Risk Management, Total Rewards
Understanding Insurance Jargon
The insurance world is full of acronyms from HSA to ACA to HMO to MEC and so on. Quite understandably, it can be difficult to keep them all straight.
While some insurance jargon may ring a bell from time to time, a lack of true understanding of the terms applicable to benefits can be dangerous for both employers and employees.
Some of the terms for Account Based Plans in particular can be easy to confuse. Let’s dig in:
- Flexible Spending Account (FSA): A health FSA is an arrangement that an individual establishes through an employer to pay for out-of-pocket medical expenses with tax-free dollars. These expenses include insurance copays, deductibles, qualified prescription drugs, insulin, and medical devices. The maximum contribution to an FSA is subject to an annual inflation adjustment. The 2017 maximum contribution limit is $2,600. However, an employer can determine a maximum lower than that amount for their employees. While most frequently, it is the employee who contributes to this account, employers may also contribute.
- High Deductible Health Plan (HDHP): A HDHP is a plan with a higher deductible than a traditional insurance plan. The plan may provide certain preventive care benefits, but no other benefits before the deductible has been satisfied. The minimum deductible and maximum out-of-pocket limits for HDHPs are subject to annual inflation adjustment. For 2017, the minimum annual deductible is $1,300 for self-only coverage and $2,600 for family coverage. This will increase in 2018 to $1,350 for self-only coverage and $2,700 for family coverage.
- Health Reimbursement Arrangement (HRA): An HRA is an employer-funded group health plan from which employees are reimbursed tax-free for qualified medical expenses up to a fixed dollar amount, determined by the employer, per year. In general, an employer can design the HRA. For example, an employer can choose to reimburse plan participants a portion of the deductible on a high deductible health plan or just hospitalization copays.
- Health Savings Account (HSA): An HSA is a type of savings account that allows an individual to set aside money on a pre-tax basis to pay for qualified medical expenses, if he or she has a high deductible health plan. The 2017 maximum contribution is $3,400 for self-only coverage and $6,750 for family coverage. This will increase in 2018 to $3,450 for self-only coverage and $6,900 for family coverage. Both employers and employees can contribute to an HSA.
For a comparison chart of FSAs, HRAs and HSAs, click HERE.
As part of the Affordable Care Act (ACA), employers offering medical coverage are required at time of initial enrollment and open enrollment to distribute to their plan participants a Summary of Benefits Coverage (SBC), generally created by the insurance carrier, as well as a Uniform Glossary. The SBC is a document intended to make the medical benefits plan easier to understand, including coverage examples. The accompanying glossary provides definitions on insurance terms and goes into more detail regarding the language referenced in the SBC.
For a more comprehensive glossary of insurance terms, please click HERE.
Aren’t sure what a specific insurance term means? Don’t be afraid to ask your Exude Benefits Representative to increase your understanding.
Knowledge is knowing that a tomato is a fruit. Wisdom is knowing not to put it in a fruit salad.
~Brian O’Driscoll
