New Out-of-Pocket Maximum Rule Affects Most Employer Group Health Plans
May 28, 2015
On Tuesday, regulators announced that health plans will be required to implement individual out-of-pocket maximums at all coverage levels, including family coverage. The new rule will apply beginning in 2016, and will affect all non-grandfathered employer group health plans that are subject to the Affordable Care Act.
Under the Affordable Care Act (ACA), non-grandfathered group health plans are required to apply an out-of-pocket maximum (OOP Max) for essential health benefits. Each year the regulators announce the OOP Max for self-only coverage and the OOP Max for all other coverage. (For 2015, the amounts are $6,600 and $13,200. For 2016, the amounts are $6,850 and $13,700.)
Earlier this year, the Department of Health and Human Services (HHS) published a notice stating that the self-only OOP Max does not apply just to self-only coverage; it applies to each covered person, regardless of whether the person is enrolled in self-only coverage or other coverage. The ACA is enforced not only by HHS, but also by the Department of Labor (DOL) and by the Internal Revenue Service (IRS), each of which has jurisdiction over certain employer group health plans. Because the notice was issued only by HHS, many stakeholders questioned whether the same rule would apply to plans under the jurisdiction of the DOL and the IRS. On May 26, 2015, in a set of FAQs issued jointly by all three agencies, the answer was clearly stated: Yes. The OOP Max rule applies to all non-grandfathered group health plans subject to the ACA.
Which plans are "subject to the ACA" for these purposes? Most medical plans offered by employers are subject to the ACA's substantive mandates. However, there are some exceptions. For example, a plan is not subject to the ACA if it is a retiree-only plan or offers only excepted benefits, such as limited-scope vision or dental benefits.
When does the rule become applicable? The new OOP Max rule will be enforced for plan years beginning in 2016. We remind employers that under the ACA, the "plan year" may not be the same thing as the "policy year," the "renewal year," or the "deductible year."
How Does the New OOP Max Rule Work?
The new rule requires plans to embed an individual OOP Max at every coverage level. The practical effect of the rule is demonstrated by the following example.
An employee enrolls in his employer's group health plan for the calendar year. He selects the employee-plus-children option so he can cover himself, his son, and his daughter. The coverage period is the calendar year. In January, before any other health expenses have been incurred, the employee has an operation. Between his deductible and his coinsurance, and before application of any OOP Max, the employee's share of the medical expenses is $10,000.
- If this were January 2015, the plan would say that because the amount owed ($10,000) is less than the overall OOP Max ($13,200), the employee must pay $10,000.
- If this were January 2016, the plan would say that because the amount owed ($10,000) is more than the individual OOP Max ($6,850), the employee must pay $6,850. The plan must pay the $3,150 difference.
Employers with affected plans must amend their plan documents, summary plan descriptions, and summaries of benefits and coverage to include this new OOP Max.