ACA: Lifetime, Annual and Cost Sharing Limits


Reference

Section 2711 of the Public Health Service Act (the “Act”), as added by the Affordable Care Act (“ACA”), 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.

WHAT YOU SHOULD KNOW

Lifetime Limits

For plan years beginning after September 23, 2010, group health plans are prohibited from imposing lifetime limits on the dollar value of essential health benefits offered under the plan or coverage.

Annual Limits

For plan years beginning on or after January 1, 2014, group health plans and health insurance issuers are prohibited from imposing annual limits on the dollar value of essential health benefits.

Essential Health Benefits

Under the ACA, essential health benefits are defined to include the following general categories: ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services (including behavioral health treatment), prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive and wellness services, chronic disease management, and pediatric services (including oral and vision care).

See the Essential Health Benefits section below for more information.

Special Enrollment

A group health plan must offer any individual who has lost coverage solely because he or she reached a lifetime limit on benefits a special enrollment opportunity of at least 30 days in which to enroll in the plan, as long as that individual is otherwise still eligible for coverage. This enrollment period is treated as a HIPAA special enrollment period, which permits the employee as well as the individual who previously exceeded the limit to choose from among any of the benefit options offered under the plan.

The enrollment opportunity must be provided no later than the first day of the first plan year beginning on or after September 23, 2010. Therefore, many plans can use the existing annual or open enrollment periods to satisfy the enrollment opportunity requirement, as long as the enrollment period is a minimum of 30 days in length. Once the individual is enrolled, coverage must begin no later than the first day of the first plan year beginning on or after September 23, 2010. This is true even if the request for special enrollment is made after the first day of the plan year, as long as the request is made during the required special enrollment period.

Notice

Plans and issuers must provide one-time written notice of this special enrollment right to any individual who has lost coverage because he or she reached a lifetime limit on benefits. The notice must state that the lifetime limit no longer applies and that the individual (if still otherwise eligible) has a 30 day special enrollment period by which to enroll in any benefit option under the plan available to similarly-situated employees. The notice may be provided to an employee on behalf of the employee’s dependent. In addition, the notice may be included with other enrollment materials that a plan distributes to employees, provided the statement is prominent.

This special enrollment is a one-time event and does not need to be repeated in subsequent plan years. Click here for guidelines and model language (Spanish Version).

Although the regulations do not specify a means of delivery for this notice, presumably the plan could follow ERISA safe harbor distribution methods.

Please Note: This special enrollment and notice requirement is a one-time event and does not need to be repeated in subsequent plan years; however, plans that issued this notice should maintain a copy of it with their plan records.

Essential Health Benefits

Essential health benefits (EHB) 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.

Each State is required to determine an “EHB-benchmark plan” in accordance with criteria specified in the rules and which are generally a function of the largest of various types of plans operating within the state.  There are default rules for States that fail to select a benchmark plans.

Details regarding each State’s benchmark plan can be found here.

Issuers of plans for small employers that will be available through the Exchanges must provide coverage for EHB.  Large insured plans and self-insured plans are not required to provide EHB but, of course, most will provide some benefits that are EHB and to that extent they will be subject to the limitations on lifetime and annual limits applicable to EHB.  A self-insured plan, large group plan and grandfathered group health plan will be considered to have used a permissible definition of EHB if it is one authorized by the Secretary of HHS, including any available benchmark options. Furthermore, the Departments intend to work with those plans that make a good faith effort to apply an authorized definition of EHB to ensure there are no annual or lifetime dollar limits on EHB.

In addition, EHB are used to measure whether a self-insured health plan provides minimum value.  The final rule provides that a self-insured plan may take into account all benefits provided by the plan that are in any of the EHB benchmark plans.

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).

Other market reform provisions will apply to health FSAs unless they are considered excepted benefits.   A health FSA will be considered an excepted benefit if:

  1. the employer also makes available group health plan coverage that is not limited to excepted benefits; and
  2. the health FSA is structured so that the maximum benefit payable to any participant cannot exceed two times the participant’s salary reduction election for the health FSA for the year (or, if greater, cannot exceed $500 plus the amount of the participant’s salary reduction election).

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.

An HRA is not considered a health plan for purposes of the ACA if it only provides excepted benefits (for example limited scope dental and vision benefits).  If an HRA is available to reimburse medical expenses that are not excepted benefits, it is considered a health plan for purposes of the ACA’s market reform rules.   As a result, it would need to comply with the rules prohibiting annual limits on essential health benefits as well as those requiring payment for preventive care.

