In proposed regulations published in the Federal Register on November 26, 2014, the Department of Health and Human Services (HHS) proposed limits on annual out-of-pocket maximums for 2016. In one paragraph of the preamble, HHS proposed to “clarify” that the annual limit for self-only coverage applies to all individuals, including each individual under family coverage.
On February 27, 2015, HHS finalized those regulations. The regulations set the 2016 out-of-pocket limit for self-only coverage at $6,850 and for non-self-only coverage at $13,700, but perhaps more importantly, the Department also finalized its clarification of the application of the out-of-pocket limits. This “clarification” did not find its way into the actual language of the regulations, but was mentioned only in the preamble. While it is not entirely clear, it appears this “clarification” will not be applied until the 2016 plan/policy year.
This embedded rule means that plans (including self-funded plans) will now have to have embedded out-of-pocket limits for each individual covered under family coverage. For example, using the 2016 limits, if a family plan has an annual out-of-pocket limit of $10,000 and one family member incurs an expense of $20,000, that family member would be responsible for expenses up to $6,850 (the self-only out-of-pocket limit), and the remaining $13,150 would be paid in full by the plan. Additional expenses incurred by that family member would be paid by the plan with no cost sharing for the remainder of the plan year. Although it is not stated expressly in the preamble, the other family members (or a single family member) should be responsible for the remaining $3,150 of expenses under the family cap of $10,000. Of course, after the family group reaches the $10,000 out-of-pocket limit, the group has no further cost sharing for the rest of the plan year.
The preamble provides that the embedded out-of-pocket limit applies to all plans. Sponsors of high deductible plans (HDHPs) that are intended to be compatible with health savings accounts (HSAs) should note that the out-of-pocket limits set by the IRS for HSA compatible HDHPs are lower than the limits set by HHS for Affordable Care Act purposes. For example, for 2015 the HDHP limits are $6,450 for self-only coverage and $12,900 for family coverage while the ACA limits for 2015 are $6,600 for self-only coverage and $13,200 for family coverage. The IRS has not yet announced the HDHP limits for 2016. And, the IRS does not presently require that family coverage apply an embedded out-of-pocket approach like the HHS approach. A family HDHP should be able to comply with both limits if it applies a self-only out-of-pocket maximum that is no higher than the self-only ACA limit and, in all events, pays all expenses for all family members once the group’s expenses reaches the family out-of-pocket maximum established by the IRS for HDHPs (or the family limit established for the plan, if lower).
It is not entirely clear whether the clarification applies for 2015 plan years, which are now underway, or to 2016 and later plan years. The final regulations provide generally that they are effective on April 28, 2015, which is 60 days after the Federal Register publication date, with exceptions for certain provisions other than this cost-sharing clarification. However, the preamble states that “2016 plans must comply with this policy,” which suggests that application of the embedded out-of-pocket maximum is not required until 2016 plan/policy years. Given the lack of clarity around these rules, and the fact that this “clarification” (really, a rule change) is buried in the preamble, it would seem unfair for HHS to apply this rule before 2016, but further clarification would be helpful. At a minimum, plan sponsors that are working on 2016 plan designs should be aware of this rule and take it into account in setting up and pricing their plans.