Cost-sharing Limits for Health Plans

Cost-sharing Limits for Health Plans

by Clarke & Company Benefits Posted on: July 22, 2014Categories: HR & Compliance   

Beginning in 2014, the Affordable Care Act (ACA) requires certain health plans to comply with cost-sharing limits with respect to their coverage of essential health benefits. Under the ACA, “essential health benefits” (EHB) must be equal in scope to benefits covered by a typical employer plan and must include items and services in ten general categories, including hospitalization, prescription drugs and maternity and newborn care.

The cost-sharing limits include both an overall annual limit (or an out-of-pocket maximum) and an annual deductible limit. On Feb. 25, 2013, the Department of Health and Human Services (HHS) issued a final rule on EHB that addresses the ACA’s cost-sharing limits for health plans. The limits are effective for plan years beginning in 2014.

On April 1, 2014, President Obama signed into law the Protecting Access to Medicare Act of 2014 (H.R. 4302), which repeals the annual deductible limit under the ACA. This repeal is effective as of the date that the ACA was enacted, back on March 23, 2010.

 

UPDATES FOR 2015

The ACA requires the cost-sharing limits to be updated annually based on the percent increase in average premiums per person for health insurance coverage. On March 5, 2014, HHS published its 2015 Notice of Benefit and Payment Parameters Final Rule, which establishes the cost-sharing limits for 2015. These cost-sharing limits are lower than the limits HHS originally proposed for 2015.

Under the Final Rule, for 2015 The annual limiton total enrollee cost-sharing for EHB is $6,600 for self-only coverage and $13,200 for family coverage. The annual deductible for a health plan in the small group market may not exceed $2,050 for self-only coverage and $4,100 for family coverage.

However, the Protecting Access to Medicare Act of 2014 (signed into law on April 1, 2014) repeals the annual deductible limit, effective as of the date that the ACA was enacted, back on March 23, 2010.

Annual Deductible Limit

On April 1, 2014, President Obama signed into law the Protecting Access to Medicare Act of 2014 (H.R. 4302), which repeals the annual deductible limit under the ACA. This repeal is effective as of the date that the ACA was enacted, back on March 23, 2010. Due to the actuarial value exception provided under the final rule, this repeal may not significantly impact small employers. However, it will give small employers with insured plans more flexibility to offer higher deductible health plans (which typically come with lower premiums). Small employer health plans that have started their 2014 plan years (for example, calendar year plans) were already required to incorporate the ACA’s annual deductible limit, unless a higher limit applied due to the actuarial value exception. It is not likely that these plans will be affected by the repeal of the ACA’s deductible limit until their 2015 plan years. However, smal employer health plans that have not started their 2014 plan years (for example, health plans with a Nov. 1 to Oct. 31 plan year) may be able to avoid the ACA’s deductible limit altogether.

 

Effective for plan years beginning in 2014, the ACA prohibited the annual deductible for a health plan in the small group market from exceeding $2,000 for self-only coverage and $4,000 for family coverage. For 2015, the annual deductible limit was set to be $2,050 for self-only coverage and $4,100 for family coverage.

The final rule standardized the maximum deductible for all group health plans in the small group market. The ACA permitted, but did not require, contributions to flexible spending arrangements (FSAs) to be taken into account when determining the annual deductible limit. However, due to operational complications with this type of determination, the final rule did not increase the deductible levels for amounts available under FSAs.

States may interpret this provision differently and allow issuers in their small group markets to increase the deductible limit for amounts available under FSAs. For example, the Wisconsin Office of the Commissioner of Insurance released a bulletin on July 2, 2013, that allows small group health insurance plans offered outside of the Exchange to increase the maximum deductible by employer health FSA contributions. HHS has not issued any formal guidance on how it will respond to varying state interpretations of the annual deductible limit.

Actuarial Value Exception

The ACA required the deductible limit to be applied so as not to affect the actuarial value of any health plan. As a result, the final rule allows a health plan’s annual deductible to exceed the ACA limit if a plan could not reasonably reach the actuarial value of a given level of coverage (that is, a metal tier—bronze, silver, gold or platinum) without exceeding the limit.