Employer-sponsored health insurance is the largest source of health coverage for Americans under age 65. Whether your business already offers health insurance or is considering adding this benefit, it helps to know the language.
Understanding the terminology can help you compare your options and better support employees as they navigate their coverage. Below, we’ll break down some of the most important acronyms and terms in the small business health insurance lexicon.
Small business health insurance: ACA and SHOP
ACA: Affordable Care Act. Enacted in 2010, this comprehensive health care legislation was designed in part to increase access to affordable health insurance. The law made significant changes to individual and employer-sponsored health coverage, and created insurance marketplaces where individuals and small businesses can shop for coverage.
SHOP: Small Business Health Options Program. The ACA’s small business health insurance marketplace, SHOP, helps eligible small businesses provide health and dental coverage. It is generally available to employers with fewer than 50 workers, though some states allow businesses with up to 100 employees to participate.
ALE: Applicable Large Employer. A business is generally considered an ALE if it averages at least 50 full-time (or full-time equivalent) employees each year. ALEs are subject to ACA employer shared responsibility provisions and reporting requirements.
FTE: Full-Time Equivalent employee. For the purposes of determining ALE status, FTEs represent the combined hours of part-time employees as an equivalent number of full-time employees. To arrive at this figure, total the hours worked by all part-time employees in a given month (capped at 120 hours per employee) and divide that sum by 120. Add that to the number of full-time employees to determine the total FTEs.
[Read more: A Complete Guide to Choosing Small Business Insurance]
Plan types: PPO, HMO, EPO, and POS
PPO: Preferred Provider Organization. A PPO is a health care plan with a network of contracted providers offering reduced rates to policyholders. Managed by insurance companies, PPOs include various medical professionals and facilities. Those who enroll in a PPO plan have access to services without referrals, including from out-of-network providers, though out-of-network care generally costs more.
HMO: Health Maintenance Organization. An HMO functions through a network of doctors, with care coordinated by an in-network primary care provider (PCP). Unlike PPOs, HMOs typically require referrals from the PCP for specialist visits and limit coverage to in-network providers except in emergencies. HMOs generally offer lower out-of-pocket costs in exchange for limited provider flexibility.
EPO: Exclusive Provider Organization. An EPO offers in-network coverage without referrals and often falls between an HMO and a PPO in terms of costs and flexibility. Out-of-network care is generally limited to emergencies.
POS: Point of Service plan. A POS health plan combines the care coordination of HMOs with the flexibility of PPOs. It typically requires members to choose a PCP and, depending on the plan, obtain referrals for specialist care; members can see out-of-network providers, but will generally pay more.
Cost and enrollment terms
Premium: The amount paid each month to maintain health insurance coverage. Unlike other related costs, members pay premiums whether or not they use services.
Deductible: The amount a member pays for health care services before their insurance plan begins sharing the cost. Once the deductible is met, the individual typically pays a copay or coinsurance for services.
Copay: Short for copayment. A copay is a fixed amount a member pays for a health care service, such as a doctor’s visit or prescription. Copays can vary based on the type of service received.
Coinsurance: The percentage of health care costs a member pays after meeting their deductible. For example, with 20% coinsurance, the member pays 20% of the cost of service while the insurance plan pays the remaining 80%.
OOPM: Out-of-Pocket Maximum. An OOPM sets the annual limit on what an individual will pay for covered health care expenses. After reaching this threshold in deductibles, copays, and coinsurance for in-network health care, the plan pays 100% of covered medical costs.
QLE: Qualifying Life Event. A QLE is a major change in an individual’s circumstances that triggers a special enrollment period, allowing them to enroll in or change health insurance outside of the open enrollment period. Common QLEs include marriage or divorce, having or adopting a child, losing existing health coverage, and certain changes in residence.
[Read more: 10 Employee Benefit Costs You Can Deduct from Your Taxes]
Group health plan arrangements: MEWA and AHP
MEWA: Multiple Employer Welfare Arrangement. A MEWA is an arrangement that provides health coverage or other benefits to employees of two or more employers. MEWAs are subject to federal and, in many cases, state regulation.
AHP: Association Health Plan. An AHP is a type of MEWA in which employers join together through a qualifying association to offer health coverage to their employees. For small businesses, participating in an AHP can provide access to group coverage and greater purchasing power than they may have on their own.
