Embedded MOOPs & Deductibles – Oops! How these Apply to HDHPs & Non-HDHPs

By Lisa Klinger, J.D. & Susan Grassli, J.D.          

The annual maximum out-of-pocket (MOOP) limit is the maximum “cost-sharing” amount an individual can be required to pay toward “essential health benefits” (EHB) under a non-grandfathered health plan or policy. Cost sharing includes deductibles, copayments, co-insurance and similar charges for in-network benefits, but it does not include the premium cost. Once the annual MOOP is met, the individual is not responsible for any more cost-sharing amounts for EHB. The plan must start paying 100%. This generally applies only for in-network benefits, although plans are permitted (but not required) to count out-of-network cost-sharing amounts toward the MOOP. The MOOP applies for the plan year, and it applies for both large and small plans.

The MOOP is different for non-high deductible health plans (non-HDHPs) than for HDHPs that are HSA-compatible, as defined under Code §223(c)(2)(A).  Code § 223 sets the MOOP for HDHPs, and the Affordable Care Act (ACA) sets the MOOP for non-HDHPs. Each year the IRS announces the indexed amounts in Revenue Rulings. The IRS also publishes the minimum deductibles for HDHPs (no statutory minimum applies for non-HDHPs), and it publishes the HSA contribution limits.

These annual limits (other than the HSA catch-up amount) vary based on whether an individual has self-only or family coverage under the applicable type of plan. For 2017, the annual limits are as follows:

HDHPs, Non-HDHPs and HSAs

HDHPs cannot pay for benefits (except for specified preventive services) until the deductible is met, and the deductible can be no less than the minimum deductible specified in Code §223 and updated annually by the IRS.  Non-HDHPs can set deductibles at whatever levels they want, or not even have deductibles (although virtually all of them do). Additionally, non-HDHPs can specify that certain benefits will be paid before the deductible is met. For example, some pay for up to three doctor’s office visits a year not subject to the deductible, or pay for certain chronic care or maternity benefits. HDHPs do not have this flexibility.

HSAs are special medical reimbursement accounts that can be funded only for individuals who are enrolled in HSA-compatible HDHPs and who are not enrolled in non-HDHP health plans.  (There are limited exceptions:  HSA contributions can be made by or on behalf of individuals who are also enrolled in “limited purpose” health flexible spending accounts, in “permitted insurance,” “disregarded coverage,” or “preventive care.” See Code §223(c).)

Important Distinctions between the Deductible and the MOOP

• The deductible is not the same as the MOOP.
• The MOOP is the maximum amount an individual must pay through all kinds of cost sharing.
• The deductible is one component of the MOOP. The various types of cost-sharing include deductibles, copayments, co-insurance and similar charges for in-network benefits. Plans are not required to count out-of-network expenses toward the statutory MOOP. Some plans include a separate (higher) MOOP for out-of-network benefits.
• Deductibles and MOOPs apply to both HDHPs and non-HDHPs. Generally, neither type of plan pays any amount toward covered expenses until a participant’s or family’s expenses exceed the deductible; then the plan pays its regular coinsurance (usually 70% or 80%) or copay. Once the participant’s or family’s expenses exceed the MOOP, the plan then pays 100% of eligible expenses. Although the concepts apply to both HDHPs and non-HDHPs, the amounts differ. As the matrix above shows:
  • the MOOPs are different for HDHPs than for non-HDHPs, and
  • a minimum deductible applies to HDHPs but not to non-HDHPs.

“Embedded” Individual MOOPs

Plans generally include a MOOP for family coverage that is higher than the MOOP for individual coverage, often two times as high. Prior to 2016, most plans did not pay 100% of eligible expenses for an individual with family coverage until the family deductible had been met. Effective as of the beginning of the 2016 plan year, new guidance (from HHS, DOL & IRS) required that the ACA (non-HDHP) individual MOOP must apply to each individual, even those enrolled in family coverage. This is referred to as an “embedded” individual MOOP, because the individual MOOP applies for each individual even if the plan imposes a family deductible or family MOOP that exceeds the individual MOOP. This has resulted in changes for both non-HDHPs and HDHPs, but HDHPs have been more impacted because they usually had higher cost-sharing limits and for family coverage did not pay until the entire family deductible was met.  (The new federal guidance was the 2016 Notice of Benefit and Payment Parameters (issued February 27, 2015 by HHS), a May 8, 2015 FAQ issued by HHS, and a May 26, 2015 FAQ issued jointly by the DOL and IRS.)

