Plan types and funding
- Fully insured plan
- A plan where the employer pays a fixed premium to an insurance carrier, which takes on the risk of paying claims. Rates for small groups come from the carrier's filed rates. See fully insured plans compared.
- Self-funded plan
- A plan where the employer pays employees' claims directly, usually through a third-party administrator, and typically buys stop-loss insurance to cap large claims. Also called self-insured. See what self-funded health insurance is.
- Level-funded plan
- A self-funded plan packaged for small employers: a fixed monthly payment covers expected claims, administration and stop-loss, with a possible refund if claims come in low. See level-funded plans compared.
- Stop-loss insurance
- Insurance that reimburses an employer for qualifying claims under a self-funded plan after specified attachment points. Specific protection applies to a person and aggregate protection to total eligible claims. Exclusions, reimbursement timing and policy periods can leave additional employer liabilities. The policy does not replace the employer's obligation to provide promised plan benefits.
- Attachment point
- The claims amount at which stop-loss insurance starts paying, for one person (specific) or the whole group (aggregate).
- Third-party administrator (TPA)
- A company that processes claims, provides member services and handles plan paperwork for a self-funded plan, without taking on the claims risk itself.
- PEO (professional employer organization)
- A company that becomes the co-employer of your team for payroll, HR and benefits, so small companies can join its large group health plan. See PEO alternatives.
- ICHRA (individual coverage HRA)
- An individual coverage HRA reimburses eligible expenses for employees enrolled in qualifying individual coverage, or eligible Medicare coverage, under the arrangement's terms. An employee cannot choose between an ICHRA and a traditional group plan from the same employer. Permitted classes, substantiation, notice and premium-tax-credit rules apply. An affordable offer can block credits even if declined. See ICHRA comparisons.
- QSEHRA
- A qualified small employer HRA is available to an eligible employer that is not an ALE and offers no group health plan. It reimburses substantiated eligible expenses under written terms. The 2026 maximum is $6,450 self-only or $13,100 family, prorated for partial-year eligibility. Tax-free reimbursement requires minimum essential coverage. Permitted employee exclusions and premium-tax-credit coordination need review. See QSEHRA rules.
- HRA (health reimbursement arrangement)
- An employer-funded account that pays employees back tax-free for eligible medical costs. Only the employer contributes, and the plan decides whether unused amounts roll over.
- Small group market
- The state-regulated insurance market for small employers, generally up to 50 employees, with a higher boundary in some states. Verify the current state definition and eligibility rules, including owner-only groups. ACA-compliant non-grandfathered small-group coverage is subject to market rating and essential-health-benefit requirements; do not assume every historical policy follows identical rules.
Plan designs and networks
- Network
- The doctors, hospitals and other providers that have agreed prices with a plan. In-network care costs members less; out-of-network care may cost more or not be covered.
- PPO (preferred provider organization)
- A plan that covers in- and out-of-network care, with lower costs in network, and doesn't require referrals to see specialists. See HMO vs PPO vs EPO.
- HMO (health maintenance organization)
- A plan that covers only in-network care, except emergencies, and usually requires a primary care doctor and referrals to see specialists.
- EPO (exclusive provider organization)
- A plan that covers only in-network care, except emergencies, but usually without referrals.
- POS (point of service) plan
- A hybrid of an HMO and a PPO: members choose a primary care doctor and need referrals, but have some out-of-network coverage.
- HDHP (high-deductible health plan)
- Under the standard 2026 HSA rules, a high-deductible health plan has a deductible of at least $1,700 self-only or $3,400 family and an out-of-pocket limit no higher than $8,500 or $17,000, excluding premiums. Other coverage rules also matter. Beginning in 2026, qualifying individual bronze and catastrophic plans are treated as HSA-compatible even if they do not meet these usual thresholds. Do not infer HSA eligibility from the deductible alone.
- Metal tiers
- Bronze, silver, gold and platinum: the ACA's labels for how much of average costs a plan pays, about 60%, 70%, 80% and 90%.
- Actuarial value
- The percentage of expected allowed costs a plan pays for a standard population. It does not predict the percentage of one person's bills the plan will pay. A member with little care may pay most of their costs, while another reaches the out-of-pocket limit. Premiums are outside this measure.
- Carve-out
- A benefit run separately from the main medical plan, such as pharmacy, behavioral health or dental, often by a specialist vendor.
Costs and pricing
- Deductible
- What a member pays for covered care each year before the plan starts sharing costs, except for services covered before the deductible, such as preventive care. See deductibles, copays and coinsurance.
