The Patient Protection and Affordable Care Act (PPACA) includes among its coverage reform provisions a section that disallows cost sharing under a group health plan that exceeds $6,350 for self-only coverage or $12,700 for other coverage. An overall limit on cost sharing generally is referred to as an out-of-pocket maximum. This provision and the specified dollar limits on out-of-pocket maximums are effective for plan years starting on or after January 1, 2014 (the dollar limits may be adjusted for inflation in later years).
Many employers have questions about these limits, including:
- Exactly what expenses must be counted against an out-of-pocket maximum?
- Is a plan required to pay 100% of ALL covered expenses once an out-of-pocket maximum is reached?
- Which plans are subject to the limits?
- Are limits adjusted for various amounts (e.g., increased by $500 if an employer makes a $500 health reimbursement arrangement available to each participant)?
GUIDANCE TO DATE IS LIMITED
Unfortunately, no regulations implementing these provisions for employer plans have been issued yet. In fact, the only official guidance available is a set of regulations from the Department of Health and Human Services (HHS) which explains some of the requirements an insurance program must meet to be a “qualified health plan” that can be offered on a public insurance exchange. Among other requirements, for 2014, qualified health plans cannot have cost-sharing requirements exceeding the $6,350 and $12,700 amounts noted above. HHS has issued regulations explaining how these limits on cost sharing will apply when determining whether a plan is a qualified health plan.
Those regulations do not apply directly to employer-sponsored plans, and it is not clear that regulations governing employer plans, when issued, will follow the provisions HHS has adopted for qualified health plans. Unofficial FAQ guidance from the federal agencies (the Department of Labor (DOL) and IRS) that regulate employer plans does not indicate whether employers should heed the HHS regulations. Even so, the HHS regulations do offer a few clues that may be helpful to employers as they plan for implementing these requirements.
- For network plans, the HHS regulations count only in-network expenses toward the cost-sharing limit.
- The HHS regulations do not allow any adjustment to the dollar limits for plans that are paired with an HRA, HSA or health FSA that may reimburse some or all cost-sharing requirements.
- The out-of-pocket maximum limits do not change the requirement to provide coverage of preventive care with no cost-sharing that applies to non-grandfathered health plans.
- Similarly, the limits do not change the requirements that apply to non-grandfathered health plans with respect to cost sharing for emergency care (e.g., required copayments for out-of-network emergency care cannot exceed such copayments for in-network emergency care).
While this information is somewhat helpful, it is subject to change when the agencies issue regulations implementing the rules for employer-sponsored group health plans. In addition, there are many questions that are not answered by these rules.
- The rules do not address whether penalties for failing to obtain required pre-certifications or otherwise failing to comply with medical management procedures must be counted against the limit.
- If a plan has limits on certain benefits (e.g., 60 physical therapy visits per year), the rules do not explain whether the expenses incurred for additional treatment must be counted against the limit.
- The rules do not address whether special rules apply for account-based plans (e.g., HRAs and health FSAs that are not excepted benefits, as explained below).
Some experts have speculated that the rules for employer plans, when issued, will closely resemble the rules the IRS applies to determine whether a plan meets the out-of-pocket maximum requirement for qualifying as a high-deductible health plan (HDHP). (One condition for being eligible for HSA contributions is HDHP coverage, and one of the required elements for an HDHP is an out-of-pocket maximum that does not exceed certain dollar limits.) In connection with the definition of HDHP, the IRS has issued extensive guidance explaining what items do or do not count for purposes of determining whether the applicable limit has been exceeded.
WHAT WE DO KNOW
The cost-sharing items that are counted toward the limit include all deductibles, coinsurance, copayments and similar charges. It is reasonably clear that annual deductibles, cost sharing for prescription drugs and other cost sharing that plans historically may not have applied against an out-of-pocket maximum must be counted when determining whether a plan’s out-of-pocket maximum exceeds the limit. Amounts that are not subject to the limits include premiums, balance billing amounts for non-network items and spending for non-covered items.
In connection with items that may not currently count toward a plan’s overall out-of-pocket maximum, informal guidance (a FAQ) provides a transition rule for the 2014 plan year that may be helpful for some employer plans. Under the rule, a plan will be considered to have complied with the limit on out-of-pocket maximums during its 2014 plan year if all of the following conditions are met:
- The plan uses more than one service provider to administer benefits that are subject to the limit on out-of-pocket maximums (e.g., a self-insured plan that has a claim administrator and uses a separate company as its pharmacy benefit manager)
- The plan applies an out-of-pocket maximum that complies with the limits with respect to its major medical coverage (excluding, for example, prescription drug coverage)
- To the extent the plan includes an out-of-pocket maximum on coverage that does not consist solely of major medical coverage (e.g., if a separate out-of-pocket maximum applies with respect to prescription drug coverage), such out-of-pocket maximum does not exceed the applicable limit
A self-insured plan that uses one company to administer major medical claims and a second company as a pharmacy benefit manager clearly would comply with this transition rule if it applied a $6,000 self-only/$12,000 non-self-only out-of-pocket maximum to major medical benefits and applied a separate $6,000 self-only/$12,000 non-self-only out-of-pocket maximum to prescription drug benefits. That is, the total out-of-pocket maximum with both parts of the plan considered would be $12,000 self-only/$24,000 non-self-only. There is some debate among experts whether a plan’s prescription drug component that does not currently have an out-of-pocket maximum must put one in place for the 2014 plan year in order to take advantage of this transition rule. The more cautious approach is to add a compliant out-of-pocket maximum to the prescription drug coverage, but agency officials have been quoted as providing informal guidance that it is unnecessary to do so in order to meet the requirements for the transition rule.
NOTE: This transition rule does not apply for purposes of determining whether coverage qualifies as HDHP coverage associated with HSA contributions. If an HDHP had the out-of-pocket maximums in the example above, it would not qualify as an HDHP.
PLANS SUBJECT TO THE LIMITS ON OUT-OF-POCKET MAXIMUMS
The out-of-pocket maximum limits are one of the coverage reform provisions included in the health care reform law. That means that the limits generally apply to any employer-sponsored plan – whether insured or self-insured – that provides, pays for or reimburses the cost of health care. Some major exceptions apply:
- Grandfathered plans are exempt from the limits on out-of-pocket maximums (grandfathered plans are discussed in Willis Human Capital Practice Alert, July 2010, “Regulations on Grandfathered Plans” and Willis Human Capital Practice Alert, November 2010, “Agencies Amend Grandfather Regulations”).
- To the extent that a plan consists of “excepted benefits,” it is exempt from the limits on out-of-pocket maximums (excepted benefits include stand-alone dental and vision coverage, most cafeteria plan health FSAs, hospital or other fixed indemnity coverage offered under certain circumstances, and specified disease coverage).
- Plans that cover only retirees and that are separate from all plans that cover active employees are exempt from the limits on out-of-pocket maximums.
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