Because of the Affordable Care Act (ACA), employers and employees may now be expected to have a greater understanding of health care vocabulary. Some terms are new under the ACA, but many have been around for a long time and are still not fully understood. Others are similar in meaning and are easily confused. Here are some terms from the U.S. Department of Health and Human Services that employers and employees should know.
What’s the difference between a flexible spending account (FSA) and a health savings account (HSA)?
An FSA is an arrangement you set up through your employer to pay for many of your out-of-pocket medical expenses with tax-free dollars. These expenses include insurance copayments and deductibles, qualified prescription drugs, insulin and medical devices. You decide how much of your pretax wages you want taken out of your paycheck and put into an FSA. You don’t have to pay taxes on this money. Your employer’s plan sets a limit on the amount you can put into an FSA each year, but there’s also an overall limit of $2,700 for 2019 (up from $2,650 in 2018).
You generally can’t “carry over” FSA funds. This means that FSA funds you don’t spend by the end of the plan year can’t be used for expenses in the next year. However, there are two exceptions:
- An FSA plan can allow a grace period of up to 2 1/2 months. For a calendar-year FSA plan, that gives employees up to March 15 of the following year to incur enough expenses to soak up their unused FSA balances from the previous year. (Most FSA plans are operated on a calendar-year basis.)
- A health care FSA plan can allow employees to carry over up to $500 of unused balances from one year to the next. However, if the $500 carryover privilege is allowed, the health care FSA cannot also offer the grace-period deal. In other words, a health care FSA plan can offer either the carryover privilege or the grace-period deal, but not both.
An HSA is a medical savings account available to taxpayers who are enrolled in a high-deductible health plan. The funds contributed to the account aren’t subject to federal income tax at the time of deposit. Funds must be used to pay for qualified medical expenses. Unlike an FSA, funds roll over year to year if you don’t spend them.
What’s the difference between copays, deductibles and coinsurance?
- A copay is a fixed amount (for example, $15) of out-of-pocket costs. This is the amount an insured employee pays for a covered health care service, usually when the service is received. The amount can vary by the type of covered health care service.
- A deductible is also a fixed dollar amount for expenses paid out-of-pocket. It’s the amount the insured employee owes for covered health care services before the health insurance or plan begins to pay. For example, if the deductible is $1,000, the plan won’t pay anything until the employee has paid the $1,000 deductible for covered health care services subject to the deductible. The deductible may not apply to all services.
- A higher deductible usually results in a lower premium. A health insurance deductible is different from other types of deductibles. Unlike auto, renters or homeowners insurance, where the insured doesn’t get services until the deductible is paid, many health insurance plans provide some benefits before the deductible has been met.
- Coinsurance is also an out-of-pocket expense. Your share of the costs of a covered health care service, calculated as a percentage (for example, 20%) of the allowed amount for the service. You pay coinsurance plus any deductibles you owe. For example, if the plan’s allowed amount for an office visit is $100, and you’ve met your deductible, your coinsurance payment of 20% would be $20. The health insurance plan pays the rest of the allowed amount.
Typically coinsurance rates are 90/10, 80/20 or 70/30. A 70/30 plan means your insurer pays for 70% of costs and you pay the remaining 30%. Coinsurance often has a “coinsurance cap” of a specified dollar amount, usually $2,000 or $3,000. Once the cap is reached, the insurer assumes responsibility for 100% of any charges incurred thereafter.
How does a preexisting condition differ from a qualifying life event?
A preexisting condition is a health problem you had before the date that new health coverage starts. In relation to insurance obtained through an employer,a preexisting condition is any condition (either physical or mental) including a disability for which medical advice, diagnosis, care, or treatment was recommended or received within the six-month period ending on your enrollment date in a health insurance plan. Genetic information, without a diagnosis of a disease or a condition, cannot be treated as a preexisting condition, nor can pregnancy. Newborns, newly adopted children and children placed for adoption who are enrolled within 30 days also cannot be subject to preexisting condition exclusions.
A qualifying life event is a change in your life that can make you eligible for a special enrollment period to enroll in health coverage. Examples of qualifying life events are moving to a new state, certain changes in your income, changes in your family size (for example, if you marry, divorce or have a baby) and gaining membership in a federally recognized tribe or status as an Alaska Native Claims Settlement Act Corporation shareholder. If you have a qualifying life event and therefore are eligible for a special enrollment period, that period extends for 60 days following the event.