As employers and plans prepare for 2016 open enrollment, they must be sure to address in their benefit design and with their third party vendors the new embedded out-of-pocket maximum limitations on individuals that were announced at the end of May by the U.S. Departments of Labor (“DOL”), Health and Human Services (“HHS”) and the Treasury (collectively, the “Departments”).
The Affordable Care Act (“ACA”) requires that non-grandfathered group health plans place limits on the maximum annual cost sharing imposed on plan enrollees for out-of-pocket costs associated with essential health benefits. For plan and policy years beginning in 2016, the maximum out-of-pocket cost for self-only coverage is $6,850, while the maximum out-of-pocket cost for coverage that is not self-only coverage is $13,700.
On February 27, 2015, HHS issued the HHS Notice of Benefit and Payment Parameters for 2016 (the “2016 HHS Notice”), which explained that the self-only maximum annual limitation on out-of-pocket costs applies to each individual, irrespective of whether that individual is enrolled in self-only coverage or coverage that is not self-only coverage. Initially, this appeared to apply only to small group and individual coverage.
However, on May 26, 2015, the Departments issued DOL FAQs Part XXVII, which clarify that the Departments intended to expand this rule to all non-grandfathered health plans, including non-grandfathered group health plans, large and small, insured and self-insured. Thus, non-grandfathered large group health plans must apply this $6,850 annual maximum cost sharing cap to each individual, regardless of the type of coverage in which the individual is enrolled.
Therefore, if a participant has family coverage, his or her family members must have a combined out-of-pocket limit of no more than $13,700, such that when some combination of them reaches that amount, there is no further cost sharing. However, even in this family coverage, there is an embedded individual out-of-pocket limit that cannot exceed $6,850, meaning that if any one of the family members reaches $6,850, there is no further cost sharing for that individual.
Although some plans already use an embedded out-of-pocket limit, there are many that do not. Accordingly, as employers plan for 2016 open enrollment, they must ensure that their benefit structures are consistent with this new rule. This includes updating their summary plan descriptions and contacting their vendors to ensure that the administration is consistent with this rule.
Particular attention must be paid to non-grandfathered high deductible health plans (“HDHPs”), to which this new rule also applies. High deductible plans often have no embedded limit, applying the family out-of-pocket maximum to all family members in the case of family coverage.
Implementation of the new rule in HDHPs may be particularly confusing to participants because the ACA maximum out-of-pocket limit differs from the IRS maximum out-of-pocket limit used to determine whether the HDHP can be coordinated with a health savings account (“HSA”). Specifically, in 2016, for HDHP purposes, the lower IRS dollar limits are $6,550 for self-only coverage and $13,100 for family coverage with no embedded limit rule applicable (as compared to the ACA limit of $6,850 for self-only coverage and $13,700 for other than self-only coverage with an embedded limit rule). What this means, effectively, is that for an HDHP that is intended to coordinate with an HSA, the maximum out-of-pocket limit for a particular individual will be $6,550 for a person with self-only coverage and $6,850 for a person with family coverage (subject to an earlier limit if the individual’s family hits the $13,100 family coverage limit).