What does any of this actually mean?

Most of these words exist to make a simple thing sound complicated. A carrier, a broker or a vendor uses one, the room nods, and the conversation moves on before anybody asks what it costs. Every definition below is written so a CEO or CFO can read it once and know what to ask next. Where a number belongs, the number is there.

SECTION 1

How your plan is funded and structured

Fully insured

You pay a carrier a fixed premium and the carrier keeps whatever it does not spend on claims. Predictable to budget, and the least visibility into where your money actually went.

Self-funded

You pay claims out of your own money and buy insurance only against the catastrophic ones. You keep the savings in a good year and you carry the risk in a bad one. Most employers over about 100 lives are candidates.

Level-funded

The middle path. You pay a fixed monthly amount like fully insured, but the plan is self-funded underneath, so unused claim dollars come back to you instead of staying with the carrier.

Stop-loss insurance

The coverage a self-funded employer buys to cap exposure. Specific stop-loss caps what any one person can cost you. Aggregate stop-loss caps what the whole group can cost you.

TPA (third-party administrator)

The company that processes claims and runs the plan day to day for a self-funded employer. It is not the insurer, and swapping it is usually easier than employers assume.

CHOICE Arrangement (formerly ICHRA)

Custom Health Option and Individual Care Expense Arrangement, previously called an Individual Coverage Health Reimbursement Arrangement, or ICHRA. Instead of buying a group plan, you give employees a defined tax-free amount to buy their own coverage. Your cost becomes a number you set rather than a renewal you receive.

CMS and the SBA adopted the CHOICE name on September 3, 2026. It was a rename, not a new product: the regulations, eligibility classes and affordability tests are unchanged. IRS guidance, carrier paperwork and existing plan documents still say ICHRA, and you will see both terms in use for a while.

Defined contribution

Any benefits model where you commit to a fixed dollar amount per employee rather than a fixed plan design. It moves the budget line from unpredictable to decided.

Captive

A group of employers who pool their risk inside an insurance company they collectively own. It lets a mid-sized employer get self-funded economics without carrying the volatility alone.

PEO (Professional Employer Organization)

Co-employs your staff so you can access their master health plan, payroll and HR. Easier entry, and less control over what the plan costs or how it is priced.

EOR (Employer of Record)

Legally employs workers on your behalf, usually in states or countries where you have no legal entity. A compliance tool rather than a cost tool.

SECTION 2

How care actually gets priced

Allowed amount

The number your plan actually agrees to pay for a service once the discount is applied. It is the only price that matters, and almost nobody sees it before the care happens.

Network discount

The percentage off a hospital list price that your carrier negotiated. It sounds like savings. Because the hospital sets the list price, a bigger discount off a bigger number can cost you more than a smaller discount off a fair one.

Reference-based pricing (RBP)

Paying claims against a public benchmark, usually a multiple of the published Medicare rate, instead of a discount off list price. Typically 15 to 30% off facility cost. It works because the benchmark is public and auditable, where the discount never was.

Balance billing

When a provider bills the patient for the gap between what they charged and what the plan paid. It is the main objection to reference-based pricing, and the reason balance-bill advocacy exists so the member never negotiates.

Cash-pay healthcare

Paying a provider directly at a published cash price instead of running the claim through insurance. Frequently 30 to 50% below the negotiated rate on planned procedures, with no network restriction.

Quality steerage

Guiding members toward providers scored on clinical outcomes rather than price alone. Better-rated doctors cost less because they get it right the first time. Typically 11 to 17% off medical, inside your existing network and cards.

Centers of excellence

A short list of facilities with proven outcomes for a specific procedure. The plan usually covers travel and waives cost sharing. Fewer complications, lower total cost, better experience.

Payment integrity

Auditing claims before and after payment for duplicates, upcoding, unbundling and plain billing errors. A meaningful share of hospital bills contain an error, and they rarely favor the payer.

SECTION 3

Pharmacy

PBM (pharmacy benefit manager)

The middleman between your plan, the pharmacy and the drug manufacturer. A handful of PBMs handle the large majority of US prescriptions, and most are owned by the same companies that own the insurers.

Spread pricing

When a PBM charges your plan more for a drug than it pays the pharmacy and keeps the difference. You are billed one price. The pharmacy receives another. The gap is not on the invoice.

