Health and benefits materials use a lot of specialized language that comes up not just during open enrollment, but anytime you use your coverage, review a paycheck, submit a claim, or ask a benefits question. Understanding common benefits terms can help you make sense of medical bills, track costs, and better understand how your coverage works day to day. The overview below explains frequently used benefits terms in clear, practical language.
Copayment (Copay)
A copay is a fixed dollar amount you pay for certain services, such as a $30 office visit or a $15 prescription. Copays often apply even after the deductible is met, depending on the plan design.
Coinsurance
Coinsurance is the percentage of costs you pay after meeting your deductible. For example, a plan with 80/20 coinsurance means the plan pays 80 percent of covered costs and you pay 20 percent until you reach your out-of-pocket maximum.
Deductible
The deductible is the amount you must pay out of pocket for covered services before the plan begins to pay. For example, if your deductible is $2,000, you generally pay the first $2,000 of eligible medical expenses yourself before the plan starts sharing costs.
Not all services apply to the deductible. Many plans cover preventive care, such as annual physicals, at no cost even if the deductible has not been met.
Explanation of Benefits (EOB)
An Explanation of Benefits is a statement from the insurance carrier that show a claim was processed. It is not a bill, but it explains what was billed, what the plan paid, and what you may owe the provider.
Flexible Spending Account (FSA)
An FSA allows employees to contribute pre-tax money to pay for eligible health or dependent care expenses. Unlike HSAs, FSAs generally have use-it-or-lose-it rules, although limited rollovers or grace periods may apply.
Health Savings Account (HSA)
An HSA allows eligible employees enrolled in an HDHP to set aside pre-tax dollars to pay for qualified medical expenses. Funds roll over year to year and belong to the employee, even if employment ends.
High Deductible Health Plan (HDHP)
An HDHP is a plan with a higher deductible that meets IRS requirements. These plans often have lower premiums and are the only plans that allow eligibility for a HealthSavings Account (HSA).
In-Network vs. Out-of-Network
In-network providers have agreements with the insurance carrier to charge negotiated rates. Using in-network providers usually results in lower costs.
Out-of-network providers do not have these agreements and typically cost more. Some plans may not cover out-of-network care at all, except in emergencies.
Minimum Essential Coverage and Minimum Value
Minimum essential coverage refers to health coverage that satisfies ACA requirements. Minimum value means the plan pays at least 60 percent of the total cost of covered benefits. These concepts matter for ACA compliance and affordability rules.
Out-of-Pocket Maximum
The out-of-pocket maximum is the most you will pay in a plan year for covered services. Once you reach this limit through deductibles, copays, and coinsurance, the plan generally pays 100 percent of covered expenses for the rest of the year.
Premiums do not count toward the out-of-pocket maximum.
Premium
The premium is the amount paid to keep coverage active. For employees, this is typically deducted from each paycheck. Premiums are paid whether or not you use medical services.
Preventive Care
Preventive care includes routine services such as annual physicals, screenings, and immunizations that are often covered at no cost when provided by an in-network provider.
Prior Authorization
Prior authorization means the insurance carrier must approve certain services or medications before they are covered. Without approval, the plan may not pay for the service.
Why Understanding These Terms Matters
Knowing how these pieces fit together helps employees better estimate healthcare costs, choose the right plan during open enrollment, and avoid unexpected bills throughout the year.
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This article is for informational purposes only and is not intended as legal, tax, or benefits advice. Readers should not rely on this information for taking (or not taking) any action relating to employment, compliance, or benefits. Always consult with a qualified professional before making decisions based on this content.
