.png?width=1815&height=495&name=4J%20commercial%20insurance%20broker%5B1%5D%20(1).png)
Group Health Insurance Glossary
35 group health and employee benefits terms, defined for the person who signs the renewal. Every entry tells you what it means, why it matters at renewal, and what to look for on your own plan — with a citation to the statute, regulation, or contract behind it.
Health benefits are the second-largest line item most Texas employers carry, and the one they have the least visibility into. That is not an accident of the market. It is a design feature of it.
ACA Affordability
What it is. The test that decides whether your health plan is "affordable" under the ACA employer mandate — measured against the employee's required contribution for the lowest-cost self-only plan, as a percentage of household income.
Why it matters at renewal. If you are an Applicable Large Employer and your plan fails the affordability test, an employee who takes a subsidized exchange plan can trigger a penalty against you. The percentage is indexed and changes annually, so a plan that was affordable last year can quietly fail this year without you touching it.
What to look for on your plan. The employee-only contribution for your lowest-cost plan, and which safe harbor you are using (W-2, rate of pay, or federal poverty line). Confirm the current year's percentage before you set contributions.
Source: IRC §4980H; IRS annual affordability guidance.
Applicable Large Employer (ALE)
What it is. An employer that averaged 50 or more full-time and full-time-equivalent employees in the prior calendar year, and is therefore subject to the ACA employer mandate.
Why it matters at renewal. ALE status is not about how many people you employ today — it is about last year's average, including part-time hours rolled into full-time equivalents. Businesses cross the threshold without noticing, then discover they owed offers of coverage and 1094/1095 reporting they never filed.
What to look for on your plan. Your FTE calculation for the prior year. If you are anywhere near 50, run the math monthly, not annually.
Source: IRC §4980H; IRS ALE determination rules.
Benefits Administration
What it is. The operational layer — enrollment, eligibility, payroll deduction, carrier feeds, terminations, COBRA triggers.
Why it matters at renewal. Most benefits pain is not underwriting pain. It is administrative pain: a termination that never reached the carrier, a new hire enrolled late, a deduction that does not match the invoice. These errors surface as claim denials for real employees.
What to look for on your plan. Whether your enrollment data flows to the carrier automatically or someone re-keys it. Manual re-keying is where errors live.
Source: Carrier and TPA service agreements.
Captive (Group Medical Captive)
What it is. An arrangement where multiple employers pool their stop-loss risk in a jointly owned insurance entity, sharing in the surplus if claims run well.
Why it matters at renewal. A captive can lower long-run cost for a healthy group, but it trades liquidity and simplicity for upside. You are taking on a share of other members' volatility. It is a real strategy, not a gimmick — but it is not a fit for an employer who cannot absorb a bad year.
What to look for on your plan. Your share of the pooled layer, the collateral requirement, the exit provisions, and how surplus is distributed. Read the exit terms before you enter.
Source: Captive operating agreement; state captive statutes.
Coinsurance
What it is. The percentage of a covered cost the member pays after the deductible — 20% coinsurance means the plan pays 80%.
Why it matters at renewal. Coinsurance is where "I have insurance" collides with a five-figure bill. On a high-deductible plan with 20% coinsurance and a $6,000 out-of-pocket max, a serious hospitalization still costs the employee thousands. Employees judge your plan by this number, not by the premium you paid.
What to look for on your plan. Coinsurance percentages and the out-of-pocket maximum, in-network and out-of-network. The out-of-network number is often the one nobody read.
Source: Summary of Benefits and Coverage (SBC).
COBRA
What it is. Federal continuation coverage requiring employers with 20 or more employees to let terminated employees and dependents keep group coverage, at their own cost, for a limited period.
Why it matters at renewal. COBRA is a compliance trap, not an insurance product. Missed notices carry statutory penalties, and the deadlines are short. It is also the single most common thing employers hand to a payroll vendor and never verify.
What to look for on your plan. Who sends your COBRA notices, and whether you can produce proof of timely delivery. If the answer is "I think our payroll company does it," find out.
Source: COBRA (Consolidated Omnibus Budget Reconciliation Act); ERISA.
Contribution Strategy
What it is. How much of the premium the employer pays, and how that splits across employee-only, employee+spouse, and family tiers.
