Helping your team understand and use their benefits package is one of your most important tasks as an HR leader. But it’s not an easy job—in fact, 52% of employees say choosing their benefits is stressful, and 1 in 5 want more benefits education.
Raise your hand if you’ve had a team member tell you that they haven’t used their dental insurance once, or they didn’t sign up for a 401(k) with employer matching. ✋🏼 We’ve all been there, and it’s frustrating! You want to ensure your employees aren’t neglecting their health, or leaving money on the table (for themselves and your company).
The first step to ensuring that your team understands their benefits package is to demystify the terminology that goes with it. Because let’s face it — the healthcare industry loves jargon a little too much. Who wouldn’t be confused by PPOs, HMOs, HDHPs, HSAs and FSAs?
This comprehensive guide goes over all the essential terms, definitions, types of plans, and more. Most importantly, it breaks them down into digestible explanations with real-life examples. All definitions are in grey, so you can easily scroll and use what you need.
Whether you copy and paste these into a company-wide email, use them in your benefits package, or just bookmark them for when questions pop up—the following employee benefits definitions should make your life a little easier!
The Health Insurance Definitions Every HR Team Should Share with their Employees
Use these plain-English health-insurance definitions (with examples) to help your employees understand their health plans. These terms are particularly important because they’re related to costs, i.e., what your employee will pay for healthcare, which isn’t always straightforward. Of those who experienced a serious illness or injury in the past year, 92% were surprised by the healthcare cost related to the event.
To ensure your team understands their plans and the associated costs, define these terms:
- Deductible: This is a biggie because a deductible is what you’re required to pay before your health insurance “kicks in.” Deductibles can be confusing because some plans may have different deductibles depending on the service or cost—for instance, deductibles for prescription drugs vs. doctor visits.
- Dependent: A person covered on your health plan—a spouse or child.
- Formulary: Think of this as a menu of the prescription drugs your plan covers, listing the different prices.
- Health savings accounts: An HSA is a pre-tax savings account deducted from your paycheck that you can use for health- and medical-related expenses. You can only have an HSA with a high-deductible health plan (HDHP).
- In-network: Health-care providers (i.e., doctors, therapists, etc.) that your health plan will cover the costs for.
- Out-of-network: Health-care providers that aren’t covered under your health plan.
- Out-of-pocket maximum: The most you’ll pay for a healthcare service in a given coverage period. For example, if your out-of-pocket maximum is $10,000, that would be the most you’d pay for healthcare-related expenses, and your insurance would cover the rest.
- Premium: Your monthly cost for your health insurance plan.
For a deeper dive (and more key terms), check out our full blog post on health insurance definitions.
Comparing Health Insurance Plans: How to Explain the Difference Between HDHPs, PPOs, and HMOs to Your Employees
Health insurance plans are unnecessarily complex, boring, and coma-inducing. Throw in the fact that there are tons of acronyms, and it’s easy to understand why your employees hate comparing health insurance plans. (No wonder 25% have to spend 7+ hours researching medical insurance). When it comes to the plan itself, it’s imperative your team understands the difference between the three most prevalent options: HMOs, PPOs, and HDHPs. Explain them using our below breakdown.
HMO
An HMO (health maintenance organization) plan includes a network of health-care providers and locations where you’ll receive care (i.e., hospitals, doctor offices, doctors, specialists, etc.). HMO plans typically cover regular preventive care, and you pay a set co-pay each visit. For example, you pay $20 every time you visit your primary care physician (PCP).
PPO
A PPO (preferred provider organization) plan also includes a network of providers. The main difference from an HMO is that the network is larger, and you don’t need referrals from your PCP to see a specialist. In fact, with a PPO, you don’t even need to have a PCP if you don’t want to. However, to receive these extra benefits, you’ll typically pay a higher price tag, i.e., higher copays or deductibles.
HDHP
An HDHP (high deductible health plan) is the one plan where the name explains it pretty accurately. With this option, you’ll pay a fairly expensive deductible ($1,400+) before your insurance pays for anything. To offset this large amount, your monthly premiums are typically lower than with an HMO or PPO.
The IRS limits deductibles so that you won’t pay more than $7,000 for an individual or $14,000 for a family.
Other than the deductible, HDHPs are similar to HMOs and PPOs in how they operate (stipulations regarding in-network vs. out-of-network care, PCPs, specialists, etc.), so make sure to read over the details. You can pair an HSA with an HDHP to offset your costs before you meet your deductible.
Get more intel (including a side-by-side pros and cons list) in our guide to comparing health insurance plans.
HSA 101: The Snooze-Proof Health Savings Account Definitions You’ll Want to Share with your Employees
How many times does your team ask you the difference between an FSA and HSA? These savings accounts can be a powerful financial resource, and they offer tax advantages for you as an employer, too.
But HSA education is still lacking—in fact, 56% of employers say it’s their primary concern. Share our easy-to-understand health savings account definitions, so your employees are sure to get it once and for all.
HSA
An HSA (health savings account) takes pre-tax money from your paycheck that you can use for medical-related expenses. Unlike an FSA, this account doesn’t expire at the end of the year. HSAs can also be invested and accrue interest, earning you money from your money. HSAs work well with HDHPs because you can use the funds you save towards your deductible when you need to pay for medical- or health-related expenses. Moreover, HSAs can cover health and wellness supplies, for example, bandaids, tampons, pregnancy tests, contacts, etc. (Check out the IRS’s list of everything an HSA can cover).
