Lifetime and Annual Limits


Reference

 

Section 2711 of the Public Health Service Act (the “Act”), as added by the Patient Protection and Affordable Care Act (“PPACA”), generally prohibits group health plans and health insurance issuers offering group insurance coverage from imposing lifetime or annual limits on the dollar value of essential health benefits offered under the plan or coverage.

On June 28, 2010, the Departments of Health and Human Services, Labor, and Treasury (the “Departments”) published a new Interim Final Rule addressing several provisions of the Patient Protection and Affordable Care Act, including requirements related to lifetime and annual limits.

Limited Medical Plans

A class of group health plans and health insurance coverage, generally known as “limited benefit” plans or “mini med” plans, often has annual limits well below the restricted annual limits set out in the interim final regulations.

These group plans and health insurance coverage often offer lower-cost coverage to part-time workers, seasonal workers, and volunteers who otherwise may not be able to afford coverage at all.

In order to ensure that individuals with certain coverage, including coverage under limited benefit or mini-med plans, would not be denied access to needed services or experience more than a minimal impact on premiums, the interim final regulations contemplated a waiver process for plan or policy years beginning prior to January 1, 2014 for cases in which compliance with the restricted annual limit provisions of the interim final regulations “would result in a significant decrease in access to benefits” or “would significantly increase premiums.”

This waiver process does not impact any State law requirement addressing annual benefit limits in group health plans, or group and individual health insurance coverage.

Click Here for more information on waiver process

Essential Health Benefits

Essential health benefits include at least the following general categories and the items and services covered within these categories:

A plan or issuer must apply the definition of essential health benefits consistently. For example, a plan could not both apply a lifetime limit to a particular benefit—thus taking the position that it was not an essential health benefit—and at the same time treat that particular benefit as an essential health benefit for purposes of applying the restricted annual limit.

The interim final regulations do not prevent a plan or issuer from excluding all benefits for a condition, but if any benefits are provided for a condition, then the prohibitions and/or restrictions related to lifetime and annual limits will apply.  An exclusion of all benefits for a condition is not considered to be an annual or lifetime dollar limit.

Grandfathered Status

The interim final regulations provide that the following modifications to annual limits provided under a group plan or health insurance coverage implemented after March 23, 2010 will impact grandfathered plan status under the PPACA:

Account-Based Plans

The restriction on annual limits applies differently to certain account-based plans, especially where other rules apply to limit the benefits available.

FSAs
The annual limit rules do not apply to health flexible spending accounts (health FSAs). In fact, a change to the Internal Revenue Code also enacted as part of the PPACA actually creates an annual limit for health FSAs offered under a cafeteria plan.  For taxable years beginning on or after January 1, 2013, the maximum annual election for employee salary reduction contributions to health FSAs offered under a cafeteria plan is $2,500 (indexed for inflation beginning in 2014).

HRAs
Health Reimbursement Arrangements (HRAs) are another type of account-based health plan and typically consist of a promise by an employer to reimburse qualified medical expenses incurred and paid by a participant up to a certain amount during the plan year.  HRAs can be designed so that unused amounts are available to reimburse a participant’s qualified medical expenses in future years, or can be designed such that any unused amounts are forfeited.  HRAs must be funded solely with employer contributions.  When HRAs are provided as part of a group health plan, often called an “embedded HRA”, the fact that the HRA feature provides an annual reimbursement limit will not violate the rules related to lifetime and annual limits, as long as the other coverage provided under the group health plan does not violate these rules.

Other HRAs that are exempt from the rules on prohibiting annual/lifetime limits and coverage of preventive care include:

HSAs and MSAs
The restrictions on annual limits do not apply to individual health savings accounts (HSAs) and medical savings accounts (MSAs). Both HSAs and MSAs generally are not treated as group health plans because the amounts available under the plans are available for both medical and nonmedical expenses, and are individual accounts over which employers exercise no control or discretion.  In addition, annual contributions to MSAs and HSAs are subject to specific statutory provisions that require that the contributions be limited on an annual basis.

