The Affordable Care Act has numerous provisions that restrict the amounts that employer-sponsored health plans may require employees to pay for health care. These provisions include prohibitions on annual and lifetime dollar limits on essential health benefits, restrictions on out-of-pocket maximums, and requirements to provide preventive care services and items at no cost to participants. The rules apply to insured and self-insured plans and some, but not all, apply to grandfathered plans as well as non-grandfathered plans. This article summarizes ACA’s cost-sharing requirements for employer-sponsored group health plans and guidance that the Departments of Labor, Health and Human Services, and Treasury (the “Departments”) have recently released implementing these requirements.
Cap on Out-of-Pocket Maximums
Starting in 2014, non-grandfathered group health plans must include an out-of-pocket maximum for in-network, allowable expenses.
- Effective for the plan year beginning in 2014, the annual out-of-pocket maximum cannot exceed the 2014 statutory out-of-pocket maximum for high deductible health plans. For 2013, the out-of-pocket maximum for high deductible health plans is $6,250 for self-only coverage and $12,500 for family coverage. The 2014 limits will likely be slightly higher given that these amounts are adjusted each year for any cost-of-living increases.
- For plan years beginning after 2014, out-of-pocket maximums cannot exceed the maximum for high deductible health plans in 2014, adjusted by a “premium adjustment amount.” The premium adjustment amount is the product of the out-of-pocket maximum times the percentage (if any) by which the average per capita premium for health insurance coverage in the United States for the preceding calendar year exceeds such average per capita premium for 2013, as determined by HHS.
The Departments recently issued FAQs that provide transition relief for plans that impose different out-of-pocket maximums (or no out-of-pocket maximums) on various benefits offered under the plan. For example, a plan might impose a separate annual out-of-pocket maximum on prescription drugs than other medical benefits. Under the transition relief, for the first plan year beginning on or after January 1, 2014, the limitation on annual out-of-pocket maximums will be satisfied if (1) the plan’s major medical coverage (excluding, for example, prescription drug coverage and pediatric dental coverage) complies with the limitation and (2) any out-of-pocket maximum that applies to non-major medical coverage does not exceed the out-of-pocket maximum for high deductible health plans.
For the first plan year beginning on or after January 1, 2015, non-grandfathered group health plans must apply the single out-of-pocket maximum to all benefits provided under the group health plan. This will require multiple administrators of these health plans to develop processes for coordinating and communicating expenses that must be applied against the plan’s out-of-pocket maximum.
The Departments have not yet provided guidance on how the restriction on out-of-pocket limitations will apply to high deductible health plans starting in 2015. In order to be compatible with Health Savings Accounts (“HSAs”), high deductible health plans cannot apply out-of-pocket maximums that are less than those required under the Internal Revenue Code, adjusted for cost-of-living increases (i.e., the statutory minimum). Starting in 2015, high deductible health plans cannot impose an out-of-pocket maximum that exceeds the 2014 out-of-pocket maximum adjusted by the “premium adjustment amount” (i.e., the statutory maximum). Accordingly, if the premium adjustment amount for the statutory maximum results in an out-of-pocket maximum that is less than the ACA’s statutory minimum for that year, an employer will not be able to offer a high deductible health plan that is compatible with an HSA.
Starting in 2014, the Affordable Care Act also prohibits small group health plans from imposing annual deductibles in excess of $2,000 for self-only coverage and $4,000 for family coverage. The Departments’ recent FAQs and the Preamble to the final regulations on essential health benefits confirm that this limit does not apply to large group health plans and that they intend to reflect this position in future rulemaking, subject to public comment. For this purpose, a small group health plan means a plan sponsored by an employer who employed on average at least one but fewer than 100 employees on business days during the preceding calendar year and employs at least one employee on the first day of the plan year.
No Annual or Lifetime Dollar Limits on Essential Health Benefits
Since 2011 (for calendar year plans), the Affordable Care Act has prohibited all employer-sponsored group health plans — including grandfathered plans — from imposing lifetime dollar limits on essential health benefits. The Act also currently prohibits employer-sponsored group health plans from imposing annual dollar limits on essential health benefits of less than $2 million, and for plan years beginning on or after January 1, 2014, prohibits group health plans from imposing any annual dollar limits on essential health benefits. Also starting in 2014, non-grandfathered insurance policies sold in the individual and small group markets must cover all essential health benefits (regardless of whether they are sold on a health insurance exchange).
Essential health benefits include benefits that are covered by a typical employer plan, including at least the following ten categories of benefits: ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder service (including behavioral health treatment), prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive services and wellness services and chronic disease management, and pediatric services (including oral and vision care).
The Preamble to the final regulations implementing standards related to essential health benefits provides that a self-insured group health plan, large group market health plan (i.e., an insured plan sponsored by an employer that employs at least 101 employees on average in the preceding calendar year), or a grandfathered group health plan may identify essential health benefits by using a definition of essential health benefits that is authorized by HHS. Generally, an authorized definition of essential health benefits includes benefits offered under a “benchmark plan,” supplemented in accordance with the final regulations, as necessary, to cover all ten categories of essential health benefits. A benchmark plan is one of the following, as determined by each state:
- The largest plan by enrollment in any of the three largest small group insurance products in the state’s small group market;
- Any of the largest three health benefit plans offered by the state to its employees (by enrollment);
- Any of the largest three national Federal Employees Health Benefit Plan options by enrollment; or
- The largest insured commercial non-Medicaid Health Maintenance Organization operating in the State.