Why it matters at renewal. Contribution strategy quietly determines who enrolls. Load the family tier and you push families onto a spouse's plan or the exchange — which changes your risk pool, which changes your renewal. It is one of the few levers you fully control.
What to look for on your plan. Your tier structure and participation rates by tier. If family enrollment is collapsing, the contribution split is usually why.
Source: Plan documents; carrier participation requirements.
Deductible
What it is. The amount a member pays before the plan begins paying.
Why it matters at renewal. Raising the deductible lowers premium and shifts cost onto the employees who actually get sick. That is a legitimate trade — but it is a trade, not a savings. An employer who cuts premium 12% by doubling the deductible has not reduced cost; they have moved it onto the people using the plan.
What to look for on your plan. Individual and family deductibles, and whether it is embedded or aggregate. On an aggregate family deductible, no one gets benefits until the whole family deductible is met.
Source: Summary of Benefits and Coverage (SBC).
ERISA
What it is. The federal law governing employer-sponsored benefit plans — fiduciary duties, plan documents, disclosure, and appeals.
Why it matters at renewal. ERISA makes you a fiduciary over your health plan. That is a legal standard, not a figure of speech: you must act in the exclusive interest of participants. Most employers have never seen their own plan document, which is itself an ERISA problem.
What to look for on your plan. Whether you have a written plan document and Summary Plan Description, and whether you have ever distributed the SPD. If a fully insured carrier booklet is all you have, that is not an SPD.
Source: Employee Retirement Income Security Act of 1974 (ERISA).
Experience Rating
What it is. Pricing based on your group's actual claims history rather than a broad community pool.
Why it matters at renewal. Once you are experience-rated, your renewal is a function of your own people's health events. One catastrophic claimant can drive a renewal you did not cause and cannot un-cause. This is the moment funding strategy stops being theoretical.
What to look for on your plan. Your loss ratio and large-claimant detail. If your broker cannot produce them, you are negotiating blind.
Source: Carrier underwriting reports; claims experience data.
Formulary
What it is. The list of drugs a plan covers, and the tiers that determine what each costs.
Why it matters at renewal. Formulary design is one of the most powerful and least examined cost levers. A drug moved from tier 2 to tier 4 can quadruple an employee's cost with no change to your premium. The savings show up on your invoice; the pain shows up at the pharmacy counter.
What to look for on your plan. Whether your PBM manages the formulary in your interest or theirs. Ask specifically how rebates are handled — see Rebates and PBM.
Source: Plan formulary documents; PBM contract.
Fully Insured
What it is. The traditional model: you pay a fixed premium, the carrier takes all claims risk, and any surplus is theirs.
Why it matters at renewal. Fully insured is simple and predictable. It is also the model where you have the least visibility — you generally cannot see your own claims data, so you cannot prove your group is healthy, which means you cannot argue your renewal. If your group runs well, you are subsidizing groups that do not.
What to look for on your plan. Whether your carrier will release claims data. If not, that is an argument for level funding.
Source: Carrier policy; state insurance regulation.
High-Deductible Health Plan (HDHP)
What it is. A plan meeting IRS minimum-deductible and maximum-out-of-pocket thresholds, which makes participants eligible to contribute to an HSA.
Why it matters at renewal. HDHP + HSA is a genuine tax-advantaged strategy, not just cost-shifting — but only if you actually fund the HSA. An HDHP with no employer HSA contribution is simply a worse plan with a better name.
What to look for on your plan. Whether the deductible meets the current IRS minimum, and how much you contribute to employees' HSAs.
Source: IRC §223; IRS annual HSA/HDHP limits.
High-Cost Claimant
What it is. A single member whose annual claims cross a large threshold — often defined at $50,000, $100,000, or more.
Why it matters at renewal. In a small or mid-size group, a handful of high-cost claimants drive nearly all the volatility. Your renewal is not really about 80 employees. It is about two or three. Knowing who is driving spend (in aggregate, not by name) is the difference between managing cost and reacting to it.
What to look for on your plan. Your large-claimant report and stop-loss laser status. If a claimant has been lasered, your exposure on that person is no longer capped where you think it is.
