Health benefits can be extremely valuable, but many employees struggle to understand the terminology used in plan materials. Terms like deductible, coinsurance and out-of-pocket maximum are often misunderstood, making health coverage feel confusing and overwhelming. Understanding these concepts can help employees make informed decisions, avoid unexpected costs and use their benefits more confidently.
A copay is a fixed amount paid for services like doctor visits or prescriptions. While many people assume copays count toward the deductible, that is not always the case. Coinsurance refers to the percentage of costs an employee pays after meeting the deductible. For example, if a plan has 20-percent coinsurance, the employee pays 20 percent of covered costs while the insurance company pays 80 percent.
A deductible is the amount an individual must pay out of pocket before insurance begins sharing costs for most covered services. Preventive care, such as annual checkups and screenings, is often covered before the deductible is met. Once the deductible is reached, employees may still owe copays or coinsurance until they hit the out-of-pocket maximum, which is the most they will pay for covered services in a plan year. After that limit is reached, the plan generally covers 100 percent of eligible costs.
Employees also should understand the difference between in-network and out-of-network providers. In-network providers have agreements with insurance companies and usually result in lower costs. Out-of-network care may cost significantly more or may not be covered at all.
Benefits accounts also can be confusing. Flexible Spending Accounts (FSAs) allow employees to use pre-tax dollars for eligible expenses, but unused funds are often forfeited at year-end. Health Savings Accounts (HSAs), however, allow funds to roll over each year and remain the employee’s property.
Understanding common benefit terms makes it easier to navigate health coverage, reduce financial surprises and maximize the value of employee benefits.
Kim Figurski is a former HR consultant and trainer at The MBA. To learn more about The MBA’s HR & Legal Services, visit mbausa.org.
