(This article was revised on Dec. 16, 2015 to remind readers that the deductible is not the same as the OOPM.)
Starting with the 2016 plan year the self-only, in-network annual out-of-pocket maximum (OOPM) applies to each individual, even those enrolled in family coverage. Although the ACA limits on cost-sharing have applied since 2014, before 2016 the maximums applied separately for self-only and “other-than-self-only” (family) coverage. Recent guidance (since February 2015) from the Departments of HHS, Labor and Treasury has changed how the OOPM will apply beginning with the 2016 plan year. Employers – especially those who sponsor high deductible health plans (HDHPs) — should review how these new rules will apply to their group health plans and make necessary changes in plan design, pricing and administration.
The new rules apply to all non-grandfathered group health plans, including self-funded plans and insured plans of all sizes (but not to retiree-only plans). It is likely high deductible health plans (HDHPs) will be most impacted because they usually have higher cost-sharing limits and for family coverage do not pay until the entire family deductible is met.
The annual OOPM –also referred to as “cost-sharing”—is the maximum amount an individual can be required to pay toward essential health benefits (EHB) under a plan. It includes deductibles, co-payments, coinsurance, and similar charges for in-network benefits. Once the annual OOPM 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 some exceptions may apply. The Affordable Care Act limits maximum OOP “cost-sharing” amounts for EHB in non-grandfathered plans, as follows:
Keep in mind that the deductible is not the same as the OOPM. The deductible is one component of the OOPM. The guidance explained below can be confusing if you do not keep in mind the distinctions. As noted above, before 2016 many plans applied a family deductible that exceeded the individual OOPM and did not begin paying for eligible expenses for any individual family member until the family deductible had been met. This will no longer be allowed.
What is the Guidance and What Does it Say?
- The 2016 Notice of Benefit and Payment Parameters (issued February 27, 2015 by HHS) “clarified” that the self-only OOPM applies to each individual, whether the individual is enrolled in self-only or family coverage. This is referred to as an “embedded” individual OOPM, because the individual OOPM applies for each individual even if the plan imposes a family deductible or maximum cost-sharing amount that exceeds the individual OOPM.
- A May 8, 2015 FAQ issued by HHS explained how the embedded individual deductible applies to HDHPs with family deductibles that exceed the individual OOPM.
- A May 26, 2015 FAQ issued jointly by the DOL and IRS confirmed that the embedded individual deductible applies to large and self-funded group health plans as well as to insured plans, but not to grandfathered or retiree plans.
Embedded Individual OOPM and Non-HDHPs
In the past, many group health plans have imposed one OOPM for individuals with self-only coverage and a higher aggregate OOPM for individuals with family coverage. For example, a plan with a $4,000 OOPM for individuals with self-only coverage and an $8,000 OOPM for individuals with family coverage would not pay 100% for eligible expenses until the family as a unit had incurred $8,000 in eligible expenses. 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.
The February 2015 guidance prohibits this type of plan design. Once an individual reaches the statutory OOPM ($6,850 for 2016), the plan must pay 100% of eligible expenses for that individual. Plans can still have family OOPMs, but they also must “embed” the individual OOPM within the family OOPM. In this example, the plan could still have a maximum family OOP of $8,000, but it would also have a maximum individual OOP of $6,850.
Embedded Individual OOPM and HDHPs
HDHPs are plans that cannot pay for benefits (except specified preventive benefits) until an individual has met the minimum annual deductible amount for that year. For 2016, the minimum deductible is $1,300 for self-only coverage and $2,600 for other-than self-only (family) coverage. The HHS FAQ (May 8, 2015) illustrated how the new rule applies to HDHPs with family deductibles that exceed the ACA OOPM for self-only coverage.
The FAQ gives the examples of a HDHP with a $10,000 family deductible. It explains that for 2016, a HDHP that has a family deductible of $10,000 will satisfy IRS rules on HDHPs as long as it applies an annual OOPM for each individual of no more than $6,850, even if the family $10,000 deductible has not yet been satisfied. This is the case because the minimum annual deductible for family HDHP coverage ($2,600) is less than the self-only OOPM of $6,850.
Another detail to keep in mind (not noted in the May 8 FAQ) is that the embedded OOPM limits are not the same as the IRS HDHP limits. The embedded OOPM limits are $6,850 for self-only and $13,700 for family coverage, compared to HDHP limits of $6,550 and $13,100 respectively. This means that, if a HDHP imposed the statutory maximum cost-sharing amounts, an individual with self-only HDHP coverage could have a maximum OOP of $6,550 annually, while an individual with family coverage in the same HDHP could have a maximum OOP of $6,850 annually. (See chart of HDHP minimums and maximums at the end of this article.)
Next Steps for Employers
- Review how these new rules will apply to your group health plans and make any necessary changes in plan design and pricing.
- Talk with the carrier (for insured plans) or third-party administrator (for self-funded plans) to confirms that they will pay claims in compliance with the new rules, for example, by paying 100% of eligible expenses for each individual who reaches the self-only maximum, even if a higher family deductible or family OOPM also applies.
- If you sponsor a high deductible health plan (HDHP), make sure your plan will apply the $6,850 OOPM for each individual, even those who have family coverage and a family deductible that exceeds $6,850.
HDHP Cost Sharing Limits
The cost-sharing limits for HDHPs are as follows:
|Type of Limit||2014||2015||2016|
|HDHP Minimum Deductible||Self-only||$1,250||$1,300||$1,300|
|HDHP Out-of-pocket Maximum||Self-only||$6,350||$6,450||$6,550|