A Benefits Glossary

Confused by benefits-speak? Here are definitions of some of the words you’re likely to hear this fall--the traditional time for “open enrollment,” when most companies allow workers to change their benefits choices. Benefits can account for as much as 40% of your total compensation package--it pays to know what you’re talking about.

* BENEFICIARY: A person named to receive all or part of the proceeds of an insurance policy or pension plan if the insured person dies.

* CAFETERIA PLAN: A benefits plan that allows an employee to choose among several benefits, such as health care, life insurance, vacation and disability insurance. Some cafeteria plans give an employee a certain number of benefit “points.” The points can be used to purchase one or all of the benefits offered by the company. An employee, for example, who did not want to participate in a health plan could apply more points toward a 401(k) plan, life insurance or any other benefit offered. Under some plans, the credits can be redeemed for cash. Also known as a flexible benefit plan.

* CO-PAYMENT: In most health insurance programs, both the employee and the employer contribute to paying the insurance premium. The employee’s portion is called a co-payment. In addition, employees generally face co-payments when using medical services. Typically, a traditional health plan pays 80% of the cost of a doctor’s visit, while the employee must come up with a 20% co-payment. In managed care plans, including health maintenance organizations, the employee also faces a co-payment for medical care. That co-payment can be a flat fee or a portion of the overall cost.

* DEDUCTIBLE: The amount a person pays for services covered by their insurance before the insurance company begins to pay a share of the costs. (See also family deductible.)

* DEFINED-BENEFIT PLAN: The traditional retirement plan that pays set monthly benefits to a retiree. The amount paid is based on the retiree’s age, tenure and former wages. This type of plan is backed by the Pension Benefit Guaranty Corp., a government agency that pays worker pension benefits, to set limits, in the event of a plan insolvency.

* DEFINED-CONTRIBUTION PLAN: A retirement plan, such as a 401(k), Keogh or IRA, that pays benefits to a participant based on how much money the employee and the employer contributed and how well the money was invested. Under a defined-contribution plan, the employee directs the investment of his or her retirement savings. These plans are not covered by the Pension Benefit Guaranty Corp.

* DENTAL CARE PLAN: An insurance program that provides basic dental care, such as cleanings, cavity repair and necessary dental surgery. Most dental plans do not cover the cost of orthodontia.

* DEPENDENT-CARE SPENDING ACCOUNT: A benefit that allows employees to set aside a portion of their wages, before taxes are taken out, to pay for certain dependent-care expenses such as child care or elder care. The money, up to $5,000 a year, is taken out of an employee’s wages through payroll deductions and put into an account controlled by a plan administrator. The employee submits proof of qualified expenses to the plan administrator, who will reimburse the employee from the employee’s account. On the plus side: Employees have access to their money before taxes are taken out, which gives them a bigger bang for their buck and saves on income and employment taxes. The downside: Employees have to estimate dependent-care expenses carefully. Any money unused at the end of the year is forfeited. Also known as a tax saver or flexible spending account.

* EMPLOYEE ASSISTANCE PROGRAM: A program through which mental health and substance abuse benefits are provided. At one time, these programs were independent of a company’s medical plan and employee use was voluntary. Today, many companies use these programs as a cost management tool that includes reviews of employees’ use of medical benefits and referrals to preferred provider networks.

* FAMILY DEDUCTIBLE: Family coverage under many traditional health insurance plans includes two types of deductibles: One for each individual covered and a second for the family as a whole. Once an individual’s covered medical expenses exceed the individual deductible, their additional expenses are paid by the insurer. However, if out-of-pocket expenses for the family as a whole exceed the family deductible, future expenses for any member of the family would be covered, regardless of whether or not that individual met the individual deductible as well.

* FLEXIBLE BENEFIT PLAN: See cafeteria plan.

* FLEXIBLE SPENDING ACCOUNT: A savings plan that allows workers to set aside pretax dollars to pay certain qualified expenses for unreimbursed medical costs or dependent-care expenses. These plans are structured like a dependent-care spending account.

