Your health care ABCs

Published: July 8, 2021

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Health care terminology can be confusing. And when you’re a business owner trying to navigate benefits packages for your employees, it can get exponentially tougher to navigate. We’re here to help.

Here are general definitions of common health care terms to help you as you make decisions. These may vary from specific definitions provided in the group agreement and Evidence of Coverage which would apply to any coverage we issue.

Actuarial value
The percentage of total average costs for covered benefits that a plan will cover. For example, if a plan has an actuarial value of 70% on average, a member will be responsible for 30% on average of the costs of all covered benefits. However, a member could be responsible for a higher or lower percentage of the total cost of covered services for the year, depending on their actual health care utilization and the terms of their coverage.

Allowed Amount
The maximum amount a plan will pay for a covered benefit. May also be called “eligible expense,” “payment allowance,” or “negotiated rate.”

Benefits
The health care items or services covered under a plan. Covered benefits, limitations, and exclusions are defined in the plan’s coverage documents, such as the Evidence of Coverage.

Bronze Plan
One of 4 types of plans created by the Affordable Care Act. A bronze plan has the lowest premium and highest member out-of-pocket costs. The actuarial value of a bronze plan is 60%.

Coinsurance
A percentage of the charges for covered services that a health plan member pays. For example, if a member has a coinsurance of 20% and the allowed amount for a covered procedure is $100, the plan will pay $80 and the member’s coinsurance will be $20.

Coordination of Benefits
The process followed by 2 plans to pay claims for the same person. It aims to avoid duplicate payments and helps control premium increases by paying no more than the total amount of any claim.

Copay
A set amount a health plan member pays for covered services. For example, if the plan has a $20 copay for a covered procedure, the member will pay $20 when they receive that covered service.

Deductible
The amount paid out-of-pocket by a member each calendar year before the plan begins to pay for covered services. The plan typically establishes an individual deductible and a family deductible.

Dependent
A person who’s eligible to enroll in the subscriber’s plan based in part on their relationship to the subscriber.

Drug formulary
A list of generic and brand-name prescription drugs covered by the plan.

Explanation of Benefits (EOB)
A written document sent by the plan describing the costs and covered services that a member has received. An EOB will itemize the health care service received, any amount paid by the plan, the member’s coinsurance or share of the cost, and balance accumulated toward the annual deductible and out-of-pocket maximum.

Flexible Spending Account (FSA)
A type of savings account that allows employees to set aside money tax-free¹ to help pay for qualified health care expenses.² Most FSAs have a “use it or lose it” policy and won’t roll over any unused money year-to-year.

Gold Plan
One of 4 types of plans created by the Affordable Care Act. A gold plan has higher premium costs and lower member out-of-pocket costs. The actuarial value of a gold plan is 80%.

Group Health Plan
An employee welfare benefit plan offered by a plan sponsor, such as an employer or association, that provides health coverage to employees and their dependents.

Health Reimbursement Arrangement (HRA)
A plan established by an employer that helps pay for health care³ costs for its employees. Deposits made into this type of account aren’t taxable.⁴

Health Savings Account (HSA)
A savings account used in conjunction with a high deductible health plan that lets an employee put aside money tax-free⁵ to help pay for qualified medical expenses.⁶ The HSA belongs to the employee even if they change jobs or retire.

Open Enrollment Period (OEP)
The time period established by an employer when employees can choose to enroll in coverage or make changes to existing coverage.

Out-of-pocket maximum
The annual maximum an employee will have to pay for essential health benefits covered by the plan. The plan typically establishes an individual out-of-pocket maximum and a family out-of-pocket maximum.

Plan Year
A 12-month period of coverage established by the employer’s ERISA group health plan. This 12-month period may be the same as the calendar year.

Platinum Plan
One of 4 types of plans created by the Affordable Care Act. A platinum plan has the highest premium and lowest out-of-pocket costs for a member. The actuarial value of a platinum health plan is 90%.

Premium
The amount a member pays for coverage under a plan.

Preventive Care
Routine health care that helps catch health problems before they get serious — such as an annual wellness exam, mammogram, blood pressure screening, or cholesterol test. A plan defines which services it covers as preventive care.

Silver Plan
One of 4 types of plans created by the Affordable Care Act. A silver plan has moderate premiums and moderate member out-of-pocket costs. The actuarial value of a silver plan is 70%.

Summary of Benefits and Coverage (SBC)
A document that helps you and your employees compare costs and coverage between health plans. You can compare options based on price, benefits, and other features that may be important to you. You and your employees get the SBC when you shop for coverage, renew or change coverage, or request one from the carrier.

Resources you may find helpful

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Footnotes:

¹The tax reference relates to federal income tax only. Consult with your financial or tax advisor for information about state income tax laws. Continue at [1]
²To view the list of qualified medical expenses defined under Internal Revenue Code Section 213(d), see IRS Publication 502, Medical and Dental Expenses, at irs.gov/publications. Continue at [2]
³See IRS Publication 502, Medical and Dental Expenses, available at irs.gov/publications, for more information on HRAs. Continue at [3]
⁴See note 1. Continue at [4]
⁵See note 1. Continue at [5]
⁶See note 2. Continue at [6]