Written by Carolyn Daniels and Chris Rylands in: Health Care Reform , Health Plans , Plan Administration and Compliance
Thursday, March 5, 2015
Bryan Cave Benefits and Executive Compensation Blog
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.