For the C-Suite on Down, Health Insurance Terms You Should Know
As you’re hatching the details of your new health plan, you’ll quickly realize that deciphering insurance is like learning a second language. Health insurance is complicated enough and memorizing vocabulary words might be the last thing you want to spend time on. We don’t blame you. But learning the terminology that drives the industry will make you a smarter purchaser, and in this article, we’ll make it easy.
Ready, set, vocab.
THE AFFORDABLE CARE ACT (ACA)
The ACA is a health care law that was passed and signed by President Obama in 2010 and requires certain employers to offer health insurance to their teams. The Act is huge — clocking in at over 1,990 pages — and outlines health care rules for companies, individuals, insurance companies, and many other entities.
APPLICABLE LARGE EMPLOYER (ALE)
This is any company that has 50 or more full-time equivalent employees, and therefore needs to provide its team with health care.
EMPLOYER MANDATE
The mandate is a section in the ACA that requires Applicable Large Employers to offer health insurance or get penalized.
THE HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996 (HIPAA)
HIPAA is a law that protects portions of people’s health information called PHI. It does this by spelling out the kinds of health information that must be kept private, along with creating high standards to hold everyone who has access to sensitive information responsible for its security. If you’re HIPAA compliant, it means that you follow all the laws laid out in this important act.
HIPAA BUSINESS ASSOCIATE AGREEMENT (BAA)
This one sounds like it’s all business, but don’t get frightened. A BAA is a simple agreement that allows companies who follow HIPAA, called covered entities, to hire other employees or contractors, called business associates. Companies who enter into a BAA agree to follow the same stringent HIPAA regulations that the covered entity they’re working for does.
PLAN DOCUMENT
This is the source of truth for your health plan. The document describes the benefits provided, the plan administrator, all terms and conditions, and any other essential nuggets of information about your plan. You need to set one of these up if you want to get all of the great tax benefits of employer-sponsored benefits for you and your team.
SUMMARY PLAN DESCRIPTION (SPD)
This is your team’s version of the plan document. Inside, it explains how the plan actually works, what’s offered, and other important details an employee needs when using the plan. If the plan changes ever so slightly, you’ll still need to hand your team a new copy of the SPD.
SUMMARY OF BENEFITS AND COVERAGE (SBC)
The SBC is a quick overview of each health plan option that is put together by your insurance carrier. It explains the basics of the coverage being offered, so you can easily compare a variety of different plans. This is what you’ll find inside:
- The monthly premium price
- Deductible price
- Co-pay price
- Coinsurance rate
- Out-of-pocket maximum
- Treatments covered
- And other details
If you’re a participant or simply shopping around, your carrier will give you one directly — just ask. However, if you’re an employer who offers benefits, you must collect these from the insurance carrier and make them available to your team.
1094-C AND 1095-C FORMS
Are you an Applicable Large Employer (50 more full-time employees)? Then these forms need to be sprinkled into your vocabulary. The two documents exist so you can show the IRS that you’re giving your team meaningful health insurance. The 1095-C needs to be handed to your employees by January 31st. Once that’s done, send a copy of both the 1094-C and 1095-C to the IRS by February 28th, or March 31st if you fill it out online. Get more instructions here. If you’re an employer who offers health benefits even though you aren’t an Applicable Large Employer, your insurance carrier will handle these forms for you.
THE EMPLOYEE RETIREMENT SECURITY ACT OF 1974 (ERISA)
ERISA is a law that regulates employer benefits, and provides more transparency on the dynamics of those plans. According to the American Benefits Council, ERISA lays the entire foundation for both company-sponsored health and retirement plans. All employers need to follow ERISA if they’re offering healthcare to their teams.
PREMIUM-ONLY PLAN (POP)
POP plans are the most elementary version of section 125 plans, which allow employees to pay for their premiums before taxes are taken out. Since contributions are deducted pre-tax, a person’s total taxable income is reduced, allowing both you and your team to save money in the end.
DEDUCTIBLE
Usually this is an annual amount a participant (or his/her family) would have to pay out-of-pocket before the insurance company starts to cover costs for them.
MAX OUT-OF-POCKET
This is the highest amount that a participant (or his/her family) will pay in a year toward their own health before the insurance company will start paying 100 percent of all costs covered by the health plan.
COINSURANCE
This is the amount of money you have to pay on certain insurance claims during the period between when you have met your deductible and when you have met your max out-of-pocket. Co-insurance is typically represented as a percentage that you pay and that your insurance carrier pays and generally refers to particular types of insurance claims (e.g. hospital visits), though it can refer to all insurance claims. It’s tricky because it looks a lot like co-pay but is very different. When choosing insurance, it is important to understand which types of claims co-insurance can apply to and how much of a delta there is between your deductible and max out-of-pocket.
METALLIC TIERS
Since the ACA went into effect, metallic tiers have been helping employers and plan participants quickly recognize an expected level of coverage from a health plan. Bronze, Silver, Gold, and Platinum, each one signifies an increase in benefits that ranges from deductible amounts, to copay and coinsurance pricing and beyond.
COMPANY CONTRIBUTION
Generally speaking, insurance carriers require companies to contribute some amount toward employee health plan monthly premiums. Your employees would pay the difference between the premium and whatever you contribute on their behalf. You can also decide if you want to contribute toward their dependents or not.
ELIGIBILITY
ACA has made it clear that any employee who is working, on average, 30 or more hours per week is considered full-time for health insurance purposes. The states can make this bar lower but they can’t make it higher. If you’re being asked about eligibility, you need to be thinking about what type of employees you want to extend benefits to (full-time, part-time, etc). You can also decide if just employees are eligible or if their dependents will be eligible as well.
WAITING PERIOD
The amount of time a new hire has to wait before they can start being covered by your plan’s benefits is known as the waiting period. ACA has put a 90 day maximum on this for health benefits. Employers commonly choose things like “first of the month after hire” or “first of the month, 30 days after hire,” but as long as it’s less than 90 days, it’s really up to you.
Say hello to clarity, and goodbye to frantically looking up every other word that crosses your path. Studying the vocabulary above will make it easier to understand what’s happening as you delve into unfamiliar territory. The more you learn, the more you’ll become a health insurance champ. And when that happens, anything is possible.
Creative Art Direction by Redindhi Studio. Illustration by Rune Fisker.
