If you're like me, open enrollment--that time of year when you sign up again for your employer's health insurance plan--is a bit like deciphering hieroglyphics. Every term is cloaked in an abbreviation--and even the decoded terms are confusing.
Here's a list of common benefit abbreviations and what they mean.
SPD--Summary Plan Description
The Summary Plan Description is also known as the Certificate of Coverage. The SPD is provided with your health insurance policy and outlines the policy's rules, limits, bylaws, fees and benefits. It's often thick and difficult to read. But you should at least scan the highlights. That way you'll know what you're in for should you get sick in the coming year.
FSA-- Flexible spending account
FSAs (sometimes called a cafeteria plan) let you divert part of your income pre-tax to pay for anticipated medical expenses. If you spend $50 a month on prescription drugs, for example, you can set aside this amount in your FSA to cover those expenses in the next year. Your employer will deduct money from your check each pay period.
There are some drawbacks to FSAs. There is a limit to the amount of money you can put in an FSA. That limit is set by your employer and federal law. In 2012, employers can allow employees to set aside up to $5,000 in FSAs. In 2013, that drops to $2,500.
You forfeit any money you don't spend by the end of the year. And not every medical expense is eligible. For example, the federal government excluded many over-the-counter medications from reimbursement last year.
Some companies may offer a limited purpose FSAs. These are used for eligible dental and vision expenses only. They are limited to policies with health savings accounts.
FFS--Fee for Service
This is a traditional insurance plan. Under such plans, you typically pay a percentage of your health bill and your insurer picks up the rest. FFS plans focus on treating health problems and not preventing them. As a result, they don't usually cover annual check-ups and other "well" doctor visits that can quickly amass costs, especially for families.
HDHP-High Deductible Health Plan
This is what it sounds like. An HDHP has a high deductible--ranging from hundreds to thousands of dollars and may be favored by low-income individuals or young people who rarely need healthcare. One of the benefits of a high deductible health plan is lower premiums. However, you have to pay for all medical expenses up to your high deductible.
HSA-Health Savings Account
A health savings account is a tax-exempt account that you set up with a qualified trustee to pay or reimburse certain medical expenses you incur. You must meet certain qualifications to have an HSA: You must be covered under a high deductible health plan, have no other health coverage and not be enrolled in Medicare. You also can't be claimed as a dependent on someone else's tax return.
Health reimbursement accounts (HRAs) work similarly to HSAs--only your employer is the only one who can make a contribution.
CDHC--Consumer Driven Health Plan
This is a term for a plan that combines high-deductible health plan with a health savings account. In other words, CDHP=HDHP + HSA.
PPO--Preferred Provider Organization
This kind of health plan offers both in-network and out-of-network benefits. To get the maximum benefit, you have to choose one of the in-network providers.
HMO--Health Maintenance Organization
Plans tied to an HMO typically require you to see only doctors or hospitals that are on a specified list of providers--or network.
ERISA-- Employee Retirement Income Security Act
ERISA is a federal law that protects the health benefits of people in the U.S.