Examples

The rules of the interim final regulations are illustrated in the following examples, taken directly from 29 CFR § 2590.715-2711(e)(5):

Example 1

Facts
Employer Y maintains a group health plan with a calendar year plan year. The plan has a single benefit package. For plan years beginning before September
23, 2010, the plan has a lifetime limit on the dollar value of all benefits. Individual B, an employee of Y, was enrolled in Y’s group health plan at the beginning of the 2008 plan year. On June 10, 2008, B incurred a claim for benefits that exceeded the lifetime limit under Y’s plan and ceased to be enrolled in the plan. B is still eligible for coverage under Y’s group health plan. On or before January 1, 2011, Y’s group health plan gives B written notice informing B that the lifetime limit on the dollar value of all benefits no longer applies, that individuals whose coverage ended by reason of reaching a lifetime limit under the plan are eligible to enroll in the plan, and that individuals can request such enrollment through February 1, 2011 with enrollment effective retroactively to January 1, 2011.

Conclusion
In this Example 1, the plan has complied with the requirements of this paragraph (e) by providing a timely written notice and enrollment opportunity to B that lasts at least 30 days.

Example 2

Facts
Employer Z maintains a group health plan with a plan year beginning October 1 and ending September 30. Prior to October 1, 2010, the group health plan has a lifetime limit on the dollar value of all benefits. Individual D, an employee of Z, and Individual E, D’s child, were enrolled in family coverage under Z’s group health plan for the plan year beginning on October 1, 2008. On May 1, 2009, E incurred a claim for benefits that exceeded the lifetime limit under Z’s plan. D dropped family coverage but remains an employee of Z and is still eligible for coverage under Z’s group health plan.

Conclusion
In this Example 2, not later than October 1, 2010, the plan must provide D and E an opportunity to enroll (including written notice of an opportunity to enroll) that continues for at least 30 days, with enrollment effective not later than October 1, 2010.

Example 3

Facts
Same facts as Example 2, except that Z’s plan had two benefit packages (a low-cost and a high-cost option). Instead of dropping coverage, D switched to the low-cost benefit package option.

Conclusion
In this Example 3, not later than October 1, 2010, the plan must provide D and E an opportunity to enroll in any benefit package available to similarly situated individuals who enroll when first eligible. The plan would have to provide D and E the opportunity to enroll in any benefit package available to similarly situated individuals who enroll when first eligible, even if D had not switched to the low-cost benefit package option.

Example 4

Facts
Employer Q maintains a group health plan with a plan year beginning October 1 and ending September 30. For the plan year beginning on October 1, 2009, Q has an annual limit on the dollar value of all benefits of $500,000.

Conclusion
In this Example 4, Q must raise the annual limit on the dollar value of essential health benefits to at least $750,000 for the plan year beginning October 1, 2010.
For the plan year beginning October 1, 2011, Q must raise the annual limit to at least $1.25 million. For the plan year beginning October 1, 2012, Q must raise the annual limit to at least $2 million. Q may also impose a restricted annual limit of $2 million for the plan year beginning October 1, 2013. After the conclusion of that plan year, Q cannot impose an overall annual limit.

 Example 5

Facts
Same facts as Example 4, except that the annual limit for the plan year beginning on October 1, 2009 is $1 million and Q lowers the annual limit for the plan year beginning October 1, 2010 to $750,000.

Conclusion
In this Example 5, Q complies with the requirements of this paragraph (e). However, Q’s choice to lower its annual limit means that under § 2590.715–1251(g)(1)(vi)(C), the group health plan will cease to be a grandfathered health plan and will be generally subject to all of the provisions of PHS Act sections 2701 through 2719A.

Additional Resources

Fact Sheet

Notice that Lifetime Limit No Longer Applies and Enrollment Opportunity

Guidelines and Model Language

Distribution Requirement: The notice must be provided to any individual who has lost coverage because he or she reached a lifetime limit on benefits.  The notice may be included with other enrollment materials provided that it is prominent, and may be provided to an employee on behalf of his or her dependent.

Please Note:  Employers must provide a similar special enrollment notice to all employees describing the special enrollment rights for children under the age of 26.  Employers may want to consider consolidating these notices for ease of administration.