A Plain-English Guide to Common Benefits Terms
The world of employee benefits is littered with acronyms, jargon, and unfamiliar concepts—especially for companies new to offering benefits. This guide can help you get to know the language so you can be more confident in your role.
In This Article
Understanding healthcare and ACA compliance shouldn’t feel like decoding a secret language. Abbreviation lingo like “MVP,” “ALE,” and “QSEHRA” can quickly turn routine benefits conversations into overwhelming ones. That’s why we created this straightforward glossary. It’s designed for employers, like you, who want more clarity when it comes to health benefits and compliance. In it, we try to simplify the most common—and most confusing—terms related to healthcare, the Affordable Care Act (ACA), and employee benefits.
ACA compliance terms
If you're a large employer, ACA compliance is non-negotiable. But the terminology can be overwhelming, especially if you have just recently become an ALE (definition below). This section breaks down the foundational terms for understanding whether you're subject to ACA rules, what kind of coverage you’re expected to offer, and how health plan affordability is measured.
ALE
An Applicable Large Employer, or ALE, is an employer with 50 or more full-time employees* on average during the prior year. ALEs are subject to ACA requirements like offering affordable health insurance.
*For more details about how the ACA defines full-time employee and other terms like full-time equivalents read this blog dedicated to understanding ALE roles and responsibilities.
ESRP
Through the Employer Shared Responsibility Payment (ESRP), the ACA requires ALEs to offer minimum essential coverage (MEC) that is affordable and provides minimum value (MV). If ALEs don’t comply, tax penalties are assessed.*
*Click here for more information on ESRP rules and penalty amounts.
MEC
Minimum essential coverage (MEC) refers to the most basic level of health coverage required by the ACA. Most employer-sponsored health plans qualify, as do individual market policies, Medicare, Medicaid, CHIP, TRICARE, and certain other coverage types.
MV (MVP)
Minimum value refers to a standard set by the ACA for healthcare coverage. A health plan provides minimum value (and may be considered a minimum value plan or MVP) if it covers at least 60% of the total allowed costs and substantial coverage of inpatient hospitalization and physician services.
Affordable / Safe Harbor
ALEs must offer health coverage that the ACA considers affordable. For 2025, affordable means that the employee’s share of the premium does not exceed 9.02% of their household income. This standard, like the ESRP penalties changes each year.
Because employers don’t typically know an employee's household income, they may use one of the following safe harbors:
- W-2 Safe Harbor
- Rate of Pay Safe Harbor
- Federal Poverty Line (FPL) Safe Harbor
Click here for more information about affordability safe harbors.
Form 1095-C
This is the form that ALEs must provide to each employee (and the IRS). It details the employer’s offer of healthcare coverage and if it met ACA standards.
Form 1094-C
This is a summary form that ALEs send to the IRS with all the 1095-C forms. It is what the IRS uses to determine if the ALE has complied with the ACA.
FAQs
How do I know if I’m an ALE?
The answer to this can get tricky depending on your employee population. Generally, if you had an average of 50+ full-time employees in the previous calendar year, you’re an ALE for ACA purposes.
- We created this handy tool to quickly determine if you are an ALE.
- Read this for more information on what the ACA considers “full-time” and ALE responsibilities.
What’s the difference between MEC and MVP?
Minimum essential coverage (MEC) is the most basic coverage acceptable under the ACA (think preventive care services). Offering MEC helps ALEs avoid a very costly tax penalty. Minimum value plans go a bit further, covering a wider range of services and paying for at least 60% of total costs. Offering an MVP helps ALEs avoid a second, more selective penalty.
- Read this for more information on the differences and the impact of offering or not offering one or both.
Health plan & benefits strategy terms
From traditional insurance policies to self-funding and reference-based pricing, there are more options for benefits than ever before. But all of these choices come with more jargon that might hold you back from exploring possibilities that could work really well for your business. This section defines the different types of plan structures and cost-containment strategies you have access to, so you can feel more confident exploring strategies that balance coverage, flexibility, and cost.
Fully Insured
A traditional insurance plan where the employer pays a fixed premium to an insurance carrier, which takes on the financial risk for covered claims.
Self-Funded
A plan where the employer assumes the direct risk for paying healthcare claims. These plans, popular with larger employers but available to employers of all sizes, are often paired with stop-loss insurance to limit liability.
Read this for more information on the differences between self-funding and fully-insured.
Level-Funded
A hybrid between fully insured and self-funded. Employers pay a fixed monthly rate (like a premium), but claims are paid from a funding account (also called a claims fund). Surplus funds may or may not be refunded at year-end.
RBP
Reference-based pricing is a cost-containment strategy that health plans may use to reimburse medical providers based on reference points like Medicare rates instead of relying on a provider network.
FPHC
Fair-priced healthcare is a no-network, proactive pricing strategy that determines the most fair price for a service in any given area by leaning into existing cash prices, transparent and reflective of actual costs. Fair-priced healthcare relies on a care coordination team to match members with providers.