Rebate pass-through

What share of manufacturer rebates actually reaches your plan. Transparent contracts commit to 100%. Traditional contracts frequently do not, and the contractual definition of the word rebate is where the money hides.

Formulary

The list of drugs your plan covers and at what tier. Placement is influenced by rebate economics as much as by clinical evidence, which is why the cheapest drug is not always the preferred one.

Specialty pharmacy

High-cost medications, often biologics, that can run thousands of dollars a month. A very small share of members driving a very large share of pharmacy spend.

$0-copay pharmacy

A program covering a defined list of medications at no cost to the member, funded outside the main plan. It removes the counter price that causes people to skip doses, and it typically covers the whole household.

Medication adherence

Whether people actually take what they were prescribed. Cost is the leading reason they do not, and the skipped doses come back later as an emergency room visit at many times the price.

SECTION 4

Revenue cycle, for healthcare organizations

Revenue cycle management (RCM)

Everything between delivering care and getting paid for it. Coding, claim submission, denials, appeals and collections. It is where healthcare organizations lose the most money quietly.

Claim denial

A payer refusing to pay a submitted claim. Most denials are procedural rather than clinical, which means most of them are overturnable if somebody has the hours to fight them.

Appeal

The formal challenge to a denial. Appeals work. The constraint is never whether they work, it is capacity, because writing them takes staff hours nobody has spare.

Overturn rate

The share of appealed denials that end up paid. 75 to 85% is achievable, worth roughly $112,000 per provider per year. The bigger lever is usually how many denials get appealed at all.

Remote patient monitoring (RPM)

Billable programs where patient data is collected between visits. Generates $60 to $150 per patient per year as a diversified revenue stream, without adding to clinical workload.

Chronic care management (CCM)

Reimbursed care coordination for patients with two or more chronic conditions. A recurring revenue stream that most organizations are entitled to and under-bill.

SECTION 5

Indirect spend and insurance

Indirect spend

Everything you buy that is not your product. Waste, telecom, freight, print, insurance, merchant fees, food service, uniforms. Rarely owned by any one person, so rarely challenged by anyone.

Strategic sourcing

Benchmarking a category against real market rates, then renegotiating or re-bidding it. Most of the savings come from the incumbent matching the market rather than from switching vendors.

Benchmarking

Comparing what you pay against what comparable buyers pay for the same thing. Without it, we already negotiated hard usually means we negotiated against ourselves.

Experience modification factor (e-mod)

The multiplier applied to your workers compensation premium based on your claims history. It is built from data that is frequently wrong, and each error inflates your premium for three years.

Loss run

The insurer report of your claims history. It is the source document for an e-mod audit, and where miscoded classifications, unclosed claims and unadjusted reserves show up.

Total cost of risk

Premiums plus deductibles plus retained losses plus the administrative cost of managing all of it. This is the number to reduce. Premium alone is the number people argue about.

Contingency fee

A fee paid only out of savings that were actually achieved and verified. No savings, no invoice. It takes the capital request out of the decision entirely.

SECTION 6

Workforce, payroll and cashflow

Supplemental health plan

Coverage that sits alongside major medical and pays for defined services or events. Structured correctly it lowers payroll tax liability while improving what members actually receive.

Section 125 plan

There is an overwhelming amount of noise in the market about these right now, so there's a longer definition than the others to clear this up.

The section of the tax code that lets employees pay for certain benefits before tax. It reduces taxable wages, which reduces payroll tax for the employee and the employer at the same time.

This is not new or experimental. Section 125 was written into the tax code in 1978, and employers have been running plans under it ever since.

Section 125 is the container, not the product. Several different arrangements sit inside it:

• Premium only plan (POP). The simplest version. Employees pay their share of medical, dental and vision premiums before tax.
• Health flexible spending account (FSA). Employees set aside pre-tax dollars for out-of-pocket medical costs.
• Dependent care FSA. The same idea, for childcare and elder care.
• HSA contributions run through payroll. Employee and employer money into a health savings account, before tax.
• Full cafeteria plan. A menu of benefits employees choose from, often funded with employer credits.
• Simple cafeteria plan. A small employer version with safe harbor rules that remove most of the annual nondiscrimination testing.
• Other qualified benefits. Group term life up to $50,000, adoption assistance, and certain supplemental or self-insured medical reimbursement arrangements built on top of the 125.