* 401(k): A defined-contribution pension plan that generally involves both employer and employee contributions. The employer sets up and administers the plan, advises employees of how much can be contributed by the employee, how much of that contribution will be matched by the employer (if any) and what the investment choices are. Employees’ contributions are deducted from their pretax pay, reducing their taxable income. Employees then direct the investment of their money by choosing among the investment options offered by the employer.

* HEALTH MAINTENANCE ORGANIZATION (HMO): Typically, a general health plan that limits the choice of physicians and the access to specialists. An HMO member chooses a primary care physician and thus the medical group to which the physician belongs. The primary care physician provides basic checkups and routine care. In most HMOs, the primary care physician must get authorization from the medical group before the member can see a specialist.

Generally, an HMO offers lower co-payments and provides full coverage for preventive care, such as annual physicals, immunizations and regular checkups for children.

There are also specialized HMOs that provide vision, dental or mental health care.

* INDEMNITY PLAN: This is the traditional health insurance plan. Participants choose their own doctors. The plan pays a portion--usually 80%--of “reasonable and customary” medical costs, and the participant pays a portion. However, these plans often provide coverage only for medically necessary doctor visits, not preventive care.

* LONG-TERM DISABILITY PLAN: A type of insurance program that reimburses employees for wages lost because of a disability that has prevented them from working for a long period, usually one year or more. Some plans consider employees disabled if they cannot hold any job; others consider employees disabled when they cannot perform their current job or a job that’s highly similar in nature.

See also short-term disability plan.

* MANAGED CARE: An umbrella term that includes many types of health plans that closely supervise care and restrict patients’ choice of doctors in an effort to control costs. The most common types of managed care plans are health maintenance organizations, point-of-service plans and preferred provider organizations.

* MAXIMUM LIFETIME BENEFITS: The total amount a health insurance plan will pay for medical care for any individual participant.

* MEDICAL SAVINGS ACCOUNTS: Under a pilot project approved as part of the Health Insurance Portability and Accountability Act of 1996, medical savings accounts linked with catastrophic health insurance policies will be available to uninsured individuals, self-employed people and individuals employed by companies with 50 or fewer workers. The program, effective Jan. 1, 1997, will be capped at 750,000 policies, but policies purchased by uninsured individuals are not counted toward the cap. Under the program, a qualified person can save pretax dollars to pay the high deductible of the catastrophic health insurance policy, subject to various limits. The program also allows employers to contribute to the plan.

Unlike other pretax spending accounts, an employee doesn’t forfeit any unused money at the end of the year.

* MENTAL HEALTH BENEFITS: See employee assistance programs.

* OPEN ENROLLMENT: A limited time period during which employees can change their benefit choices. Open enrollment periods usually occur at three distinct periods: when an employee is hired; when he or she has a change in status such as marriage, divorce or parenthood, and once a year during a formal open-enrollment season, when all employees can change their choice of benefits. Open enrollment season is in the late fall at most companies that have calendar fiscal years.

* POINT OF SERVICE (POS) PLAN: Combines some of the features of traditional health insurance plans with those of managed care plans. When an employee needs medical care, he or she chooses to use a provider either inside or outside the managed care network. Members pay more for out-of-network care, but a portion of medical expenses are covered regardless of the provider chosen. Some POS plans are provided through a preferred provider organization.

* PREFERRED PROVIDER ORGANIZATION (PPO): A type of managed care plan in which network doctors, hospitals and other providers agree to provide health care services at negotiated rates.

* PRESCRIPTION DRUG PLANS: Managed drug programs include prescription drug card and mail order plans offered by pharmacy benefits vendors who provide discounts for prescription drugs at pharmacies in their networks.

* PRIMARY-CARE PHYSICIAN: A doctor who coordinates the overall care of patients who belong to a managed care plan. Often this doctor must be either a general practitioner, family doctor or pediatrician.

* SHORT-TERM DISABILITY PLAN: An insurance plan that pays participants a portion of their working income when they are temporarily disabled and unable to work. Also known as a salary continuation plan. Childbirth is covered under this plan.

* TAX-SAVER PLAN: See flexible spending account, dependent-care account and medical savings account