Beginning in 2014, non-grandfathered individual health insurance policies and policies issued to small employers must provide “essential health benefits;” adhere to federally defined dollar limits on deductibles and out-of-pocket maximums; and have an actuarial value of at least 60 percent. Final regulations recently issued by the Department of Health and Human Services (HHS) (78 Fed. Reg. 12834) and Frequently Asked Questions (FAQs) recently issued by HHS, the Department of Labor, and the Treasury clarify the extent to which these requirements apply to self-funded plans and health insurance policies sold to large employers.
Essential Health Benefits
Essential health benefits include medical items and services in 10 federally defined benefit categories, including hospitalization, prescription drugs, mental health and substance use disorder services, and maternity and newborn care. Each state has some discretion in determining which specific health care items and services within the 10 mandated categories qualify as “essential;” therefore, no one state’s list is likely to be identical to the lists developed by the others.
Self-funded medical plans and health insurance policies sold to large employers are not required to provide essential health benefits, but are prohibited from imposing lifetime and annual dollar limits on these benefits. For example, a plan that limits hospitalization benefits or benefits for prescription drugs to a dollar amount per day or year would violate this requirement. A plan may limit the number of visits or days for which it will pay, provided there is no dollar cap on the amount it will pay per day/visit.
Action Steps. Sponsors of self-funded and large group insurance plans should review their plan designs to ensure that there are no impermissible annual or lifetime dollar limits on essential health benefits. Because the final regulations do not address essential health benefits for self-funded and large group policies, employers will need to adopt a good-faith definition of their own, perhaps based on the essential health benefits package of the state where most of the employer’s employees reside. For example, self-funded plans covering only New York residents may reasonably choose to reference New York’s essential health benefits package for this purpose.
Deductibles and Out-of-Pocket Maximums
Beginning in 2014, deductibles in the individual and small group insurance markets generally cannot exceed $2,000 for self-only coverage and $4,000 for family coverage. In the recent guidance, the departments confirmed that the deductible limits described above do not apply to self-funded plans and insurance sold to large employer groups.
Beginning in 2014, out-of-pocket maximums (including, for this purpose, co-pays, deductibles, and coinsurance for in-network providers) would be tied to the enrollee out-of-pocket limit for high deductible health plans that qualify for use with health savings accounts (HSAs). The cost sharing limits do not include premiums, items and services that are excluded from coverage, limits pertaining to items and services that are not essential health benefits, amounts that are balance-billed, and cost sharing amounts for out-of-network providers. For 2014, this amount would be $6,350 for self-only coverage and $12,700 for family coverage. Unlike the limit on deductibles, the final regulations confirm that non-grandfathered self-funded and large group health plans are subject to the out-of-pocket maximums described above.
Action Steps. Plan sponsors will need to review their health plans to insure that the maximum out-of-pocket exposure for self-only and family coverage does not exceed the dollar amounts referenced above for plan years beginning in 2014.
Plans that have multiple service providers (such as, for example, sponsors that have one service provider for major medical coverage, a separate pharmacy benefit manager for prescription drug benefits, and a separate managed behavioral health organization) will need to ensure that there is a procedure in place to coordinate the separate service providers to ensure the out-of-pocket maximums are not exceeded. Fortunately, there is a transition rule in Q2 of the recent FAQ guidance that applies only for the first plan year beginning on or after January 1, 2014. Under the transition rule, the departments will consider the annual limitation on out-of-pocket maximums to be satisfied if both of the following conditions are satisfied:
- The plan complies with the requirements with respect to the major medical coverage (excluding, for example, prescription drug coverage) and
- If the coverage other than major medical coverage (e.g., prescription drug coverage) includes a separate out-of-pocket maximum, the out-of-pocket maximum does not exceed the applicable dollar limits.
Beginning in 2014, if an applicable large employer maintains a medical plan that does not have an actuarial value of at least 60 percent full-time employees who enroll in a plan through the Exchange may qualify for premium or cost-sharing assistance. This, in turn, exposes the employer to a penalty under the so-called play-or-pay mandate.
The final regulation confirms that employers will be able to determine minimum value using one or more of the following methods:
- MV Calculator. HHS has developed a minimum value calculator based on claims data for typical self-funded employer plans. The calculator is available on the HHS website.
- Design-based safe harbor checklists. These are not yet available.
- Actuarial Certification.
Action Steps. We strongly encourage plan sponsors, particularly sponsors of self-insured plans, to begin a dialogue with insurers and third party administrators for the purposes of determining whether their plans meet the minimum value requirement.
All FAQs on the new health care law can be found by clicking on the FAQs tab on the left side of the DOL’s website (www.dol.gov/ebsa).