Bud Bowlin has been advising business owners about health insurance and benefits for more than 35 years. For his 70th birthday, we gave him his own advice column. Got a burning benefits question for Bud? Send it to [email protected].

Hey Bud,

This is my first time being a manager, and now I’ve got employees asking me questions about their health insurance statements. Whenever I look at my Explanation of Benefits, my eyes glaze over. I think the insurance company sent me some sort of glossary at the beginning of the year, but I have no idea where it is now. We’re a small company with no HR department yet. Can you give me the absolute basics necessary to understand a health insurance summary—maybe using a sports metaphor?

Thanks,
Sports Helps A Manager Understand Stuff

Hi S.H.A.M.U.S.,

The Affordable Care Act says that all insured people have the right to an easy-to-understand summary of benefits and coverage (SBC) with a uniform glossary of medical terms. Well, as anyone who’s set foot in the DMV can tell you, the government has a funny way of making “easy-to-understand” feel very complicated! Indeed, early feedback on the SBC has been mixed—with consumers split between getting too much and too little information.

I think there are a few parts of a health insurance plan that everybody ought to know. Once you understand these five terms, you’ll have a major advantage in managing your risk exposure. I don’t want to give you too much information or too little, and since I don’t look like Goldilocks, I’ll aim for “just right” by giving you that sports metaphor.

Visualize health insurance as a track, on which you, the insured, are a runner.

The Premium
To set foot on the track, you must pay a recurring monthly fee—like membership dues. The rate of the premium is determined by a variety of factors including a health plan’s deductible, copay, coinsurance, and out-of-pocket maximum.

The Deductible
This is where you start the race. Before health insurance can begin covering your healthcare expenses, you must first pay this fixed amount of money. Once you’ve satisfied your deductible, you’re off and running until you reach…

Copays
When you encounter these points, you have to stop to pay a fee. Copays are a fixed dollar amount you pay out-of-pocket each time you see a medical provider or obtain prescription medicine. You pay this portion, and your insurance carrier pays the rest. See an example here.

Coinsurance
When you encounter these points, you also have to stop to pay a fee. Coinsurance is the variable percentage you pay out-of-pocket for less common medical expenses and out-of-network provider services. You pay this portion, and your insurance carrier pays the rest. See an example here.

The Out-of-Pocket Maximum
You’ve reached the finish line: no more copays or coinsurance! Once you’ve satisfied your out-of-pocket maximum, your insurance carrier takes over and covers 100% of your medical expenses. Since you know this amount up front, you can save toward it. In fact, if you have an HSA or FSA, you can set your contributions to accumulate accordingly.

S.H.A.M.U.S., I’m confident that if you know these five terms, you’ll stay on track! Of course, once you go beyond the basics, there’s a lot more to understanding health insurance. And while I applaud you for wanting to help your team succeed, I also want you to succeed. (Some things are outside the scope of a manager’s responsibilities.) Many modern employers are turning to an HR approach that combines a self-service help center with access to live benefits advisors. Take a tour here, and tell ‘em Bud sent you!

Got a question about benefits and insurance? Send it to [email protected].

The answers on Ask Bud serve as basic guidelines and are for informational purposes only. Bud is a treasure trove of knowledge, but is unable to provide legal, tax, or fact-specific human resources advice. Once a question is submitted, Bud and Zenefits reserve the right to accept, reject, edit, modify, or otherwise change it. All content on the Zenefits website, including questions received and answers provided by Ask Bud, are Zenefits property.

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