These sound alike. They are not the same thing. Each one is designed differently, and compliance is dictated by the design, not by the label: the plan document, who is eligible, how contributions are made, what gets reimbursed, and how each piece is taxed. Two programs sold under the same name can be built well or built badly. Ask to see the design before you judge the program.

Hidden cashflow

Money already inside the business that is leaving unnecessarily. It is not new revenue and it is not a cut. It is the gap between what you pay for something and the lower cost you can get for the same thing or something better.

SECTION 7

Plan design, networks and what employees actually pay

Shelf-rated (flat-rate) plan

One published rate per coverage tier, the same for a 24-year-old and a 61-year-old. No employee list, no age pricing, no medical questions. The rate ignores your workforce entirely, which is worth the most to employers with an older or less healthy group.

It can also sit alongside other plans rather than replacing them. A younger employee takes the lower-premium option, an older employee takes the flat rate, and nobody is priced on their age. That side-by-side setup is one of the more useful things about the design and one of the least known.

Guaranteed issue

Coverage that cannot be denied based on health. No medical questionnaire, no underwriting decline. It's what makes a plan available to a group that was turned down elsewhere.

Lasering

When a stop-loss carrier singles out one person and gives them a much higher deductible than the rest of the group. Your plan has a $50,000 deductible per person; at renewal the carrier writes one employee at $350,000, and you carry that exposure. Under roughly 200 lives, a no-new-lasers provision and a rate cap are the cheapest protection in the structure.

Maximum funding rate

On a level-funded plan, the most you can be asked to pay in a year if claims run high. Quotes usually lead with the expected cost, which is the good-year number. Ask for both, and budget against the maximum.

QSEHRA

Qualified Small Employer Health Reimbursement Arrangement. Same idea as a CHOICE Arrangement with simpler rules and one hard cap, $6,450 self-only and $13,100 family for 2026. Only available to employers under 50 full-time equivalents with no group plan of any kind, including an HRA or health FSA.

EBHRA (excepted benefit HRA)

Up to $2,200 per year in 2026 and $2,250 in 2027, for dental, vision, COBRA premiums, short-term coverage and out-of-pocket costs. It runs alongside a group plan and employees don't have to enroll in that plan to use it. It cannot reimburse marketplace medical premiums or the group plan's own premium.

GCHRA (integrated HRA)

Group Coverage HRA. You raise the group deductible, the premium drops, and you fund an HRA that pays the first dollars of the higher deductible. Integrated with the group plan, so there's no dollar cap, and employees must be enrolled in the group plan to use it.

Direct primary care (DPC)

A flat monthly membership for unlimited primary care, with no claim filed. Since January 1, 2026, a fee up to $150 per month individual or $300 family no longer breaks HSA eligibility, and the fee counts as a qualified medical expense.

PPO, EPO, HMO and POS

Who your people can see, and whether they need permission. A PPO covers doctors in or out of the network, no referral, and costs the most. An EPO covers any doctor inside the network with no referral, and nothing outside it except emergencies. An HMO covers the network only and requires a referral from a primary-care doctor. A POS covers out-of-network care but only with a referral.

This matters more than most people expect. In 1,359 of 3,143 US counties, no PPO or POS plan is filed on the marketplace at all, so out-of-network coverage isn't purchasable at any price.

Bronze, silver, gold and platinum

How the bill is split, not which doctors you see. Bronze: the plan pays about 60% of costs on average and you pay the rest, lowest monthly price and highest deductible. Silver: about 70%. Gold: about 80%. Platinum: about 90%, highest monthly price and lowest deductible. The same network can sit behind any of the 4. Bronze and catastrophic plans became HSA-compatible in 2026.

Copay and coinsurance

A copay is a fixed dollar amount, $30 a visit, paid at the counter. Coinsurance is a share of the bill, often 20 to 40%, that starts after the deductible. Copays are predictable, so people go to the doctor. Coinsurance shifts risk to the employee: 1 hospital stay can hit the 2027 out-of-pocket maximum of $12,000. Coinsurance-heavy plans cost the employer less each month and surprise more.

