Glossary of Health Insurance and Employee Benefit Terms

The healthcare industry has changed quickly and drastically and continues to do so almost daily. The only thing that seems to stay the same is the constant rising cost. Whether you are an employer, employee, or an individual, you are being exposed to more out-of-pocket expenses across the board.

Now more than ever, you need to know how your insurance works.

At Employee Benefit Consultants, it’s our goal to educate health care consumers in the communities where we live and work. The more knowledgeable you are, the easier our job is and the more money stays in your pocket.

To help you become a smarter healthcare consumer, we’ve put together a list of key insurance terms and what they mean. Before you know it, you’ll be reading and using your policy like a pro!

Premium

Ugh. The dreaded premium! And it’s due again! This is the dollar amount you pay to the insurance company. This premium allows the insurance company to take on the risk of providing your health benefits, with unlimited benefits in many cases after the maximum out-of-pocket (See below).

Deductible

This is the amount of money you are responsible for (you pay 100%) until any coverage begins. For example, if you have a $1,000 deductible, you must pay the first $1,000 of service fees out of your own pocket. After you meet that threshold, the insurance company will start to pay as stated in the policy.

Co-Insurance

Once you meet the deductible, the insurance company will start to pay a portion of your expenses. This is typically done in a percentage. In most cases, co-insurance is around 70%-80% but can be lower, as well as higher. If you have 80% co-insurance, the insurance company pays 80% of your bills (after the deductible) and you pay the other 20% (until you hit the maximum out-of-pocket).

Max Out-of-pocket (or Stop Loss)

This is the maximum amount you will pay for your out-of-pocket expenses (assuming they are covered expenses) within the year. After you pay the full deductible and begin paying your percentage of the remaining charges, you may eventually hit a maximum out-of-pocket. This amount is sometimes referred to as a stop loss. Once you reach your maximum out-of-pocket, the insurance company will pay 100% of your expenses within that year.

Co-Pay

This is a predetermined fee you pay each time you use a particular service. This fee does not go towards the deductible, but it is applied to the maximum out-of-pocket. For example, some policies may have a $20 or $30 co-pay to visit your primary care physician and a $50 co-pay for a specialist. This helps you predetermine your costs and budget accordingly.

Preventative Care

These services typically include annual checkups, screenings, female wellness, and immunizations. Due to the Affordable Care Act, preventive care is paid 100% under most insurance plans. Want to know the best part?  You don’t have to meet your deductible!  Yay, finally benefits without having to empty your bank account.

In-network

In-network providers are those that have been approved by your insurance company. This means there are negotiated contracts between the providers and the insurance companies, lowering your out-of-pocket expenses.

Out-of-network

These are the providers that have not contracted with your insurer. You will typically pay more for these services. In many Preferred Provider Organization instances, there is a separate set of benefits just for out-of-network providers.

Calendar Year

This is the accumulation of your out-of-pocket services beginning Jan. 1st and ending Dec. 31st of the same year.

Plan Year

A plan year is different than a calendar year, as this accumulation period runs throughout your contract. For example, if you have a July renewal then your claims are accounted for from July 1st to June 30th.

EOB

Explanation of Benefits. An EOB is a receipt that displays your services and fees associated with your visits. It shows what your insurance company will be paying, and what you are responsible for. Make sure you double-check these, as there can be mistakes in the billing or coding. This is a service your insurance broker should be able to assist you with.

COBRA

Consolidated Omnibus Budget Reconciliation Act. COBRA is set up to allow an employee or dependents to continue coverage. I consider it an extension of the employer’s coverage. If you were covered under a group-sponsored policy and lost your coverage due to a qualifying event, this law allows you to continue your coverage at your own expense for a set period of time. This will depend on your qualifying event.

Traditional Insurance

These are the plans most of you are familiar with. These typically have higher premiums and lower exposure to you as the insured. These are great for people that have many health claims and cannot tolerate much financial exposure throughout the year.

CDHP/HDHP

Consumer driven health plan, or a high deductible health plan. These plans typically have lower premiums but much higher deductibles than a traditional health plan. These plans can be better for individuals who are generally healthier and don’t use their health insurance much. In certain situations, it can actually be better for those that use it often as well because all services go toward the deductible so you reach benefits quicker, although you are responsible for more up front.  But remember, premium & tax savings!  These plans can be very advantageous because they can be paired with tax saving vehicles such as a Health Savings Account.

PPO

Preferred Provider Organization. With a PPO plan, you have the option to use any in-network doctor. You can also use out-of-network providers, but they typically have a separate set of benefits that will cost more to you as the patient.

HMO

Health Maintenance Organization. In this case you are required to use in-network providers. If you don’t, you will be subject to the entire bill. You must also have a referral from your primary care doctor to see any type of specialist.

PSO

Point of Service. This type of plan combines qualities of both HMO and PPO plans. In many instances, you must designate a primary care physician and get referrals from that provider. Like a PPO, you can still access out-of-network providers but generally at a higher cost.

HSO

Health Savings Account. These accounts allow you to build a nest egg of pre-tax money for healthcare expenses. You are only eligible for the pre-tax if this account is associated with a high deductible health plan (HDHP). The funds contributed to your account are not subject to federal income tax assuming they are used for qualified medical expenses, which is an extensive list. This is one of the only ways Uncle Sam will allow you to avoid taxes, so take advantage! They are the only tool which has a triple tax advantage. Funds are put in pre-tax, grow pre-tax, and are spent pre-tax (assuming qualified expenses).  These accounts are personally owned, even if your employer contributes to them. If you spend this money on non-qualified medical expenses, you are subject to income tax and a penalty. These accounts can be an excellent investment tool if used properly, as they are treated much like a traditional IRA after age 65.

HRA

Health Reimbursement Arrangement. This is an account specifically set up for your employer to contribute to. The employer will designate money into an account, and certain medical expenses can be reimbursed with these funds. Your employer has control of these accounts and they can be customized based on budget and needs. They primarily help an employee bridge the gap with rising medical expenses, provided by an employer. They can also benefit an employer if the funds are not used throughout the year.

FSA

Flexible Spending Account. This is very similar to an HSA, but employers must fund and organize the account on behalf of the employees. Money is deducted from your paycheck on a pre-tax basis. You must use the money in the account during that year or you lose it, although there are ways employers can help facilitate some of these funds to be retained. If you leave the company, your FSA money stays with the employer.