Limits on Out-of-Pocket Maximums Delayed for Some Health Plans

The Affordable Care Act (ACA) limits the amount that health plan enrollees can be forced to pay out of pocket for essential health benefits. Once the annual out-of-pocket maximum is reached for the year, an enrollee will not be responsible for additional cost-sharing for these benefits for the remainder of the year.

The ACA’s limitation on a plan’s out-of-pocket maximum is set to take effect with the 2014 plan year. However, special transition relief has been provided for plans that use more than one service provider to administer benefits.  Under this relief, a plan’s major medical benefits will be required to comply with the ACA’s out-of-pocket maximum as scheduled, but non-major medical benefits, such as prescription drug coverage, will get an additional year to comply with the mandate.

While the effective date for the ACA’s out-of-pocket maximum has not been completely delayed, this transition relief will provide an additional year for some types of benefits to be in full compliance. 

Which Plans are Subject to the Limit?

The Department of Health and Human Services (HHS) issued a final rule on the ACA’s cost-sharing limits for health plans earlier this year. According to the final rule, the ACA’s out-of-pocket maximum applies to all non-grandfathered health plans. This includes, for example, self-insured health plans and insured health plans of any size.

How is the Limit Applied?

The ACA’s out-of-pocket maximum is tied to the out-of-pocket maximum for HSA-compatible high deductible health plans (HDHPs). There are separate limits for self-only coverage and coverage other than self-only coverage (that is, family coverage). For 2014, the out-of-pocket maximum cannot exceed $6,350 for self-only coverage and $12,700 for family coverage.

For purposes of applying the ACA out-of-pocket maximum, cost-sharing includes any expenditure required by or on behalf of an enrollee with respect to essential health benefits, such as deductibles, copayments, co-insurance and similar charges. It excludes premiums and spending for non-covered services. Also, for plans using provider networks, the final rule provides that an enrollee’s cost-sharing for out-of-network benefits does not count toward the cost-sharing limit.

What is the Transition Rule for 2014?

A set of frequently asked questions (FAQs) from HHS provide a temporary transition rule for applying the ACA’s out-of-pocket maximum when a plan utilizes more than one service provider to help administer benefits (for example, a health plan with a third-party administrator for major medical coverage, a separate pharmacy benefit manager and a separate managed behavioral health organization).

Currently, when a plan has more than one service provider administering benefits, the providers may impose different out-of-pocket maximums and may utilize different methods for crediting participants’ expenses against any out-of-pocket maximums. According to the FAQs, these processes will need to be coordinated to comply with the ACA’s out-of-pocket maximum, which may require new regular communications between service providers.

The FAQs provide that, only for the first plan year beginning on or after Jan. 1, 2014, where a group health plan or group health insurance issuer utilizes more than one service provider to administer benefits that are subject to the ACA’s out-of-pocket maximum, the annual limit will be satisfied if both of the following conditions are met:

• The plan complies with the out-of-pocket maximum with respect to its major medical coverage (excluding, for example, prescription drug coverage and pediatric dental coverage); and
• To the extent there is an out-of-pocket maximum on coverage that does not consist solely of major medical coverage (for example, if a separate out-of-pocket maximum applies with respect to prescription drug coverage), this maximum does not exceed the ACA’s out-of-pocket maximum.

Thus, plans with multiple providers may be able to keep separate caps for their major medical and non-major medical coverage until the first plan year that begins on or after Jan. 1, 2015.

Also, under this temporary relief, it appears that if a plan’s non-major medical coverage (for example, prescription drug coverage) does not have an out-of-pocket maximum, it may not have to put one in place for the 2014 plan year. Thus, under this interpretation, a plan may not be required to have any out-of-pocket limit on prescription drug costs for the 2014 plan year. Formal guidance from HHS confirming this interpretation would be helpful.

In addition, the FAQs include a reminder that the federal mental health parity laws prohibit health plans and issuers from imposing an annual out-of-pocket maximum on all medical/surgical benefits and a separate annual out-of-pocket maximum on all mental health and substance use disorder benefits.