Source: Carrier claims reports; stop-loss disclosure.
Health Savings Account (HSA)
What it is. A tax-advantaged account, owned by the employee, funded pre-tax and usable for qualified medical expenses. Requires an HDHP.
Why it matters at renewal. Triple tax advantage: contributions pre-tax, growth tax-free, qualified withdrawals tax-free. It is the most tax-efficient account in the code, and it is portable — the employee keeps it. Employer contributions to it are one of the highest-perceived-value dollars you can spend.
What to look for on your plan. Whether employees are actually enrolled and contributing. An HSA nobody funds is a benefit nobody has.
Source: IRC §223.
ICHRA
What it is. Individual Coverage Health Reimbursement Arrangement. Instead of buying a group plan, the employer gives employees a tax-free monthly allowance to buy their own individual coverage.
Why it matters at renewal. ICHRA converts an unpredictable, volatile group renewal into a fixed, budgetable line item. There is no contribution cap and you can vary the allowance by permitted employee class. For an employer whose renewal keeps moving in one direction, this is the most structurally different answer available — and Texas has created a franchise tax credit for small employers who switch. Read our group health page for how we evaluate it.
What to look for on your plan. Whether ICHRA satisfies the affordability test for your workforce, and what the individual market actually looks like in your employees' ZIP codes. ICHRA is only as good as the individual plans available where your people live.
Source: 26 CFR §54.9802-4 (ICHRA regulations); IRS Notice 2018-88 and related guidance.
Level-Funded
What it is. A hybrid: you pay a fixed monthly amount covering expected claims, administration, and stop-loss. If claims run below expectations, you may receive a refund of the surplus.
Why it matters at renewal. This is the middle path. You get the predictability of a fixed payment and the upside of a healthy year — plus, critically, access to your own claims data. That data is what lets you negotiate. For a group of five or more with a reasonably healthy population, level funding is often the single highest-leverage change available.
What to look for on your plan. The surplus-refund terms, the stop-loss attachment points, and whether you keep the claims data. A level-funded plan that does not give you your data has given up its main advantage.
Source: Carrier level-funded plan agreements; stop-loss contract.
Loss Ratio
What it is. Claims paid divided by premium collected.
Why it matters at renewal. This is the number your renewal is built on. A group running at 65% is subsidizing someone; a group running at 110% is about to get a letter. Knowing your loss ratio before the carrier tells you is the difference between negotiating and being informed.
What to look for on your plan. Ask for it. Every year. If your broker does not volunteer it, ask why.
Source: Carrier experience reports.
Medical Loss Ratio (MLR)
What it is. The ACA rule requiring insurers to spend a minimum percentage of premium on claims and quality improvement — 80% in the small group market, 85% in large group — or rebate the difference.
Why it matters at renewal. If you have ever received an unexplained check from your carrier, this is why. It also means there is a regulatory floor on how much of your premium can become carrier margin — useful context when a carrier tells you a 20% increase is unavoidable.
What to look for on your plan. Whether you have received MLR rebates, and what you did with them. If employees contributed to premium, a portion of that rebate may belong to them.
Source: ACA §2718; 45 CFR Part 158.
Network
What it is. The set of providers who have contracted rates with your carrier.
Why it matters at renewal. Network is the benefit employees actually experience. A cheaper plan with a narrow network is not cheaper to the employee whose pediatrician is out of it. Network disruption is the fastest way to make a technically sound plan change feel like a betrayal.
What to look for on your plan. Run a disruption analysis before you change carriers — how many of your employees' current doctors are in the new network. Ask for it by name.
Source: Carrier network directories; disruption reports.
Open Enrollment
What it is. The annual window in which employees may elect, change, or drop coverage.
Why it matters at renewal. Open enrollment is where plan design meets human behavior. Employees do not read; they default. If your communication is a PDF nobody opens, the plan you carefully designed will be misused, and you will hear about it in March.
What to look for on your plan. Whether anyone actually explained the plan, or whether you emailed a benefits guide and hoped. Enrollment is a communication problem disguised as an administrative one.
Source: Plan documents; ERISA disclosure requirements.
Pharmacy Benefit Manager (PBM)
What it is. The intermediary that administers your prescription drug benefit — negotiating with manufacturers, setting the formulary, and paying pharmacies.