Understanding health insurance terminology can help you compare your options and better support employees as they navigate their coverage.
Reimbursement arrangements: HRA, ICHRA, and QSEHRA
HRA: Health Reimbursement Arrangement. Funded by the employer, HRAs reimburse employees tax-free for qualified expenses and, in some cases, individual health insurance premiums. Different types of HRAs have their own eligibility, contribution, and coverage requirements.
ICHRA (CHOICE Arrangement): Individual Coverage Health Reimbursement Arrangement. An ICHRA (also known as a CHOICE Arrangement) allows employers of any size to offer employees a tax-free allowance to help cover individual health insurance costs. Employees choose their own qualifying coverage and can be reimbursed for premiums and, depending on the plan, other eligible medical expenses.
QSEHRA: Qualified Small Employer Health Reimbursement Arrangement. Under a QSEHRA, small businesses (typically fewer than 50 employees) that do not offer a group health plan can reimburse employees for individual premiums and other qualified medical expenses. Unlike an ICHRA, a QSEHRA has annual employer contribution limits.
[Read more: ICHRA vs. QSEHRA: What Is the Difference?]
Health savings and spending accounts: HSA, FSA, and HDHP
HSA: Health Savings Account. An HSA is a consumer-directed, tax-advantaged savings account available to members enrolled in an eligible high-deductible health plan (HDHP). HSA withdrawals are not taxed when used for qualified health expenses, including dental and vision.
FSA: Flexible Spending Account. A health FSA is an employer-administered benefit that allows employees to set aside pretax money from their paychecks for qualified medical expenses, such as deductibles and copays. These funds are time-sensitive, typically used within the plan year, though some plans allow a limited carryover or grace period.
HDHP: High Deductible Health Plan. An HDHP has a higher deductible than traditional plans, and generally offers lower premiums in exchange for higher upfront out-of-pocket costs. HDHPs that meet certain federal requirements are considered HSA-eligible plans, allowing members to contribute to an HSA for medical expenses.
Benefits administration options
ASO: Administrative Services Only. Under an ASO arrangement, an employer hires a third party to handle health insurance administrative services, such as claims processing. The employer remains responsible for funding its benefits package, rather than purchasing coverage through the administrator.
PEO: Professional Employer Organization. A PEO provides HR and benefits services through a co-employment arrangement with a business. The business continues to manage employees day to day, while the PEO handles responsibilities like payroll and benefits administration.
[Read more: How to Offer Health Insurance Using a PEO]
Health benefits laws: COBRA, ERISA, and HIPAA
COBRA: Consolidated Omnibus Budget Reconciliation Act. COBRA generally requires employers with at least 20 employees to offer temporary continuation of group health insurance when an employee or their family members would otherwise lose coverage. Qualifying events may include a job loss or a reduction in work hours.
ERISA: Employee Retirement Income Security Act. ERISA is a federal law that establishes standards and protections for employee benefit plans, including health and retirement. Among other requirements, it gives members rights to information about their plans and sets standards for those who manage them.
HIPAA: The Health Insurance Portability and Accountability Act of 1996. HIPAA establishes national standards for safeguarding patients’ protected health information (PHI). While HIPAA generally does not apply to businesses in their role as employers, certain requirements may apply when administering a self-insured health plan or otherwise handling PHI in relation to a health plan.
Disability insurance terms
DI: Disability Insurance. This type of insurance replaces a portion of an employee’s lost income when a qualifying illness, injury, or other medical condition prevents them from working. Coverage generally falls into two categories: short-term and long-term disability.
STDI: Short-term Disability Insurance. STDI provides coverage for a range of short-term medical conditions, including recovery from injury, surgery, pregnancy, and childbirth. Benefits typically replace 40% to 70% of an employee’s salary and last three to six months, though coverage can extend up to a year, depending on the policy.
LTDI: Long-term Disability Insurance. LTDI provides coverage for extended illnesses, injuries, or other conditions that prevent an employee from working long term. Benefits typically replace about 60% of an employee’s gross monthly income and may last from two years until retirement, depending on the policy.
EOI: Evidence of Insurability. EOI is health information an insurer may require before approving life and disability insurance. Applicants may need to provide their health details to insurers via questionnaires, medical history or records, or medical examinations.
Lauren Kubiak and Joyce Walsack contributed this article.
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