California Law on Embedded MOOPS and Deductibles

Insured plans in California must comply with additional requirements imposed by state law. California AB 1305 (signed by Gov. Brown on October 8, 2015) imposes additional requirements regarding individual MOOPs and individual deductibles on insured plans in California. These are:

• The MOOP for an individual with family coverage cannot be greater than the MOOP for self-only coverage for that insurance product. For example, if a policy’s individual MOOP is $4,000 (which is less than the HDHP MOOP of $6,850 and the non-HDHP individual MOOP of $7,150), that lower $4,000 MOOP will apply.
• The deductible for an individual with family coverage cannot be greater than the deductible for an individual with self-only coverage. This applies as of January 1, 2016, for small group plans (unless they received an extension from the CA Dept. of Managed Health Care) and as of January 1, 2017 for large plans. Many non-HDHPs already included this provision. For HSA-compatible HDHPs, however, the embedded deductible must be the greater of the self-only deductible or the IRS minimum HDHP family deductible ($2,600 for 2017). This is required in order to comply with IRS rules on HSAs.

There is a difference between an Embedded individual MOOP for HDHPs and an embedded individual MOOP for non-HDHPs

For 2017, here’s how the embedded individual MOOP is the same and different for HDHPs and non-HDHPs:

• Same: for individuals who have family coverage, the non-HDHP individual MOOP of $7,150 applies to both HDHPs and non-HDHPs.
• Different: for individuals who have individual coverage:
  • Under a HDHP, the $6,550 HDHP MOOP applies
  • Under a non-HDHP, the $7,150 non-HDHP MOOP applies

Non-HDHPs and Embedded Individual MOOPs

Before 2016 an example of a non-HDHP plan design was one in which the plan imposed a $4,000 MOOP limit for individuals with self-only coverage and a $8,000 MOOP for individuals with family coverage. If one family member incurred $7,000 in claims, the individual would continue to have cost-sharing obligations (e.g., deductibles and co-pays) until the family as a whole incurred $8,000 in claims. This type of plan design is now prohibited. Once an individual reaches the statutory MOOP ($7,150 in 2017), the plan must pay 100% of eligible expenses for that individual. Plans can still have family MOOPs, but they also must embed the individual MOOP within the family MOOP and must start paying 100% of eligible expenses for an individual family member who meets the annual individual MOOP. The following example applies for 2017.

Example 1:

Non-HDHP has a deductible of $1,000 for individuals and $2,000 for families, and has a MOOP of $4,000 for individual coverage and $8,000 for family coverage. The above deductibles apply for in-network eligible expenses; the out-of-network deductibles are $1,500 and $3,000. Once the deductible is met, the plan pays 80% of UCR for most eligible expenses. Employee M has family coverage, covering family members Mom, Dad, Sister & Brother (M, D, S & B). Assume all expenses are in-network.

• Once family member M has $1,000 in in-network eligible expenses, her in-network deductible is met and the plan will pay its 80% coinsurance amount and M will pay only 20%. Other family members will still have to pay 100% of their expenses until the $2,000 family deductible is met.
• If family members M and D each have $700 in in-network eligible expenses, and S and B each have $250 in in-network eligible expenses, the total is only $1,900, so the plan pays zero because no one has meet the individual $1,000 deductible, nor has the family deductible of $2,000 been met.
• Once the combined eligible expenses of two or more family members equals $2,000, the family deductible has been met for all family members, and the plan pays 80% of additional eligible expenses, until the appropriate MOOP has been met.
• If family member S incurs $7,150 of eligible expenses in 2017, but other family members have zero eligible expenses, S has met her MOOP for the year, and the plan must pay 100% of additional eligible expenses incurred by S. However, the family MOOP of $8,000 has not been met, so the plan will pay zero for other family members until either S or other family members incur an additional $850 in eligible expenses, at which point the $8,000 family MOOP is met and the plan will pay 100% for all family members’ eligible expenses.