Why it matters at renewal. The PBM is the least transparent link in the chain and, for many employers, the largest source of hidden cost. Spread pricing, rebate retention, and affiliated-pharmacy steering can all move money in directions you did not authorize and cannot see. This is what a PBM audit is for.
What to look for on your plan. Whether your PBM contract is pass-through or spread, and who keeps the rebates. If you cannot answer that, you do not know what your drug benefit costs.
Source: PBM contract; plan financial reporting.
PBM Audit
What it is. A review of your pharmacy benefit contract and claims to determine whether the PBM is charging you what it said it would.
Why it matters at renewal. Audits routinely find spread pricing, rebates retained upstream, and claims priced off contract. For a mid-size employer, pharmacy can be 20–30% of total plan spend, and it is the line item nobody checks. It is one of the few places you can reduce cost without touching a single employee's benefits.
What to look for on your plan. Whether your contract even permits an audit. Many PBM contracts restrict audit rights — which tells you something.
Source: PBM contract audit provisions.
Plan Design
What it is. The combination of deductible, coinsurance, copays, out-of-pocket max, and network that defines what the plan actually does.
Why it matters at renewal. Plan design is the lever employers reach for first and understand least. Changing it changes employee behavior, not just employer cost — and behavior changes claims, which changes next year's renewal. A plan design change made purely to hit a budget number often costs more in year two.
What to look for on your plan. Model the change against your own claims data, not against a spreadsheet of averages. Your group is not average.
Source: Summary of Benefits and Coverage (SBC).
QSEHRA
What it is. Qualified Small Employer Health Reimbursement Arrangement. Lets an employer with fewer than 50 employees and no group health plan reimburse employees tax-free for individual coverage — subject to an annual statutory cap.
Why it matters at renewal. QSEHRA is ICHRA's smaller, more constrained cousin: it has a hard dollar cap and you cannot offer a group plan alongside it. For a very small employer who wants to contribute something without running a plan, it is clean and simple. For anyone who wants flexibility or scale, ICHRA is usually the better tool.
What to look for on your plan. The current statutory cap and whether you are eligible — offering any group health plan disqualifies you.
Source: IRC §9831(d); IRS Notice 2017-67.
Rebates (Pharmacy)
What it is. Payments from drug manufacturers, typically flowing to the PBM, tied to formulary placement and volume.
Why it matters at renewal. Rebates are why the drug with the highest list price is sometimes the one on your formulary. The question is never "are there rebates" — there are. The question is who keeps them. If the answer is your PBM, your formulary is being designed around someone else's revenue.
What to look for on your plan. Your PBM contract's rebate definition and pass-through percentage. Watch for definitions that exclude "administrative fees" from what counts as a rebate.
Source: PBM contract.
Reference-Based Pricing (RBP)
What it is. Instead of paying a negotiated network discount, the plan pays a set multiple of Medicare rates — and there is generally no network.
Why it matters at renewal. RBP can produce dramatic savings. It can also produce balance bills to your employees when a provider refuses the payment, and that lands on your desk as a human problem, not a financial one. It works when it comes with strong member advocacy and legal support. It fails badly when it does not.
What to look for on your plan. What patient-advocacy and balance-bill defense the vendor provides — in writing, with named responsibilities. That is the entire risk of this model.
Source: RBP vendor agreement; plan document.
Self-Funded
What it is. The employer pays claims directly out of its own funds, with a third-party administrator processing them and stop-loss capping the downside.
Why it matters at renewal. Self-funding gives you full data, full control, and full exposure to a bad year. It is the right answer for employers with the cash flow and stomach to absorb volatility — and the wrong answer for those who cannot. It also exits most state premium taxes and mandates, which is a real but often overstated benefit.
What to look for on your plan. Your stop-loss attachment points and whether your claims fund is adequately reserved. Self-funding without adequate reserves is not a strategy; it is a bet.
Source: ERISA preemption; stop-loss contract; TPA agreement.
Summary Plan Description (SPD)
What it is. The ERISA-required document that tells participants, in plain language, what the plan covers, how to claim, and how to appeal.
