Lifetime and Annual Limits (Part 1)
Posted on: March 31, 2015Categories: HR & ComplianceThe Affordable Care Act (ACA) prohibits health plans from imposing lifetime and annual limits on the dollar value of essential health benefits. This mandate became effective for plan years beginning on or after Sept. 23, 2010. However, “restricted annual limits” were permitted for essential health benefits for plan years beginning before Jan. 1, 2014.
On June 28, 2010, the Departments of Health and Human Services, Labor and the Treasury issued interim final rules regarding the ACA’s prohibition on lifetime and annual limits.
Covered Plans
The prohibition on lifetime and annual limits applies to both non-grandfathered and grandfathered group health plans. However, it does not apply to grandfathered individual policies.
The restrictions on annual limits do not apply to health flexible spending arrangements (health FSAs) offered under a cafeteria plan, medical savings accounts (MSAs) and health savings accounts (HSAs).
Health reimbursement arrangements (HRAs) are generally subject to the ACA’s annual limit requirements. However, an HRA that is integrated with other group health coverage is not required to satisfy the annual limit requirement if the other coverage alone satisfies the ACA’s prohibition on annual limits. Technical Release 2013-03 provides detailed guidance on when an HRA will be considered integrated with other group health coverage. Also, some stand-alone HRAs are not subject to the ACA’s annual limit requirement because they fall under an exception, such as retiree-only HRAs.
Essential Health Benefits
The ACA’s prohibition on lifetime and annual dollar limits only applies to a health plan’s coverage of essential health benefits. The ACA specifically provides that plans may impose annual or lifetime limits on specific covered benefits that are not essential health benefits.
Under the ACA, essential health benefits must reflect the scope of benefits covered by a typical employer and cover at least the following 10 general categories of items and services:
- Ambulatory patient services (outpatient care)
- Emergency services
- hospitalization
- Maternity and newborn care
- Mental Health and Substance us disorder benefits, including behavioral health treatment
- Prescription drugs
- Rehabilitative and Habilitative services and devices
- Laboratory services
- Preventative and wellness services and chronic disease management
- Pediatric services, including oral and vision care
Effective for plan years beginning on or after Jan. 1, 2014, non-grandfathered health insurance plans in the individual and small group markets are required to cover essential health benefits. The requirement to cover essential health benefits does not apply to:
- Grandfathered health plans;
- Self-insured group health plans; and
- Health insurance plans offered in the large group market.
The ACA directed the Department of Health and Human Services (HHS) to more specifically define the items and services that comprise essential health benefits. HHS developed a state-specific benchmark approach for defining essential health benefits. Under this approach, each state selected a benchmark insurance plan that reflects the scope of services offered by a typical employer plan in the state. If a state did not select a benchmark plan, HHS selected the small group plan with the largest enrollment in the state as the state’s default benchmark plan.
As a general rule, the items and services included in a state’s benchmark plan comprise the essential health benefits that insured health plans in the state’s individual and small group markets must cover.
In order to determine which benefits are essential health benefits for the purpose of removing annual and lifetime dollar limits, a self-insured group health plan, large group market health plan, or grandfathered group health plan may choose any benchmark plan from any state that was approved by HHS.
Also, self-insured group health plans, large group market health plans and grandfathered health plans can still exclude all benefits for a condition. This type of exclusion will not be considered an annual or lifetime limit as long as no benefits are provided for the condition.
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