- Copay
- A fixed amount a member pays for a service, such as $30 for a doctor visit.
- Coinsurance
- A member's percentage of the allowed amount for a covered service, commonly after the applicable deductible. For example, 20% coinsurance on an illustrative $500 allowed amount is $100, before considering the out-of-pocket limit. It is not ordinarily 20% of any amount a provider chooses to bill.
- Out-of-pocket maximum
- The most a member pays in the plan year for the covered services counted toward the limit, generally in-network essential health benefits. Deductibles, copays and coinsurance count as specified by the plan. Premiums, excluded care and many out-of-network or balance-billed charges do not. A family can have both individual and family limits, so read both before modeling a high-use year.
- PEPM (per employee per month)
- A way of quoting costs, such as premiums or admin fees, as a monthly amount for each enrolled employee.
- Employer contribution
- The share of the premium the employer pays. Carrier contribution requirements vary. Confirm the minimum in the actual proposal; it is separate from the ACA affordability calculation.
- Renewal
- The yearly repricing of a group plan, when the carrier sets next year's rates. See why renewals go up.
- Community rating
- Pricing a group by the carrier's whole pool rather than the group's own claims. In the ACA small group market, premiums can vary only by age, tobacco use, location and family size.
- Composite vs age-banded rates
- Two ways to bill a group premium: composite rates charge one price per coverage tier for everyone, while age-banded (list-billed) rates price each person by age.
- Medical loss ratio (MLR)
- The share of premiums an insurer spends on care and quality improvement. The federal standards are generally 80% in individual and small-group markets and 85% in large-group markets, with regulatory adjustments and a multiyear calculation. They are not a profit cap for each employer policy.
- Underwriting
- How an insurer assesses a group's risk to set its price. ACA small group plans can't be priced on health status; self-funded and stop-loss coverage can be.
Accounts and pre-tax benefits
- HSA (health savings account)
- An individually owned health savings account with federal tax advantages for qualified medical expenses. Contribution eligibility requires qualifying coverage and satisfaction of other rules, including no disqualifying other coverage and no Medicare enrollment. The combined employer and employee 2026 contribution limits are $4,400 self-only and $8,750 family; eligible people age 55 or older can contribute an additional $1,000. Existing balances remain yours after eligibility ends. See HSAs.
- FSA (flexible spending account)
- A health flexible spending arrangement is an employer-sponsored benefit that can receive employee pre-tax salary reductions and employer contributions. The plan specifies eligible expenses and deadlines. Unused funds are generally forfeited unless the plan permits a limited carryover or grace period. A general-purpose health FSA can disqualify HSA contributions, including when a spouse's FSA can reimburse your expenses.
- Section 125 plan
- A cafeteria plan that lets employees pay their share of premiums, and fund FSAs, with pre-tax pay. See Section 125 explained.
- Eligible medical expenses
- The costs HSAs, FSAs and HRAs can pay tax-free, defined by the IRS. See HSA and HRA eligible expenses.
Claims and care
- Allowed amount
- The amount the plan recognizes for a covered service under its contract and benefit rules. Member coinsurance is generally calculated from this amount, not the provider's unrestricted list charge. In-network providers generally accept contracted amounts plus member cost-sharing. Out-of-network billing and surprise-billing protections need separate review.
- Explanation of benefits (EOB)
- A statement from the plan after a claim, showing what the provider billed, the allowed amount, what the plan paid and what the member owes. It isn't a bill.
- Balance billing
- A provider bill for the difference between its charge and the plan's allowed amount, separate from ordinary member cost-sharing. Federal surprise-billing protections cover most emergency services, certain out-of-network services at participating hospitals and ambulatory surgical centers, and air ambulance services. Exceptions apply; ground ambulances generally are not covered by the federal protections. State law may add rights.
- Formulary
- A plan's list of covered prescription drugs, usually sorted into tiers with different copays.
- PBM (pharmacy benefit manager)
- A company that runs a plan's prescription drug benefit: building the formulary, negotiating with drugmakers and pharmacies, and processing pharmacy claims.
- Preventive care
- Specified preventive services, including recommended screenings and immunizations, that non-grandfathered plans generally cover in network with no deductible, copay or coinsurance when applicable eligibility and service criteria are met. Not every checkup, laboratory test or diagnostic follow-up is covered without cost-sharing. See preventive services.
Rules and compliance
- Affordable Care Act (ACA)
- The 2010 law that set today's rules for health insurance, including essential health benefits, ACA rating rules, the marketplaces and the employer mandate.
