Let’s face it, health insurance terms can feel like alphabet soup. PPOs, QLEs, coinsurance… It’s a lot to take in. And if you’re feeling overwhelmed, you’re not alone. Even seasoned business owners and employees find this stuff confusing.
That’s why we created this resource. You can watch the short video below to get familiar with the most common day-to-day insurance terms your team needs to know, or keep reading to see the same terms in writing (plus extra, employer-specific terms not covered in the video).
Health Insurance Terms… in Plain English
Cost-Related Terms
Premium: The amount paid each month to keep a health plan active, like a subscription. This cost can be covered by employers, employees, or shared between them.
Deductible: This is what you pay out of pocket for care before insurance kicks in. For example, if your deductible is $1,500, you’ll pay that amount first before insurance starts covering most costs.
Copay: A flat fee you pay when you get care (e.g. $25 for a doctor’s visit).
Coinsurance: A percentage split between you and your insurance after your deductible is met. A typical coinsurance split is 80/20—meaning your insurance pays 80%, and you pay 20%.
Eligibility Terms
Open Enrollment: The once-a-year window when employees can sign up for or make changes to their benefits.
Special Enrollment Period (SEP): If someone experiences a Qualifying Life Event—like having a baby or losing coverage—they can make changes outside of open enrollment.
Waiting Period: The number of days a new employee may need to wait before becoming eligible for benefits.
Plan Types & Network Terms
HMO (Health Maintenance Organization): Lower-cost plans that require staying in-network and getting referrals to see specialists.
PPO (Preferred Provider Organization): More flexible, see in-network or out-of-network providers, often without referrals.
EPO (Exclusive Provider Organization): This is a hybrid; referrals are not needed, but you must stay in-network for coverage.
Beyond the basics, employers should also understand compliance and administrative terms that keep benefits legally sound and running smoothly. These include:
ACA (Affordable Care Act): A 2010 health care law requiring certain employers to offer health insurance. It sets rules for companies, individuals, and insurers to improve access and affordability.
ALE (Applicable Large Employer): This is any company that has 50 or more full-time equivalent (FTE) employees. These companies are required to provide their team with health care.
COBRA: A program that provides temporary (and pricey!) health coverage for people who lose their employment. The acronym stands for the Consolidated Omnibus Budget Reconciliation Act of 1985, which was created to ensure employees and their dependents could continue their health insurance after losing their job. Have any other COBRA questions? Make your way over to this guide from the Department of Labor (DOL).
HIPAA: HIPAA is a law that secures people’s protected health information, or PHI. It does this by spelling out the kinds of health information that must be kept private, along with creating high standards to hold everyone who has access to sensitive information responsible for its security. If you’re HIPAA compliant, it means that you follow all the laws laid out in this important act.
HIPPA business associate agreement (BAA): This one sounds like it’s all business, but don’t get frightened. A BAA is a simple agreement that allows companies that follow HIPAA, called covered entities, to hire other employees or contractors, called business associates.
Forms 1094-C & 1095-C: Do you have 50 or more FTEs on staff? Then these forms need to be sprinkled into your vocabulary. The two documents exist so you can show the IRS that you’re giving your team meaningful health insurance.
ERISA: The Employee Retirement Income Security Act, or ERISA for short, was created because of concerns about the labor and tax aspects of employee benefit plans. The law standardizes benefit plans for workers, and it helps champion increased access to plan information for participants. All business owners who provide health care have to abide by the rules outlined in ERISA.
Premium-Only Plan: Section 125 plans—also called cafeteria plans—let employees use their pre-tax salary to pay for a qualified benefit, like POP plans. These plans are the most basic kind of Section 125 plans, and enable employees to pay for their health insurance before taxes are taken out.
Why This Matters
When your team understands how health insurance works, they’re more likely to use it. That means fewer surprises, smarter healthcare choices, and a stronger benefits experience overall. At Gusto, we’re here to make benefits easier for you and your employees. Watch the video above, bookmark this page, and come back whenever you need a refresher.
