Twelve Terms Every Health Benefits Professional Should Know
Maybe you’re new to the Employee Health Benefits world, or maybe you’re a long-time HR professional with general knowledge, but could use a few translations. Either way, here’s a handy list of some of the health benefits terms you should know.
Consumer-Directed Health Plan (CDHP)
This type of plan usually combines high-deductible health coverage with a health savings account (HSA) or health reimbursement arrangement (HRA). Employees covered by CDHPs pay lower premiums for health coverage because the deductibles are high. Using either an HSA or HRA, the employee or the employer sets aside extra money that can be used to help satisfy the deductible. The goal of CDHPs is to lead consumers to eliminate unnecessary care and seek lower-cost, higher-quality providers.
Coinsurance is a percentage that the insured must pay each benefit period, once they have paid their deductible. It is for covered services only, and the insured may still have to pay a copay. Example: a plan might cover 80 percent of your medical bill. The insured will have to pay the other 20 percent, which is the coinsurance.
Like coinsurance, there are some health care provider charges for which a patient is responsible under the terms of a health plan. Cost-sharing can include deductibles, coinsurance, and co-payments. Beginning in 2014, the Patient Protection Affordable Care Act (PPACA or ACA) limits total cost-sharing to $5,950 for an individual and $11,900 for a family. These amounts will be adjusted annually to reflect the growth of premiums.
Copayment or Co-Pay
A copayment is a charge that a health insurance plan may require the insured to pay for a specific medical service or supply. Co-pays generally do not apply toward the deductible, but may apply toward the Out-of-Pocket Maximum. Example: a health insurance plan may require a $15 co-payment for an office visit or brand-name prescription drug, after which the insurance company often pays the remainder of the charges.
The deductible is specific dollar amount that a health insurance company may require the insured to pay out-of-pocket each year before the health insurance plan begins to make payments for claims. Not all health insurance plans require a deductible.
High Deductible Health Plan (HDHP)
A type of health insurance plan and the main type of CDHP that requires greater out-of-pocket spending than traditional health insurance plans; although premiums may be lower than in traditional plans. Unlike plans with co-pays and lower deductibles, all first-dollar coverage usually applies to the deductible and Out-of-Pocket Maximum from the start of the benefits year. HDHPs use a PPO network of doctors and contracted rates.
Health Savings Account (HSA)
An HSA is a tax-advantaged savings account that can be used with certain high-deductible health insurance plans to pay for qualifying medical expenses. Employees can contribute to the account on a tax-free basis, and the funds remain in the account year over year and may be invested by the account owner, with interest or investment returns accruing tax-free. Employers may also contribute to the account; this is a popular way to pass the cost savings in the HDHP premiums on to the employee. Unlike other tax-advantaged accounts, once the money is deposited to the account belongs to the account owner and cannot be retracted.
Health Maintenance Organization (HMO)
HMO plans offer health care services through a network of providers that contract exclusively with the HMO, or who agree to provide services to members at a pre-negotiated rate. HMO enrollees will need to choose a primary care physician (PCP) who will provide for most health care needs and can refer patients to HMO specialists as needed. Some HMO plans require that a deductible is fulfilled before services are covered. Others only require a copayment when services are rendered. Health care services obtained outside of the HMO are typically not covered, though there may be exceptions in the case of an emergency.
Health Reimbursement Account (HRA)
HRAs are IRS-sanctioned, employer-funded, tax-advantaged plans that reimburse employees for out-of-pocket medical expenses and individual health insurance premiums. HRAs can yield tax advantages to offset health care costs for both employees and employers.
Maximum Out-Of-Pocket Costs
The maximum out-of-pocket cost is an annual limitation on all cost-sharing for which patients are responsible under a health insurance plan. This limit does not apply to premiums, balance-billed charges from out-of-network health care providers or services that are not covered by the plan. In the past, Co-Pays would not contribute to the Maximum Out-of-Pocket costs but changes under the Affordable Care Act are causing plans to be rewritten to comply.
Point of Service (POS)
Combining elements of both HMO and PPO plans, POS plans allow members to choose a primary care physician who will then make referrals to specialists in the health insurance company’s network of preferred providers. Care rendered by non-network providers will typically cost more out of pocket, and may not be covered at all.
Preferred Provider Organization (PPO)
PPO plans require enrollees to get medical care from doctors or hospitals on the insurance company’s list of preferred providers in order to pay claims at the highest level. Unlike an HMO where enrollees are required to coordinate care through a single primary care physician, members of a PPO must be sure that the health care providers they visit participate in the PPO. Services rendered by out of network providers may not be covered or may be paid at a lower level.
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