Employee Benefit Terms to Know
When weighing your insurance options, you may be overwhelmed by how many terms you may not know. Here’s a list of some of the most common insurance terms used and what they mean to help you make decisions.
These are also called “voluntary benefits”. Some supplemental benefits help offset the additional out-of-pocket expenses you may experience for things your major medical insurance doesn’t cover completely. Lifestyle-protection policies like disability insurance and life insurance are also considered supplemental benefits.
A claim is the formal request a policyholder makes to their insurance company to start the process of receiving benefit payments for covered events.
Your premium is what you pay the insurance company for coverage for the period defined in your policy. It’s essentially the payment made to the insurance company.
The time period between an injury or illness and the beginning of your benefit payments. Normally, there are several elimination periods available, and you choose what elimination period will work for you.
You may hear a policy referred to as “portable” or having “portability”. This usually means that you can take the policy with you if leave your current employer as long as you continue to pay premiums. Not every portable product is the same, however, and sometimes portable group policies may have additional limitations. Always make sure to check your coverage/policy details or ask your American Fidelity account manager to ensure you know your options.
Coverage Effective Date
Coverage under your insurance policy may not start the day you apply or enroll in coverage. It’s important to note the day your coverage will begin – known as the coverage effective date.
High Deductible Health Plan (HDHP)
An HDHP is a type of comprehensive health insurance plan with a higher annual deductible and a higher out-of-pocket maximum than a traditional major medical plan. For 2020, the Internal Revenue Service (IRS) defines a qualified HDHP as any plan with a deductible greater than $1,400 for an individual or $2,800 for a family.
Health Savings Account (HSA)
An HSA can only be used in conjunction with an HDHP. An HSA is an individually-owned account that allows you to save for eligible medical expenses now and into the future. You and your employer may contribute to the account. Your contribution is withheld from your paycheck before tax, which in turn reduces your overall tax burden. The account stays with you, even if you change jobs. Also, you can invest the savings for growth, just like a 401(k).
Flexible Spending Account (FSA)
There are three types of flexible spending accounts. Healthcare Flexibles Spending Accounts (HCFSAs), Limited Purpose Flexible Spending Accounts (LPFSAs), and Dependent Care Accounts (DCAs). For HCFSAs and LPFSAs, the full election amount is available on the first day of the plan year. “Use or lose” rules apply, which means the funds must be used in the current plan year. Your contribution is withheld from your paycheck before tax, which in turn reduces your overall tax burden.
- Healthcare FSAs allow employees to save for eligible medical expenses for the current plan year. Employees and the employer may contribute to the account. This cannot be paired with an HSA.
- LPFSAs work just like a Healthcare FSA but are typically reserved for paying specific HSA-compatible medical expenses—like dental and vision costs. This account is usually paired with an HSA.
- DCAs are used to reimburse yourself for eligible dependent daycare expenses. Your contribution is withheld from your paycheck before tax, which in turn reduces your overall tax burden. Reimbursements are limited to the account balance.
Substantiation is a term used in conjunction with reimbursement accounts. The Internal Revenue Code (IRC) guidelines are strict where tax breaks are made available. In the case of reimbursement accounts, the IRC requires that all expenses be proved eligible – or substantiated. Learn more in our blog post, Understanding FSA Benefits Debit Card Substantiation.
Check out these blog posts to read more terms explained:
- Long and short-term disability insurance
- Carryover, runoff, and grace periods
- Term and Whole Life Insurance
This blog is up to date as of June 2020 and has not been updated for changes in the law, administration or current events.