However, when HRA coverage is “integrated” with coverage under a primary group health plan that complies with the ACA’s annual dollar limit requirement, the fact that the HRA features provide an annual reimbursement limit on essential health benefits will not cause it to be in violation of the ACA.

There are two methods by which an HRA may be considered integrated.  The first is called the “Minimum Value Not Required Method”.  Under this method, an HRA is integrated with an employer’s group health plan for purposes of the annual dollar limit prohibition and the preventive services requirements if:

  1. the employer offers a group health plan (other than the HRA) to the employee that does not consist solely of excepted benefits;
  2. the employee receiving the HRA is actually enrolled in a group health plan (other than the HRA) that does not consist solely of excepted benefits (however, see comments under the heading The Effect of Arrangements that Reduce Cost-Sharing on Minimum Value and Affordability of Employer-Sponsored Plans for the treatment of HRA contributions for purposes of determining an employee’s required contribution as it relates to the individual mandate);
  3. the HRA is available only to employees who are enrolled in non-HRA group coverage, regardless of whether the employer sponsors the non-HRA group coverage (for example, the HRA may be offered only to employees who do not enroll in the employer’s group health plan but are enrolled in other non-HRA group coverage, such as a plan maintained by the employer of the employee’s spouse);
  4. the HRA is limited to reimbursement of one or more of the following—co-payments, co-insurance, deductibles, and premiums under the non-HRA group coverage, as well as medical care that does not constitute essential health benefits; and
  5. under the terms of the HRA, an employee (or former employee) is permitted to permanently opt out of and waive future reimbursements from the HRA at least annually and, upon termination of employment, either the remaining amounts in the HRA are forfeited or the employee is permitted to permanently opt out of and waive future reimbursements from the HRA.

The second method is called the “Minimum Value Required Method”. It applies to HRAs whose reimbursements are not limited as described under item (4) above.  These HRAs will be considered integrated if:

  1. the employer offers a group health plan to the employee that provides minimum value;
  2. the employee receiving the HRA is actually enrolled in a group health plan that provides minimum value, regardless of whether the employer sponsors the plan (non-HRA MV group coverage) (however, see comments under the heading The Effect of Arrangements that Reduce Cost-Sharing on Minimum Value and Affordability of Employer-Sponsored Plansfor the treatment of HRA contributions for purposes of determining an employee’s required contribution as it relates to the individual mandate);
  3. the HRA is available only to employees who are actually enrolled in non-HRA MV group coverage, regardless of whether the employer sponsors the non-HRA MV group coverage (for example, the HRA may be offered only to employees who do not enroll in the employer’s group health plan but are enrolled in other non-HRA MV group coverage, such as a plan maintained by an employer of the employee’s spouse); and
  4. under the terms of the HRA, an employee (or former employee) is permitted to permanently opt out of and waive future reimbursements from the HRA at least annually, and, upon termination of employment, either the remaining amounts in the HRA are forfeited or the employee is permitted to permanently opt out of and waive future reimbursements from the HRA.

An HRA is not considered “integrated” if it is available to employees who are not covered by a primary group health plan.  This includes employees who are eligible for the employer’s primary coverage but elect not to take it.  As noted above, however, an employer’s HRA can be integrated with the health coverage offered by another employer.  However, see comments under the heading The Effect of Arrangements that Reduce Cost-Sharing on Minimum Value and Affordability of Employer-Sponsored Plans for the treatment of HRA contributions for purposes of determining an employee’s required contribution as it relates to the individual mandate.

In addition, an HRA that is used to purchase coverage on the individual market is not considered integrated.

Unused amounts that were credited to an HRA while the HRA was integrated with other group health plan coverage may be used to reimburse medical expenses in accordance with the terms of the HRA after an employee ceases to be covered by other integrated group health plan coverage without causing the HRA to fail to comply with the market reforms.

Example:         Employee X is covered under his employer’s group health plan. The employer also sponsors an HRA for its covered employees.  The employer credits $500 per year to the HRA account of each employee.  X becomes ineligible for his employer’s group health plan due to a change in job classification.  However, at the time his coverage ends, he still has $300 available in his HRA.  The HRA may permit the X to use the $300 for medical expenses incurred after termination of his health plan coverage.

An HRA integrated with a group health plan that does not provide minimum value is deemed to impose an annual limit in violation of the annual dollar limit prohibition if the group health plan with which the HRA is integrated does not cover a category of essential health benefits and the HRA is available to cover that category of essential health benefits but limits the coverage to the HRA’s maximum benefit.