Affordability test

The IRS rule that decides whether your offer counts as affordable coverage. Your monthly contribution has to leave the employee paying no more than a set share of household income for the lowest cost mid-level (silver) plan where they live. That share is 10.22% for 2027, up from 9.96% in 2026. Prices are set by the pricing region the state assigns, so a contribution that passes in 1 county can fail in the next.

MEC (minimum essential coverage)

The ACA's floor. Offering it to at least 95% of your full-time employees clears the larger employer penalty, which is $3,780 per full-time employee for 2027. MEC-only plans are inexpensive because they typically cover the ACA preventive services list and not much else: no meaningful hospital coverage and no real ceiling on what a member can owe.

The part that catches people. MEC on its own doesn't provide minimum value, so the second penalty stays live at $5,670 for 2027 for each employee who goes to the marketplace and qualifies for a subsidy. It's the cheaper line item, and not always the cheaper year.

The comparison worth running. A bronze plan pays about 60% of costs on average and caps out-of-pocket at the 2027 federal maximum of $12,000 self-only, so it holds up in a hospitalization where MEC-only generally doesn't. Price a MEC-only offer against a bronze-level design with the penalty exposure counted on both sides, and the arithmetic usually settles it. MEC earns its place as a floor layer under a larger design, or where the honest alternative was no offer at all.

Minimum value plan (MVP)

A plan that pays at least 60% of total allowed costs and covers a substantial share of inpatient hospital and physician services. Roughly bronze level. An offer that is both minimum value and affordable is what clears the second employer penalty, $5,670 per subsidized employee for 2027.

Minimum essential coverage and minimum value are 2 separate tests. A plan can pass the first and fail the second, which is exactly how an employer ends up paying a penalty on a plan they were told was compliant.

Premium

The monthly price of the coverage itself, paid whether anyone uses care that month or not. It's the number most renewal conversations open on, and on its own it says little about what a year actually costs. Two plans at the same premium can land thousands apart once the deductible and coinsurance are counted.

Deductible

What a member pays for care before the plan starts paying its share. Preventive visits are usually covered before it's met; most other care isn't. Raising the deductible lowers the premium and moves that money onto the employee's side of the ledger, which makes deductible design a cost-shifting decision rather than a savings one.

Out-of-pocket maximum

The ceiling on what a member can pay in a plan year before the plan covers everything after it. For 2027 the federal limit is $12,000 self-only and $24,000 family, up from $10,600 and $21,200 in 2026. A single hospital stay can reach it, which is why the ceiling often matters more to a household than the deductible does.

Network and narrow network

The set of doctors and hospitals a plan has contracted with. A narrow network trades choice for price: fewer providers, a lower premium. The question worth asking before a renewal is which of your people are mid-treatment, since a network change can interrupt care already underway.

Prior authorization

Approval a plan requires before it will cover certain care. It's a cost control, and it's also an administrative load: staff hours on your side, delay on the member's side. Plans differ widely in how many services they apply it to, and the list is usually available on request.

Explanation of benefits (EOB)

The statement a plan sends after a claim, showing what was billed, what was allowed, and what the member owes. It isn't a bill. It's also the only document that shows the allowed amount, which makes it the easiest place to catch a billing error while it's still correctable.

Open enrollment and special enrollment

Open enrollment is the annual window to choose coverage, usually November 1 to January 15 on the marketplace, with some state marketplaces running longer. A special enrollment period opens outside that window after a qualifying event: losing coverage, marriage, a birth, a move. Losing a job-based plan opens one, and that door has a deadline attached to it.

HSA, FSA and HRA

Three ways to pay for care with pre-tax dollars, and they behave differently. An HSA belongs to the employee, rolls over year to year and travels with them, but requires a qualifying high-deductible plan. An FSA is use-it-or-lose-it inside the plan year and doesn't travel. An HRA is funded by the employer, who sets the rules and keeps whatever goes unspent.

COBRA

The right to keep a group health plan after leaving a job, usually for up to 18 months and in some circumstances up to 36. The former employee can be charged the full premium plus a 2% administrative fee, so the monthly cost is often several times the payroll deduction it replaces.

No Surprises Act

The federal law, in effect since January 2022, that limits surprise out-of-network bills. It covers emergency care, and care from an out-of-network provider working inside an in-network facility, which is the anesthesiologist or radiologist nobody gets to choose. In those cases the member's cost sharing is capped at the in-network level.