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Employee Benefits Definitions You Should Know

ACA - Affordable Care Act

The Affordable Care Act, or ACA, is also referred to as the Patient Protection and Affordable Care Act (PPACA). It is health care reform law that was signed in March of 2010.  

Annual Limit

The annual limit is the total amount an insurance plan will pay over a year.


COBRA refers to the Consolidated Omnibus Budget Reconciliation Act. COBRA requires group health plans to offer workers the right to choose to continue their group coverage for a stated period after a qualifying event that causes the loss of group health coverage. These qualifying events could include termination of employment, divorce of a covered employee, and others. For more information about what COBRA entails, visit the U.S. Department of Labor’s website.


For health insurance, coinsurance is a set percentage you pay after your deductible has been met. For example, if you have a 25% coinsurance, once your deductible has been met, you are liable for 25% of your bill for a covered service.  


A set amount you pay for a healthcare service or prescription. Copays are typically outlined in your plan, but not all plans have copays.


Your deductible is the amount you will need to pay before your selected insurance plan starts to pay. For example, if you have a $1,000 deductible, you will need to pay $1,000 out of pocket for covered services before your insurance plan will start paying claims. However, some plans will pay for certain services before you meet your deductible, such as a preventive well check.

Drug Formulary

This is a list of brand and generic medications divided into tiers. Typically, the lower the tier, the less your copay will be for the medication. For example, medications on tier 1 will generally have the lowest copays, while tier 4 commonly includes specialty medications that treat rare medical conditions. Drug formularies differ depending on what plan you choose.

Effective Date of Coverage

The effective date of coverage is the date when your coverage begins. It can also be when a change in your coverage takes effect.

EOB - Explanation of Benefits

A document that your insurance company will send after a claim to let you know that it is being processed. This details what the claim was for, if the claim was approved, and the dollar amount you will owe. An EOB is not a bill.


The Health Insurance Portability and Accountability Act of 1996 (HIPAA) is a federal law that required the creation of national standards to protect sensitive patient health information from being disclosed without the patient’s consent or knowledge. The US Department of Health and Human Services (HHS) issued the HIPAA Privacy Rule to implement the requirements of HIPAA. The HIPAA Security Rule protects a subset of information covered by the Privacy Rule.

Health Insurance Marketplace

Also called the Health Insurance exchange, the Health Insurance Marketplace is a federal government website where consumers in the United States can shop and buy health insurance plans.

HMO - Health Maintenance Organization

A network of physicians and healthcare providers that provide coverage for a certain monthly or annual fee. Typically, the premiums for an HMO plan will be lower, but you will have to see your primary care provider first before getting a referral to a specialist within the network. This is different from a PPO plan, where you can generally see a specialist without needing a referral. An HMO plan does not allow coverage for any providers out of network, unless it is an emergency.

HRA - Health Reimbursement Arrangement

Sometimes called Health Reimbursement Accounts, an HRA is a type of health spending account provided and owned by an employer. Only an employer can contribute money to an HRA, and the employer determines what qualified expenses it pays for, such as medical and dental. Employees can sign up for an available HRA during open enrollment.

HSA - Health Savings Account

An account you can set aside money before taxes. You can pay for qualified healthcare expenses from an HSA account if you are enrolled in a qualified HDHP (High Deductible Health Plan).

Open Enrollment Period

Open enrollment is the window of time once a year when you can enroll in employee benefits. You can also enroll outside of this timeframe if you have a qualifying life event, such as getting married or divorced, or losing your existing job-based coverage.

Outpatient Services

Outpatient care is any treatment or procedure that does not require an overnight stay at a medical facility or hospital.


When a healthcare provider is out-of-network, this typically means they have not signed a contract to accept the insurer’s negotiated prices. This could mean that services provided by these healthcare providers may not be covered or may only be partially covered.


Pre-authorization is sometimes referred to as prior authorization, or prior approval. It is an extra step that requires your doctor’s office to request approval from your insurance plan for certain services, tests, or medications.   

PPO - Preferred Provider Organization

A PPO, sometimes called a Participating Provider Organization or a Preferred Provider Organization, is a network of healthcare providers. Generally, a PPO allows you to receive care from healthcare providers in or out of your network (Out of Network providers will cost more out of pocket). A PPO can be an attractive plan option if you want to continue to see a doctor you already have or travel a lot and need to receive medical care while you are away from your usual healthcare providers. While a PPO generally provides more choices, it is common for monthly premium costs to be higher.


The premium is the amount you pay to keep your health insurance policy active. Typically, health insurance premiums are paid monthly.

Prescription Drug List

Also known as a drug formulary, this is a list of brand and generic medications divided into tiers. Typically, the lower the tier, the less your copay will be for the medication. For example, medications on tier 1 will generally have the lowest copays, while tier 4 commonly includes specialty medications that treat rare medical conditions. Drug formularies differ depending on what plan you choose.

Preventive Care Services

Health care services to prevent health problems or illnesses, such as check-ups and screenings.  

PCP - Primary Care Physician

A PCP is usually your first point of contact within the healthcare system. Typically, they do health screenings, annual exams, and can help you find specialists.

QLE - Qualifying Life Event

A qualifying life event can allow you to enroll in health insurance outside the yearly open enrollment period. Some of these events could include, but are not limited to, getting married, adopting a child, or losing job-based coverage. For a full and current list of qualifying life events, search special enrollment opportunities on HealthCare.gov.

Subsidy / Subsidized Coverage

A health insurance subsidy is federal financial help for qualified individuals who do not have health coverage through an employer. These subsidies could be tax credits or Cost-Sharing Reductions.

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