FAQ's on key terms used in the health insurance benefits industry
Every industry has its own language. The health insurance benefits industry is no different. When it comes to understanding the details of your health benefits plan, its always a good idea to understand fully what general terms mean.
So, what is....?
Co-insurance is a percentage of a health care cost—such as 20 percent—that the covered employee pays after meeting the deductible.
Co-payment refers to the fixed dollar amount—such as $25 for each doctor visit—that the covered employee pays for medical services.
Deductible is a fixed dollar amount that the covered employee must pay out of pocket each calendar year before the plan will begin reimbursing for non-preventative health expenses. Plans usually require separate limits per person and per family.
Formulary is a list of prescription drugs covered by the health plan, often structured in tiers that subsidize low-cost generics at a higher percentage than more expensive brand-name or specialty drugs.
Health Savings Account (HSA)'s may be opened by employees who enroll in a high-deductible health plan. Employees can contribute money into an HSA up to the annual maximum amount as determined by the IRS. The maximum contribution amounts for 2020 are $3,550 for self-only and $7,100 for families. The annual “catch- up” contribution amount for individuals age 55 or older will remain $1,000, using pre-tax dollars. HSA funds may be used to pay for medical expenses whether or not the deductible has been met, and no tax is owed on funds withdrawn from an HSA to pay for medical expenses. HSAs are individually owned and the account remains with an employee after employment ends.
High-deductible health plan (HDHP). An HDHP features higher annual deductibles (for 2020, a minimum of $1,400 for self and $2,800 for family coverage) than traditional health plans, such as a preferred provider organization (PPO) or a health maintenance organization (HMO) plan. With the exception of preventive care, covered employees must meet the annual deductible before the plan pays benefits. HDHPs, however, may have significantly lower premiums than a PPO, HMO or other traditional plans.
Health reimbursement arrangements (HRAs). Unlike HSAs, only an employer may fund an HRA and the funds revert back to the employer when the employee leaves the organization. HRAs are not subject to the same contribution limits as HSAs, and they may be paired with either high-deductible plans or traditional health plans.
In-network refers to doctors, clinics, hospitals, and other providers with whom the health plan has an agreement to care for its members. Health plans cover a greater share of the cost for in-network health providers than for providers who are out-of-network.
Out-of-network refers to a health plan that will cover treatment for doctors, clinics, hospitals, and other providers who are out-of-network, but covered employees will pay more out-of-pocket to use out-of-network providers than for in-network providers.
Out-of-pocket limit is the most an employee could pay during a coverage period (usually one year) for his or her share of the costs of covered services, including co-payments and co-insurance.
Premium is the amount that must be paid for a health insurance plan by covered employees, by their employer, or shared by both. A covered employee's share of the annual premium is generally paid periodically, such as monthly, and deducted from his or her paycheck on a pre-tax basis.
Additional questions or other terms you need clarification on? Email us here or call us at 844-760-5570.