HDHPs and Embedded Individual MOOPs

HDHPs are plans that cannot pay for benefits (except specified preventive benefits) until an individual has met the applicable minimum annual deductible amount for that year.  For 2016 and 2017, the minimum deductible is $1,300 for self-only coverage and $2,600 for other-than self-only (family) coverage. (See matrix on page 1 of this article.) If an individual is enrolled in family coverage in a HDHP, the $2,600 annual deductible must be met before the HDHP can pay any amount toward eligible expenses (except preventive benefits). This is different from a non-HDHP, which can include an embedded individual deductible as well as a family deductible. Additionally, if an individual has family coverage under a HDHP, the non-HDHP individual MOOP applies ($7,150), as well as the family HDHP MOOP ($13,100) and as well as any HDHP family deductible. In some cases, this will mean that the plan must start paying 100% for one family member even though the family deductible or MOOP has not been met. It also means that for 2017 the annual MOOP for an individual in a HDHP will be:

• $6,550 if the individual has self-only coverage, and
• $7,150 if the individual has family coverage.

HHS guidance (FAQ May 8, 2015) illustrates how the embedded individual MOOP rule applies to HDHPs with family deductibles that exceed the ACA individual MOOP (i.e., the family deductible is more than $7,150). The FAQ gives the example of a HDHP with a $10,000 family deductible.  Recall from the matrix on page 1 that the family deductible for a HDHP must be at least $2,600 in 2017, so a $10,000 family deductible meets this requirement. However, this plan design will satisfy the new “embedded individual MOOP” rules only if it also applies an annual MOOP for each individual of no more than $7,150 (for 2017), even if the family $10,000 deductible has not yet been satisfied.  This is the “embedded” individual MOOP.

The following example applies for 2017.

Example 2:

HDHP has a deductible of $1,300 for individuals and $2,600 for families, and has a MOOP of $6,550 for individual coverage and $13,100 for family coverage. The above deductibles apply for in-network eligible expenses; the out-of-network deductibles are $3,000 and $5,000. Once the deductible is met, the plan pays 80% of UCR for most eligible expenses. Employee M has family coverage, covering family members Mom, Dad, Sister & Brother (M, D, S & B). Assume all expenses are in-network.

• Once family member M has $1,300 in in-network eligible expenses, her in-network deductible is NOT met because the family has to meet the $2,600 family deductible before the plan will pay its 80% coinsurance amount for any family member.
• If family members M and D each have $800 in in-network eligible expenses, and S and B each have $400 in in-network eligible expenses, the total is only $2,400, so the plan pays zero because the family deductible of $2,600 has not been met.
• Once one family member or a combination of family members incurs $2,600 in expenses, the family deductible has been met for all family members, and the plan pays 80% of additional eligible expenses for all family members, until the appropriate MOOP has been met.
• If family member S incurs $6,550 of eligible expenses in 2017, but other family members have zero eligible expenses, S has still not met her HDHP MOOP for the year, because the HDHP family MOOP of $13,100 applies, However, under the “embedded individual MOOP” rules that apply for 2017, once S incurs $7,150 of eligible expenses, she has met her individual MOOP for the year, so the plan must pay 100% of additional eligible expenses incurred by S. However, the family MOOP of $13,100 has not been met, so the plan will pay:
  • 80% of other family members’ eligible expenses, because S has met the family deductible, and
  • Once other family members incur at least $5,950 in eligible expenses, the plan will pay 100% for all family members’ eligible expenses (because $7,150 by S + $5,950 by others = the $13,100 family HDHP MOOP).

Conclusion

Complicated rules apply regarding maximum annual amounts for deductibles and out-of-pocket cost-sharing, and for family coverage these rules are different for HDHPs than for non-HDHPs. California law imposes additional requirements on insured plans in California, and other states could also enact similar (or different) provisions. Employers and their advisors must be sure they understand the nuances and intricacies of both state and federal requirements.

A prior (less detailed) Leavitt article on this topic was published June 2015, at https://news.leavitt.com/health-care-reform/individual-out-of-pocket-maximums-must-apply-for-family-coverage/ .