Out-of-Pocket Maximums

In final regulations published in February 2015, the Department of Health and Human Services and Centers for Medicare and Medicaid Services (CMS) set forth various limits and coverage requirements for 2016. In regards to the out-of-pocket (OOP) maximum that applies to essential health benefits the agencies not only set forth the 2016 limits, but also clarified in the preamble that the self-only OOP maximum applies to each individual, regardless of whether the individual is enrolled in single or family coverage. In addition, CMS recently provided an FAQ further clarifying its commitment to this new requirement that is effective for plan years beginning in 2016.

Background
Beginning in 2014, the Affordable Care Act (ACA) required that all non-grandfathered group health plans limit participant OOP maximums. The OOP maximum includes deductibles, co-insurance and co-payments toward essential health benefits covered under the plan. The maximum OOP expense limits are adjusted annually for increases in the cost of living.  For 2016, the maximum OOP expense limit for non-HSA-qualified plans cannot exceed $6,850 for self-only coverage and $13,700 for family coverage. The OOP maximum for HSA-qualified high deductible health plans have not yet been published.

Embedded Individual Limit
For any group health plan offering coverage options beyond self-only (single) coverage, HHS states that plans offering family coverage (or anything other than self-only coverage) are required to have an embedded OOP limit for each individual covered under family coverage.  The following example is provided in the preamble to illustrate their intent:

“…if an other than self-only plan has an annual limitation on cost sharing of $10,000 and one individual in the family plan incurs $20,000 in expenses from a hospital stay, that particular individual would only be responsible for paying the cost sharing related to the costs of the hospital stay covered as EHB up to the annual limit on cost sharing for self-only coverage (…$6,850 for 2016)”

Under the final regulations, the plan must apply the annual limitation on cost sharing for self only coverage to each individual in the plan, even if this amount is below the $10,000 family deductible

Summary
Beginning with 2016 plan years, employers that apply only an aggregate OOP limit for family coverage in regards to essential health benefits will need to make adjustments to their plan design to include an embedded individual OOP limit for all covered individuals. HHS has also stated they intend to issue formal guidance regarding this requirement.

As always, should you have any questions, please contact your Parker, Smith & Feek Benefits Team.

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