TPA
A third-party administrator is a company hired by an employer to manage their health plan administration, such as enrollment, claims processing, and compliance. A TPA is commonly used when employers choose self-funded or level-funded plans.
Stop-Loss Insurance
This is insurance that protects self-funded employers from catastrophic claims by covering costs that exceed a specified threshold (e.g., $50,000 per individual per year; or 110% of the claims fund.).
FAQs
What’s the advantage of level-funded for an ALE?
Level-funding combines the predictability of fully insured premiums with the flexibility and potential savings of self-funding. It’s good for growing employers trying to balance risk and cost.
What are the pros and cons of reference-based pricing?
Reference-based pricing pays providers based on a fixed formula which can lower employer healthcare costs but may lead to balance billing if providers don’t accept the RBP payment as full.
Tax-advantaged account terms
Tax-favored accounts like HSAs, FSAs, and HRAs can add value to your benefits package, that is, if you understand how they work. The terms in this section outline the options available to you as an employer and what they mean for your team’s health and financial well-being.
HSA
A health savings account is a triple tax-advantage account available to people with high-deductible health plans (also known as HDHPs). Contributions, growth, and qualified withdrawals are all tax-free.
Read more about HSAs and how they work.
FSA
An employer can set up a flexible spending account to allow employees to set aside pre-tax dollars for qualified medical expenses. Funds are typically "use it or lose it" by year-end.
HRA
A health reimbursement account is also employer-funded. It is set up to reimburse employees for eligible out-of-pocket medical expenses and premiums. Unlike an FSA, only employers can contribute to an HRA.
ICHRA
An individual coverage health reimbursement arrangement is a type of HRA introduced in 2020. It allows employers to reimburse employees tax-free for individual Marketplace health insurance premiums and qualified medical expenses. An ICHRA acts as a replacement for traditional group coverage.
QSEHRA
A qualified small employer health reimbursement arrangement is available to employers with fewer than 50 full-time employees who do not offer group health plans. It allows reimbursement for premiums and expenses, similar to an ICHRA.
FAQs
Can an employee have both an HSA and FSA?
Yes, but only if the FSA is a “limited purpose” FSA (e.g., dental & vision only). Otherwise, having both can disqualify HSA eligibility.
What’s the difference between HRA and ICHRA?
A traditional HRA reimburses employees for medical costs. An ICHRA goes further by allowing employers to reimburse employees for individual health insurance premiums. Additionally, an HRA does not replace group health coverage, but an ICHRA can.
Regulatory & reporting terms
Behind every compliant health plan is a set of rules, forms, and deadlines. Whether you're preparing IRS filings, drafting plan documents, or calculating fees, this section gives you a preview of the regulatory terms you’re likely to encounter—and how they impact your day-to-day responsibilities.
ERISA
The Employee Retirement and Income Security Act is a law that sets standards for private-sector employee benefit plans, including health insurance. This act established a federal standard for plan documents, fiduciary responsibility, and participant rights.
PCORI
The Patient-Centered Outcomes Research Institute assess annual fees on self-insured (self-funded or level-funded) health plans to fund health research.
COBRA
The Consolidated Omnibus Budget Reconciliation Act requires group health plans to offer continuation coverage to employees and dependents after certain qualifying events (e.g., termination).
Section 125
A plan that lets employees pay for certain benefits (like health insurance premiums) with pre-tax dollars. A Section 125 plan helps reduce payroll and income tax liabilities.
Learn more about Section 125 plans.
SPD
The summary plan description is a document that employers are legally required to provide under ERISA. It explains the health plan’s benefits, claims procedures, and participant rights in plain language.
FAQs
Who pays PCORI fees and how often?
Employers with self-funded plans must pay PCORI fees every year via IRS Form 720. If you offer a self-funded or level-funded health plan, you’ll likely need to pay PCORI fees each year.
Is an SPD the only document ERISA requires?
No. The SPD is a document for employees that explains their benefits, rights, and how the plan works. ERISA also requires an official, legal plan document that outlines how your health plan works behind the scenes.
More clarity. Better decisions.
With a clearer understanding of the key concepts—like what qualifies as affordable coverage, how different reimbursement accounts work, or why terms like “minimum value” matter—you can make smarter decisions that support both compliance and cost control, while offering meaningful coverage to your team.
At Planstin, we believe healthcare administration doesn’t have to be complicated. We’re here to help you simplify the process, support your people, and move forward with confidence.
Bookmark this guide to keep these definitions close at hand. And if you ever need help tailoring your benefits strategy or interpreting new regulatory changes, our team is here to help.
Did we miss a term you’d like to know more about? Need support understanding how all the pieces fit together or optimizing your plan design?
Give us a call at 888-920-7526 or click the link below to speak with a Benefit Guide.
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