To get even more specific, head over to our guide to health savings account definitions.
Different Retirement Plans Explained: How to Break Down 401Ks, Roths, and More for Your Employees
Once your team is square on health insurance, explaining the retirement plan definitions gets even trickier. Help your staff understand the three most common plans, 401K, IRAs, and HSAs, with the below descriptions.
401(k)s
This retirement plan is employer-sponsored and managed. Your work offers you the option to take money from each paycheck to contribute to a savings account for retirement. This money is invested so that you can earn compounding interest. There are two types of 401(k)s, traditional and Roth—the difference is when you pay taxes.
- Traditional 401(k): You contribute pre-tax money. When you retire, you’ll pay taxes on the entire account at your current tax rate.
- Roth 401(k): Your contributions are after-tax dollars. So when you retire, the entire account is yours!
IRA
As the name implies, an individual retirement account is not employer-sponsored but individually managed. You open an IRA with a bank or financial establishment. Even if you have a 401(k), if you want to diversify or increase your retirement savings, an IRA can be a great option.
There are also two options with this retirement account: traditional and Roth. A traditional IRA allows you to save pre-taxed money, compared to a Roth IRA, which is post-tax income. A unique difference here is that a Roth IRA is income-dependent. You can’t be above certain income limits to contribute; learn more here.
HSA
Health savings accounts can be employer or individually managed. HSAs allow you to save pre-tax money for health and medical-related expenses. The beauty of an HSA is the triple tax advantage. Contributions are tax-free. If you invest your HSA—the interest and earnings are tax-free. When you withdraw money, that’s also tax-free.
An HSA can be used as a retirement account because funds roll over each year, and once you retire, you can use them for anything—not just health-related expenses.
To delve into the pros and cons of each option, check out this longer article with detailed retirement plan definitions—plus a chart to share with your team!
Dental and Vision Insurance 101: How To Break it Down For Your Employees
Dental and vision insurance are beneficial add-ons to health plans that your employees should take advantage of. To help them understand the value, use the breakdown and explanations below.
Dental
Similar to health plans, you can select a PPO or HMO version for dental plans. Most dental plans cover costs for:
- Routine cleanings
- Fillings and crowns
- Root canals
- Minor surgical procedures like tooth removal
- Retainers and braces
- Infection management, scaling, root planning
- Dentures and bridges
Having dental insurance for you and your family ensures you can receive regular care, preventing bigger potential issues down the road!
Vision
Most vision insurance covers both eye care (i.e., annual exams) and eyewear (glasses or contact lenses). Additionally, most comprehensive plans will partially cover costs for more extensive procedures like surgery or disease treatment.
Read "Dental and Vision Insurance 101" for even more facts and ammo to convince your employees of the importance of dental and vision insurance.
How Does Short-Term Disability Work? A Simple Explanation for HR Teams to Share with Employees
Many of your employees might not understand how short-term disability works or when they would even use it. To help make it more clear, use our simple explanation:
Short-term disability insurance
Short-term disability will cover a certain percentage of your salary (ranging between 40-80%) if you cannot work. A disability can be any type of physical or mental illness, an injury, or childbirth.
Typically, short-term disability insurance has an “elimination period,” which is essentially a waiting period until you can collect benefits, usually seven days, but that can vary. You can collect benefits for up to three to six months. If your disability still prevents you from working after a year, you’d change to long-term disability insurance or social security disability.
Insert your company-specific details (like your specific coverage and elimination period) to make it more helpful to employees.
Refer to our more thorough guide on short-term disability for even more information to share with your team.
What is Long-Term Disability Insurance? Everything Your Employees Need to Know
Long-term disability insurance is a worthwhile investment. However, employees might not understand how to get this type of insurance and when they’d use it. Share the below description with your team members to clear it up.
Long-term disability insurance
Long-term disability insurance provides security if an employee can’t work for an extended period (six months or more). Like short-term disability, there’s an elimination period before coverage starts, which can range from 30-90 days.
Long-term disability insurance pays out 60% of your income on average (can vary anywhere from 50-80% depending on the plan). If you need to take a different, lower-paying job due to a health condition, it can also replace that lost income. Long-term disability insurance can be available through an employer as well as private insurers.
As you know, long-term disability insurance is one of the most challenging benefits to explain, as there are lots of stipulations, caveats, and countless scenarios.
To help educate your employees, use our long-term disability insurance guide.
What Is Leave of Absence? The Easy Definition to Share With Confused Employees
If you have a leave of absence policy, it’s imperative that your staff members know about it. Among many other questions, they may ask, “What is Leave of Absence? What qualifies as an appropriate need for leave?” To ensure everyone’s on the same page, use the below description.
Leave of absence
A leave of absence is an extended break from work. Leaves can be voluntary due to a personal issue (i.e., pregnancy or sabbatical) or involuntary (such as from a performance problem or illness). Most importantly, a leave allows an employee to take an extended amount of time off while still having access to benefits (like health insurance) and also ensuring they’ll have their position when they return. While people take leaves of absence for many reasons, common types of leaves include:
- Bereavement: Mourning the death of a loved one
- Maternity/Paternity: After the birth of a child
- Disability: Health-related issues that impair ability to work
- Sabbatical: A break to explore a personal passion
- Jury duty: If you’re selected as a jury member on a trial
- Military: Taking time off for military service
- Military family: Caring for a loved one who’s an injured military member
If your company has specific details for leaves of absence, i.e., paying salary during leaves, maximum length, etc., make sure to include that in your definition.