Why it matters at renewal. The SPD is legally required and routinely missing. If a participant sues and you cannot produce an SPD, you have an ERISA problem on top of a coverage dispute. A carrier's glossy benefits booklet is not an SPD.
What to look for on your plan. Whether you have one, and whether you distributed it. Both matter, and both are provable.
Source: ERISA §102; 29 CFR §2520.102-3.
Summary of Benefits and Coverage (SBC)
What it is. A standardized, plain-language summary of what a plan covers and what it costs, required by the ACA in a fixed format.
Why it matters at renewal. Because the format is federally standardized, the SBC is the one document that lets you compare two plans honestly, side by side. It is the fastest way to see what a plan design change actually does to an employee.
What to look for on your plan. Pull the SBC for every plan you are comparing. Compare the same lines. The differences will be obvious in a way a broker's spreadsheet will not make them.
Source: ACA §2715; 45 CFR §147.200.
Stop-Loss Insurance
What it is. The coverage that caps a self-funded or level-funded employer's exposure — specific stop-loss caps any one claimant, aggregate stop-loss caps total claims.
Why it matters at renewal. Stop-loss is what makes self-funding survivable. The two numbers that matter are the specific attachment point (how much of one person's claim you eat) and the aggregate corridor (how far total claims can run before the carrier steps in). Get either wrong and the model breaks.
What to look for on your plan. Your specific and aggregate attachment points, the contract basis (see 12/12, 24/12), and any lasers. A laser removes the cap on a specific person — that is the whole point of it, and it is easy to miss.
Source: Stop-loss policy; carrier disclosure.
Stop-Loss Contract Basis (12/12, 12/15, 24/12)
What it is. Shorthand for which claims a stop-loss contract will pay: the first number is the months in which the claim was incurred, the second the months in which it must be paid.
Why it matters at renewal. This is where employers get hurt on a carrier change. A 12/12 contract covers claims incurred and paid inside the same 12 months — so a claim incurred in month 11 but paid in month 14 falls in the gap. Switching carriers with mismatched contract bases can leave a real claim covered by nobody.
What to look for on your plan. Your contract basis, and whether it lines up with your prior carrier's run-out. Ask specifically about the gap.
Source: Stop-loss policy terms.
Third-Party Administrator (TPA)
What it is. The vendor that processes claims, manages eligibility, and administers a self-funded or level-funded plan.
Why it matters at renewal. The TPA is doing the job the carrier does on a fully insured plan — but you are the one on the hook. TPA performance shows up as claim turnaround, appeal handling, and whether your employees can get a straight answer. It is the operational heart of a self-funded plan.
What to look for on your plan. Service-level guarantees and what happens if they miss them. A TPA agreement with no teeth is a hope, not a contract.
Source: TPA service agreement; ERISA fiduciary standards.
Renewal Negotiation
What it is. The annual process of responding to a carrier's proposed rate increase.
Why it matters at renewal. A renewal is an opening offer, not a bill. Employers who treat it as final routinely accept increases that a marketed renewal, a funding change, or a plan-design adjustment would have reduced or eliminated. The leverage is in your data and your willingness to actually go to market.
What to look for on your plan. Whether your broker marketed your group or simply forwarded the incumbent's number. Ask what carriers were approached and what they said.
Source: Carrier renewal documentation; broker of record letters.
Waiting Period
What it is. The time a new hire must wait before coverage begins — capped at 90 days under the ACA.
Why it matters at renewal. Waiting periods are a real recruiting cost in a tight labor market and a compliance trap if you get the math wrong. The 90-day cap is a hard ceiling, not a guideline.
What to look for on your plan. Your stated waiting period and how it is actually administered. "First of the month following 90 days" can exceed 90 days — and that is a violation.
Source: ACA §2708; 29 CFR §2590.715-2708.
Your renewal is an opening offer, not a bill.
Send us your current plan, your renewal letter, and your census. We will tell you your loss ratio, whether level funding or ICHRA changes your math, and what your PBM contract is actually costing you — in writing, before you have to decide.
Request a Benefits Review Call (469) 756-8776A fair amount of the time, the right answer is that your current plan is fine. You should still know why.
Related coverage
Group Health Insurance →
All glossaries →
General Liability Glossary →
General Liability Insurance →