This is the 53rd in a series of WorkCite articles concerning the Patient Protection and Affordable Care Act and its companion statute, the Health Care and Education Reconciliation Act of 2010 (referred to collectively as the ACA). This article discusses a recent change in the application of the ACA’s maximum out-of-pocket expense (MOOP) limits on essential health benefits (EHB) to group health plans beginning in 2016.

Background

Section 2707(b) of the Public Health Service Act (PHSA), as added by the ACA, requires that a non-grandfathered group health plan ensure that any annual cost-sharing imposed under the plan does not exceed the limitations under ACA Section 1302(c)(1). “Cost-sharing” means any expenditure required by or on behalf of a covered person as to EHB, including deductibles, coinsurance, copayments or similar charges. Under Section 1302(c)(1), a person’s out-of-pocket costs for EHB are limited by reference to the minimum annual deductible required under a high-deductible health plan (HDHP) for self-only coverage or for non-self-only coverage (such as “participant-plus-one” coverage or full family coverage), as the case may be, under Section 223(c)(2)(A) of the Internal Revenue Code of 1986 (Code).

The Department of Health and Human Services (HHS) has issued a regulation, 45 C.F.R. Section 156.130, to implement the MOOP limits. For years after 2014, the regulation provides that the limits are adjusted based upon changes in the average per capita premium for health insurance coverage. In its “Notice of Benefit and Payment Parameters for 2016” (Payment Notice), HHS announced that the MOOP limits for 2016 will be $6,850 for self-only coverage and $13,700 for non-self-only coverage. The Payment Notice consists of a lengthy preamble and amendments to various regulations.

The HHS MOOP regulation does not address how the MOOP limits should be applied by a plan as to a person receiving non-self-only coverage. There are two alternatives as to how this could be done:

Alternative 1: Cost-sharing ends only when the non-self-only MOOP limit is reached. For example, if X and Y are covered under participant-plus-one coverage and X incurs $8,000 of eligible out-of-pocket expenses in 2016 and Y incurs $5,000 of such expenses, the $13,700 non-self-only MOOP limit would not be reached, and so the plan would not pay any of X or Y’s expenses.

Alternative 2: The self-only MOOP limit applies to each covered person, in addition to the non-self-only limit. In the above example, X would have reached the self-only MOOP limit of $6,850, and so the plan would have to pay $8,000 - $6,850, or $1,150, of X’s eligible out-of-pocket expenses, even though the $13,700 non-self-only MOOP limit had not been reached.

If expenses of participants under non-self-only coverage are great enough, the plan would pay the same under either alternative. Thus, if both X and Y had incurred $8,000 of eligible out-of-pocket expenses:

  • Under Alternative 1, $13,700 would be subtracted from the $16,000 total expenses of X and Y, leaving the plan to pay the $2,300 difference.
  • Under Alternative 2, $6,850 would be subtracted from $8,000 as to both X and Y, leaving the plan to pay the $1,150 difference for each of them, for a total of $2,300.

The HHS Clarification

In the preamble portion of the Payment Notice, HHS announced a “clarification” to its MOOP regulation:

The annual limitation on cost sharing for self-only coverage applies to all individuals regardless of whether the individual is covered by a self-only plan or is covered by a plan that is other than self-only.

HHS has thus mandated that Alternative 2 above be used. The MOOP regulation was not amended to reflect this change, however.

So as not to leave any doubts, after the Payment Notice was issued the Departments of Labor and the Treasury, along with HHS, released an FAQ indicating that the departments “read [PHSA] section 2707(b) as requiring non-grandfathered group health plans to comply with the maximum annual limitation on cost sharing promulgated under [ACA Section 1302(c)(1)], including the HHS clarification that the self-only maximum annual limitation on cost sharing applies to each individual, regardless of whether the individual is enrolled in self-only coverage or in coverage other than self-only.” Accordingly, the FAQ stated, “the self-only maximum annual limitation on cost sharing applies to an individual who is enrolled in family coverage or other coverage that is not self-only coverage under a group health plan.” The FAQ also stated that the departments would apply the clarification only for plan or policy years beginning in or after 2016.

Congressional Reaction to the Clarification

In an Aug. 7, 2015 letter to the secretary of HHS, the chairmen of the House Ways and Means, Education and the Workforce and Energy and Commerce committees expressed concerns about the HHS clarification:

This change will have a significant impact on employers and working families. The new policy will lead to increased premiums as plans account for the changing requirements. Furthermore, employers are already struggling with administrative and financial difficulties imposed by the President’s health care law. Now, they will be required to make major changes to their plans in order to comply with this new mandate or pay stiff penalties, thus driving up overall health care costs and reducing the availability of employer health care benefits. According to a survey by the ERISA Industry Committee, nearly all of their members would be affected by the rule, with 70 percent reporting a significant adverse impact. [Footnote omitted.]

(In the Payment Notice, by contrast, HHS describes the clarification as an “important consumer protection,” as it is aware that some consumers have been confused by the applicability of the annual limitation on cost-sharing in other than self-only plans.)

In their letter, the committee chairmen raised both substantive and procedural objections to the clarification:

  • Substantively, the chairmen noted that the relevant statute is clear – there are two separate and distinct limits. These limits, they explained, “are set by statute at the same level as HSA [health savings account] contribution limits, which have one limit for a self- policy and a different limit for all other policies.”*
  • Procedurally, the chairmen indicated that the change may violate the Administrative Procedure Act, which requires a federal agency to publish the proposed rule in the Federal Register, refer to the legal authority under which the rule is proposed, give interested persons an opportunity to comment and publish the rule in final form at least 30 days before its effective date. Here, the chairmen stated, HHS has not proposed any changes to the Code of Federal Regulations implementing this change and instead “has announced this so-called ‘clarification’ by burying it deep within the preambles of more than one hundred pages of proposed and final rules, and in sub-regulatory guidance.”

The “sub-regulatory guidance” referred to by the chairmen would include the FAQ discussed above.

The chairmen have asked that by Aug. 21, 2015, the committees be provided with (i) the source of the statutory authority to enable the Administration to make this change in the MOOP limits; (ii) any analyses that the Administration has conducted on the impact of the change on employers and employees; and (iii) an explanation of the basis for HHS’s justification for making the policy change in a preamble and not in regulations.