these accounts.
Voluntary Benefits
Voluntary benefits are benefits that employees may choose to take advantage of through their employers with lower rates than they could get on their own. Traditional examples of these voluntary benefits are dental, vision, life, disability, supplemental health and cancer insurance.
Understanding employee benefits is essential for effective business management. In today’s market, benefits are extremely competitive. Gaining familiarity with the basic terminology will better position you and your company to make informed decisions regarding your company offerings. By providing benefit packages that meet the needs of your employees, your company will ultimately contribute to employee satisfaction, retention, and overall organizational performance and success.