Example:         Employer M sponsors a self-insured group health plan which does not provide minimum value.  The group health plan does not cover preventive care.  The employer also sponsors an HRA for its covered employees.  The employer credits $500 per year to the HRA account of each employee.  The employees may use the HRA to pay for medical expenses including preventive care up to the available balance in their account.  The HRA is in violation of the ACA’s annual dollar limit prohibition.

However, under the integration method available for plans that provide minimum value, if a group health plan provides minimum value, an HRA integrated with that group health plan will not be treated as imposing an annual limit in violation of the annual dollar limit prohibition, even if that group health plan does not cover a category of essential health benefits and the HRA is available to cover that category of essential health benefits and limits the coverage to the HRA’s maximum benefit.

Example:         Employer M sponsors a self-insured group health plan that provides minimum value.  However, the group health plan does not cover preventive care.  The employer also sponsors an HRA for its covered employees.  The employer credits $500 per year to the HRA account of each employee.  The employees may use the HRA to pay for medical expenses including preventive care up to the available balance in their account.  The HRA is not in violation of the ACA’s annual dollar limit prohibition.

In previous guidance unrelated to the ACA, the IRS has stated that an HRA may be considered an FSA under certain specified circumstances.  However, the IRS has declined to extend that ruling to HRAs for purposes of whether the annual limit rules apply, saying only that the matter is under consideration.

If the HRA terms in effect on January 1, 2013 did not prescribe a set amount or amounts to be credited during 2013 or the timing for crediting such amounts, then the amounts credited may not exceed those credited for 2012 and may not be credited at a faster rate than the rate that applied during 2012.

Retiree Plans: HRAs providing benefits solely to retirees are exempt from the rules relating to annual and lifetime limits, because retiree-only plans are exempt from the ACA.

Limitation on Cost Sharing

Please note that cost-sharing limits only apply to essential health benefits (EHB) and do not include premiums, balance billing amounts for non-network providers, or spending for non-covered services such as cosmetic surgery. In the case of a plan using a network of providers, cost-sharing for benefits provided outside of the network will not count towards the annual limitation on cost-sharing.

Out-of-Pocket Maximum
For plan years beginning in 2015, the out-of-pocket maximum for non-grandfathered group health plans for self-only and family coverage cannot exceed $6,600 for single coverage and $13,200 for family.  The maximum out-of-pocket amount for self-only coverage is indexed annually by a “premium adjustment percentage” established by HHS; the maximum out-of-pocket for family coverage will be twice the maximum for self-only coverage.  In 2016, the maximum out-of-pocket is $6,850 for single coverage and $13,700 for family coverage.

Plans are permitted to divide the limit across multiple categories of benefits if the aggregate total of cost-sharing limits does not exceed the permissible limit.   For example, if the out-of-pocket maximum (OOP) for single coverage is $6,350, a plan could have a benefit design that imposed an OOP of $1,000 for prescription drug coverage and $5,350 for all other medical services.

Annual Cost-sharing Limits
Beginning in 2016, the annual cost-sharing limit for self-only coverage will be set at $6,850 (not to be confused with the HDHP annual maximum out-of-pocket limit)  and for family [more than 1 covered individual] coverage at $13,700.  In addition, the annual limit for self-only coverage applies to all individuals, including each individual under family coverage.

As an example of how the self-only limit will apply, let’s assume a family is covered by a plan with a $10,000 deductible/maximum annual out-of-pocket limit.  Then let’s assume, one member of the family incurs $15,000 in claims expense.  That family would be responsible for paying $6,850 [the self-only out-of-pocket maximum] towards that $15,000 charge and the plan would be responsible for paying the remaining $8,150.  Any additional covered expenses that this one family member might incur throughout the remainder of the plan year, will be paid entirely by the plan.  This leaves an additional amount of $3,150 that the family could be liable for if any of the other family members experience covered claims [$10,000 maximum – $6,850 paid for family member 1 = $3,150].  As usual, once the family reaches the maximum $10,000 out-of-pocket limit, the group has no cost sharing for the rest of the plan year.

If a plan includes a network of providers, the plan may, but is not required to, count out-of-pocket spending for out-of-network items and services towards the plan’s annual out-of-pocket maximum.

Additional Resources

Fact Sheet

Interim Final Rule

Center for Consumer Information & Insurance Oversight

 

 

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