An appendix to the final regulations on essential health benefits includes the benchmark plan that has been selected by each state. The final regulations include rules for supplementing a benchmark plan, as needed, to cover all ten categories of essential health benefits. These rules generally require the benchmark plan to be supplemented based on the first plan described in 1 through 4 above that offers the category of benefits that is missing from the benchmark plan.
The Departments have not clarified whether any limitations apply to the benchmark plan that a self-insured, large group, or grandfathered plan may use, such as whether the plan is limited to using the actual benchmark plan chosen by a state or to using a benchmark plan selected by a particular state. So far, the Departments have stated only that they “intend to work with those plans that make a good faith effort to apply an authorized definition of EHB [essential health benefits] to ensure there are no annual or lifetime dollar limits on EHB.”
No Cost Sharing on Preventive Services
Since plan years beginning on or after September 23, 2010, non-grandfathered group health plans have been required to cover certain preventive services at no cost to participants. There are several broad categories of preventive services, including evidenced-based items or services that have in effect a rating of A or B by the United States Preventive Services Task Force, immunizations for routine use that are recommended by the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention, and evidence-informed preventive care and screenings for infants, children, adolescents, or women provided for in guidelines published by the Health Resources and Services Administration (“HRSA”).
Generally, new recommendations and guidelines are published by HRSA and the other agencies each year. Plans must cover new preventive services and items at no cost starting with the plan year that begins on or after the first anniversary after which the guideline relating to a new item or service is published. The list of preventive care guidelines is available at Healthcare.gov.
The Departments issued interim final regulations implementing the preventive services requirement in 2010. (See the Covington Advisory: Guidance on Preventive Care Mandate for more information regarding the interim final regulations.) In addition, the Departments recently issued FAQs that provide the following clarifications to interim final regulations:
- A plan is generally not required to cover preventive services provided by a non-network provider. However, if none of the plan’s in-network providers can provide the preventive item or service, the plan must cover the item or service without any cost-sharing if it is offered by a non-network provider.
- Plans must cover preventive care items and services that are purchased over-the-counter (“OTC”). Plans may require a co-pay or other cost-sharing for OTC preventive care items and services if the item or service is not prescribed. If the OTC preventive care item or service is prescribed, plans must cover it at no cost to the participant.
- Plans may not impose cost-sharing with respect to polyp removal during a colonoscopy performed as a screening procedure.
- If a provider determines that it is appropriate, a plan must cover not only genetic counseling regarding the breast cancer susceptibility gene (BCRA), but also the BCRA test without cost-sharing. Similarly, a plan must cover HIV testing for all sexually active women without cost-sharing.
- Certain preventive care items or services are recommended only for high-risk individuals or for certain individuals within the population. A plan is required to cover these preventive items and services at no cost if the attending provider determines that the participant belongs to the high-risk or specifically identified population.
- A plan generally may limit a women’s preventive services to a single well-woman visit. However, if the attending provider determines that a participant requires additional visits to receive preventive care services, the plan must cover the additional visits with no cost-sharing.
- Plans must cover all FDA-approved contraceptive methods for women including, but not limited to, barrier methods, hormonal methods, implanted devices, and patient education and counseling prescribed by the attending provider. The coverage must include costs associated with follow-up and managing side effects of the prescribed method. However, plans may use reasonable medical management techniques to control costs, such as covering brand name contraceptives only in cases where the provider determines that the generic equivalent would be medically inappropriate or where the generic equivalent is not available. Plans are not required to cover contraceptive methods for men, such as vasectomies and condoms.
Providing Minimum Essential Coverage with Minimum Value to Avoid the Shared Responsibility Penalty
Starting in 2014, large employers (those with 50 or more full-time equivalent employees) that wish to avoid the shared responsibility penalty must provide “minimum essential coverage” that meets “minimum value” requirements to each full-time employee and his or her child dependents.
Minimum Essential Coverage: HHS recently clarified in proposed regulations that minimum essential coverage includes self-insured and insured group health plans, including government-sponsored and grandfathered health plans, but does not include “excepted benefits” such as disability, insured or stand-alone dental or vision plans, long-term care insurance, Medicare supplemental health insurance (if offered under a separate policy) and health flexible spending arrangements. In addition, minimum essential coverage includes coverage provided to former employees, such as COBRA continuation coverage or retiree medical coverage. (Classifying retiree medical coverage as minimum essential coverage does not require employers to provide medical coverage to retirees in order to avoid the shared responsibility penalty; rather, the consequence of the classification is that retirees will not be subject to an individual tax penalty if they participate in the employer’s retiree medical plan.)
Minimum Value: To avoid the shared responsibility penalty, an employer’s minimum essential coverage must provide “minimum value” to the participant. To provide “minimum value” the coverage must pay at least 60 percent of the total allowed costs of benefits provided under a typical large employer plan. This is an actuarial standard that refers to the portion of the anticipated costs incurred by a standard population that will be paid by a plan. In this case, the determination will be based on the anticipated costs of a standard population covered under self-insured group health plans. HHS recently issued final regulations providing three methods that an employer may use to determine minimum value:
- A minimum value calculator provided by HHS and IRS. A proposed version of the minimum value calculator is available on the CCIIO website.
- Design-based safe harbors established by HHS and IRS in future guidance, which will provide checklists of minimum required provisions.
- An actuarial valuation of the plan by a member of the American Academy of Actuaries based on generally accepted actuarial principles and methods.
An employer may take into account its annual contributions to HSAs and contributions to health reimbursement arrangements (“HRAs”) for that year (but not accumulated HSA or HRA balances).
For more information regarding the shared responsibility requirements, see our Covington Advisory: IRS Proposes Shared Responsibility Tax Rules.