- Applicable large employer (ALE)
- An employer that averaged 50 or more full-time employees, including full-time equivalents, in the prior year, and so is subject to the employer mandate. Check with the ALE calculator.
- Full-time equivalent (FTE)
- For ACA employer-size counting, combine hours of non-full-time employees, capped at 120 hours for each person per month, and divide by 120. Add that result to full-time headcount for each month, then average the year. This is different from deciding which particular employees must receive offers to avoid employer penalties.
- Employer mandate
- The ACA employer shared responsibility rules can impose monthly payments on ALEs when a full-time employee receives a Marketplace premium tax credit and the statutory offer conditions are not met. The annual 2026 amounts are $3,340 under section 4980H(a), after the applicable 30-person reduction, and $5,010 per subsidized full-time employee under (b), subject to its cap. The 2027 amounts are $3,780 and $5,670. These are different formulas, not two automatic charges on every employee.
- Affordability
- Under the ACA, coverage is affordable if the employee's cost for the cheapest self-only, minimum-value plan is no more than 9.96% of household income in 2026, or 10.22% in 2027. Check with the ACA affordability calculator.
- Minimum value
- A plan provides minimum value if it covers at least 60% of expected allowed costs for a standard population and substantially covers inpatient hospital and physician services. This is not a guarantee to pay 60% of each member's bill.
- Minimum essential coverage (MEC)
- Coverage that counts under the ACA, including employer group plans, marketplace plans, Medicare and Medicaid.
- Essential health benefits
- Ten categories of care ACA-compliant non-grandfathered small-group and individual coverage generally must cover, including hospital care, prescription drugs, maternity and mental health. See the essential health benefits.
- COBRA
- Federal continuation rights for qualified beneficiaries after an event causes loss of group coverage. The usual maximum is 18 months for termination or reduced hours, with specified extensions or dependent events allowing longer periods. The normal premium cap is 102%; disability rules can permit 150%. The employer-size test generally uses at least 20 employees on more than half of typical prior-year business days, with fractional part-time counting and statutory exceptions. See the COBRA calculator.
- Mini-COBRA
- State continuation laws that extend COBRA-like rights to employees of smaller employers, often those under 20. See COBRA for small employers.
- ERISA
- The federal law governing most private employer benefit plans, requiring a written plan document, disclosures to members, claims procedures and fiduciary duties.
- Summary of Benefits and Coverage (SBC)
- A standardized Summary of Benefits and Coverage for applicable health coverage. It describes cost-sharing, limitations and illustrative coverage scenarios. It is not the complete contract and generally does not show the employer's payroll contribution policy. Use the contribution sheet, network and formulary alongside it.
- Form 5500
- An annual report ERISA plans file with the Department of Labor. Health plans with fewer than 100 participants that are fully insured or unfunded are generally exempt.
- Forms 1094-C and 1095-C
- The annual IRS forms applicable large employers file to report the coverage they offered each full-time employee.
- PCORI fee
- A small annual per-member fee that funds patient-centered outcomes research, paid by the insurer for fully insured plans and by the employer for self-funded plans, on IRS Form 720 by July 31.
Enrollment
- Open enrollment
- The yearly window when employees can join, leave or change plans. See how to run open enrollment.
- Qualifying life event
- An event that may create enrollment rights outside open enrollment, subject to the applicable rule and deadline. Employer-plan special enrollment commonly requires a request within 30 days for marriage, birth or certain coverage losses; Medicaid and CHIP events can have a 60-day period. Marketplace rules differ. A life change does not automatically authorize every pre-tax election change.
- Waiting period
- The time before coverage begins after an employee is otherwise eligible. Applicable group plans generally cannot impose a waiting period exceeding 90 calendar days, including weekends and holidays. Other eligibility conditions and variable-hour measurement rules require separate review. A first-of-month rule must still comply with the applicable limit.
- Participation requirement
- A carrier's minimum share of eligible employees who must enroll for a group to get or keep a plan, after excluding employees who waive for other coverage.
- Waiver
- An employee's decision to decline the employer's plan, often because they're covered elsewhere. See can employees opt out.
- Dependent
- A person eligible under the plan, such as a spouse or child. Applicable medical plans offering dependent-child coverage generally must make it available until age 26. Tax-dependent status and the ACA employer-penalty definition of dependent are separate questions. Do not assume that a spouse must be offered coverage under the federal employer mandate.
- Coverage tier
- The group of people a member enrolls: employee only, employee plus spouse, employee plus children, or family. Premiums are set per tier.
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