Cost Sharing Limitations

As you are aware the Cost Sharing provision of the ACA are set to take effect the first plan year beginning or renewing on or after January 1, 2014. There are two parts to these requirements; Annual Deductible Limitation and Out-of-Pocket limitation.

Good News about the Annual Deductible Limitations

The annual deductible limitations do not apply to self-funded group health plans. The limitations also do not apply to fully insured large group health plans or grandfathered fully insured small group health plans.

The regulations on this final rule outline the standards for health insurance issuers in the small group and individual markets related to health insurance reforms.

Cost-Sharing's Out-of-Pocket Limits

The annual limitation on cost sharing identifies the limit on total enrollee cost-sharing that can be incurred. The first way to reduce cost-sharing is by reducing the applicable out-of-pocket limit.

The out-of-pocket limit is based on the highest out-of-pocket limits permitted for an HSA-compatible high deductible health plan. These limits are determined every year by the IRS. For 2014, those amounts are $6,350 for single coverage and $12,700 for family coverage (indexed for 2015 and later years).

Who must comply with these out-of-pocket limits?

All non-grandfathered group health plans, including self-funded group health plans will be subject to the out-of-pocket annual limits.

This is made clear in DOL's FAQ Part XII:

Q2: Who must comply with the annual limitation on out-of-pocket maximums under PHS Act section 2707(b)?

As stated in the preamble to the HHS final regulation on standards related to essential health benefits, the Departments read PHS Act section 2707(b) as requiring all non-grandfathered group health plans to comply with the annual limitation on out-of-pocket maximums described in section 1302(c)(1) of the Affordable Care Act.

The first thing is to see how the out-of-pocket limits relate to cost-sharing. The out-of-pocket limits are expenses that include copayments and other amounts, but do not include premiums. Cost-sharing is defined as any expenditure required by or on behalf of an enrollee with respect to essential health benefits. Those expenditures include the definition of out-of-pocket maximum (deductibles, coinsurance, copayments, or similar charges, but excludes premiums, balance billing amounts for non-network providers, and spending for non-covered services).

Only in-network essential health benefits (EHB) need be counted toward the out-of-pocket limits. Out-of-network deductibles and out-of-pocket limits are not limited by federal law (but, for insured plans, may be capped by state insurance law).

The out-of-pocket limits present a logistical problem for those plans where medical benefits are administered (or insured) by one entity and prescription drug benefits and other non-excepted benefits are administered by a different entity. Some group health plans have more than one administrator of essential health benefits. For example: the medical services may be administered by one contractor and the prescription drugs another. Both of these benefits may have a separate out of pocket maximum. And up until this point operate separately. The agencies were concerned about the operational and timing issues and subsequently issued an enforcement safe harbor for large and self-insured group health plans.

As outlined in FAQ Part XII: The agencies made a determination only for the first plan year beginning on or after January 1, 2014.

A group health plan utilizing more than one service provider to administer benefits and that is subject to the annual limitation on out-of-pocket maximums, will be considered to have the annual limitation on out-of-pocket maximums to be satisfied if both of the following conditions are satisfied:

1. The plan complies with the requirements with respect to its major medical coverage (excluding, for example, prescription drug coverage and pediatric dental coverage); and

2. To the extent the plan or any health insurance coverage includes an out-of-pocket maximum on coverage that does not consist solely of major medical coverage (for example, if a separate out-of-pocket maximum applies with respect to prescription drug coverage), such out-of-pocket maximum does not exceed the dollar amounts of $6,350 for single coverage and $12,700 for family coverage.

This communication is designed to provide a summary of significant developments to our clients. Information presented is based on known provisions. Additional facts and information or future developments may affect the subjects addressed. It is intended to be informational and does not constitute legal advice regarding any specific situation. Plan sponsors should consult and rely on their attorneys for legal advice.