As a small-business owner planning to start offering health and retirement-planning benefits to your employees, you should be proud. You’re providing an important commodity in an uncertain professional world. But managing the essential processes of benefits administration by yourself (or with a skeleton-crew HR team) can be complicated for several reasons, not least of which is getting a handle on all of the terminology involved in employee benefit management. And it’s not just you who needs to understand these terms; your employees must as well. Don’t worry – we’ve got you covered with a cheat sheet of critical benefits jargon:
Health benefits payment terms
- Deductible: The threshold employees must reach in out-of-pocket expenses each year before their insurer starts reimbursing them. (This doesn’t apply to preventative care, like annual physicals.)
- Co-insurance: Post-deductible employee payments for health care needs, usually around 20% of full price.
- Co-pay: Fixed payment for each visit to a medical doctor or mental health professional’s office, urgent-care center or hospital emergency room. (Hospital stays beyond the ER obviously involve much greater expenses.)
- Premium: Annual cost of maintaining an employer-sponsored health plan, usually paid off monthly or bi-weekly out of employees’ paychecks with the rest covered by the business.
Benefit types and classes
- Ancillary benefits: These come alongside standard health coverage, and can include dental, vision care, life insurance and short- or long-term disability coverage.
- Voluntary benefits: Ranging from critical illness coverage to theft protection, these benefits must be paid for as a la carte addendums to a plan.
- Guaranteed renewability: This benefits clause means that as long as premiums are paid toward a health plan, an insurer is prohibited from dropping a covered individual no matter what.
- Underwriting: A measure of insurance risk assessment. Many medium-sized businesses and enterprises use group underwriting to spread risk across as many employees as possible, but individual underwriting is growing in popularity among smaller, startup-style businesses with younger, healthier staffs.
- Formulary: The selection of prescription drugs covered by a given plan. In most cases, carriers will pay much more for generic versions of brand-name drugs, leading to reduced co-pays.
- Network: Health care facilities and professionals covered by a plan. Health maintenance organization plans cover in-network services almost in full aside from co-pays, but handle nothing out-of-network, while preferred provider organizations allow out-of-network care at greater cost.
Account types
Aside from the aforementioned HMOs and PPOs, several other notable types of health plans have emerged in recent years:
- High-deductible health plans: As their name implies, these plans have higher annual deductibles than their counterparts, but premiums are also much less expensive.
- Health savings accounts: Policyholders of HDHPs can open these individual accounts to store funds that can later be used for health care expenses whether an annual deductible has been met or not. HSA fund usage accrues no tax expenditure, and employees can keep the accounts when they leave the organization.
- Health reimbursement arrangements: These products serve a purpose similar to HSAs, but are employer-owned and -funded; any unused monies within them go to the business when a worker moves on. HRAs also have no annual contribution limit, unlike HSAs that are capped at certain amount (with individuals having a lower cap than families).