February 27, 2013
Authored by: Chris Rylands and Serena Yee
The Department of Treasury/IRS, Department of Labor, and the Department of Health and Human Services (the “Departments”) recently issued its twelfth set of Frequently Asked Questions. As Kevin Knopf, Special Counsel at the U.S. Treasury Department, once observed, the FAQs are numbered using Roman numerals, “like all important things…such as the Superbowl.” The latest FAQs (which, by number, correspond to the 1978 showdown between the Dallas Cowboys and Denver Broncos) address cost-sharing limitations and a slew of preventive services issues. This post will address the cost-sharing limitations.
Cost-Sharing Limits Generally. Health care reform imposes two cost-sharing limitations on non-grandfathered group health plans for plan years beginning in 2014:
- First, for any group health plan (including self-funded plans) the out-of-pocket maximum cannot exceed a specified dollar amount. For plan years beginning in 2014, the maximum will equal the combined annual out-of-pocket and deductible limits that a high-deductible health plan (“HDHP”) may impose. This amount is adjusted annually for cost-of living increases, so it is not yet known what it will be in 2014, but for 2013 the HDHP limit is $6,250 for self-only coverage and $12,500 for coverage that is not self-only coverage (i.e. “family” coverage). However, after 2014, this amount will be indexed separately from the HDHP maximums based on increases in premium costs in the United States as measured by HHS. (The choice of premium costs is odd since premiums do not factor into the out-of-pocket maximum, but that is what the statute says.)
- Second, insured plans in the small group market (i.e., offered to employers with 100 employees or less) are subject to deductible limits. Specifically, deductibles for those plans may not be higher than $2,000 for individual coverage and $4,000 for “family” coverage. These amounts are also adjusted based on increases in premium costs in the U.S. as measured by HHS.
Because of what is most likely a statutory drafting error, it was unclear whether both provisions applied only to plans in the small group market, but the Departments reiterated their position that only the second requirement applies to small group plans.
Most plan sponsors likely already had out-of-pocket maximums or deductibles that fit within the limits of the statute. To the extent they do not, they will need to revisit their plan designs to make sure they comply. However, these limitations may have implications for the affordability of coverage under the play or pay rules. Specifically, these rules limit a plan sponsor’s ability to reduce the premium costs by increasing cost-sharing amounts. Whether this will have much practical impact will depend on the kinds of adjustments HHS makes to these limits in future years.
Plans with Multiple Providers. With regard to the out-of-pocket maximum limitation, the Departments also recognized that some plans use multiple service providers. For example, a plan may have one third-party administrator for major medical coverage, a separate pharmacy benefit manager, and a separate managed behavior health organization. As a result, they may have trouble coordinating their providers to make sure that, in the aggregate, their out-of-pocket maximum does not exceed the dollar limit. Therefore, the Departments said that for the first plan year beginning on or after January 1, 2014, they will treat a plan as in compliance with the out-of-pocket maximum rules if:
- The major medical coverage meets the out-of-pocket maximum limits, and
- For any benefits that do not consist solely of major medical coverage, the out-of-pocket maximum does not exceed the dollar limit.
Basically, for this first year, such plans can impose the out-of-pocket maximum on each separately-managed benefit under the plan.
Mental Health Parity Implications. However, the Departments noted that the Mental Health Parity and Addiction Equity Act of 2008 does not allow for a separate out-of-pocket maximum on behavioral health benefits. The upshot of that is that if you use a separate TPA for managed mental health and/or substance abuse benefits, that TPA will need to coordinate with your major medical TPA on the out-of-pocket maximum. This is not a new requirement, though, so plan sponsors/administrators should already be aware of it and have systems in place to address this, to the extent necessary. To the extent these arrangements exist, plan sponsors should make sure the providers are coordinating (if they haven’t already).