The Patient Protection and Affordable Care Act (ACA) has put health care for small businesses in the spotlight. Small business owners and contractors may be wondering about the astounding number of acronyms being thrown around.
Here’s a list of some of the most common health insurance phrases and brief explanations to help make sense of this unfamiliar terminology.
1. Applicable Large Employer (ALE)
This refers to an employer that employed more than 50 full-time equivalent employees during the preceding year. Many ACA stipulations only apply to ALEs, but many ALEs are treated differently than small employers for the purposes of health insurance regulation.
2. Consumer-Directed Health Plan (CDHP)
A low premium health plan with high annual deductibles and out-of-pocket maximums that are higher than typical health plans. CDHPs usually are linked with Health Savings Accounts that may be used to pay for qualified medical expenses.
3. Dependent Coverage
The ACA expanded health insurance mandate requires that employers offer dependent coverage beginning in 2016. Dependents include children up to age 26, excluding stepchildren, foster children and spouses. Dependents can remain on their parent’s plan even if they get married, live outside of their parent’s home or are not claimed as a tax dependent.
4. Employer-Sponsored Plan
Otherwise known as group health insurance coverage offered by, or on behalf of, an employer to the employee. Under the ACA, eligible employer-sponsored plans must meet “minimum essential coverage” standards.
5. Employer Shared Responsibility
Employers with 50 full-time equivalent employees must offer affordable health care coverage that meets minimum essential coverage guidelines. The employer may be assessed a penalty if it fails to meet these guidelines and if at least one employee gets a policy in the exchange with a subsidized premium.
6. Flexible Spending Account (FSA)
A special account into which an employee can make contributions using pre-tax money. The employee can use the money in this account to help pay for qualified medical expenses. In general, the funds in the account must be used within the plan year or the employee may lose any money left over in the FSA.
7. Full-Time Equivalent (FTE) Employee
Under the ACA, a full-time employee is someone who works an average of at least 30 hours a week. But, how are part-time hours calculated? In that case, the hours for employees who worked less than full-time hours per month are combined and calculated to determine the number of full-time equivalent employees. Companies with more than 50 FTE employees may be defined as ALEs.
8. Health Savings Account (HSA)
Another type of special account that makes use of pre-tax or tax-deductible contributions from the employee or employer. An employee can make withdrawals on the account to help pay for qualified medical expenses. HSA funds can accumulate over time, free of tax. In order to qualify for an HSA, an employee must have coverage from a high-deductible health plan.
9. High-Deductible Health Plan (HDHP)
A health insurance plan with lower premiums and higher deductibles than a traditional health plan. Many HDHPs feature little to no out-of-pocket expenses for preventive screenings and office visits. HDHPs are a prerequisite for qualifying for HSAs.
10. Minimum Essential Coverage
The coverage an individual must have to comply with the individual mandate and avoid the individual mandate penalty tax. Defined by the ACA as most group health plans offered by a large or small employer, health coverage provided by the government or purchased through the Health Insurance Marketplace.
11. Small Business Health Options Program (SHOP)
A small business exchange designed to help small employers provide health insurance options to their employees. The exchanges offer group health plans to small companies and provide comparative information on benefits, costs and quality, as well as facilitate enrollment in the plan of choice.
12. Small Business Health Care Tax Credit
Eligible small employers that provide health care coverage to their employees may qualify for a federal tax credit.
13. Small Employers
In general, employers with one to 50 employees. However, new legislation allows states to opt to define entities that employ 100 or fewer employees as a small employer if they choose.
14. Summary of Benefits and Coverage
Part of the new regulations regarding health care coverage, employers or the plan administrator are required to provide each enrollee with a written summary that accurately describes the plan’s benefits and coverage, complying with detailed requirements. Failure to provide each participant or enrollee with a SBC can result in high daily penalties.
15. Wellness Programs
A program to improve and promote health and fitness that can be offered through the workplace or from insurance plans directly to enrollees. An employee may receive incentives such as premium discounts or other rewards to encourage healthier habits or personal measures to protect health and prevent illness.
According to a 2015 study by the Transamerica Center for Health Studies, of the 61 percent of employers that offer workplace wellness programs, 82 percent say their program had a positive impact on workers’ health, 80 percent say it had a positive impact on productivity and performance, and 71 percent say it had a positive impact on health care costs.