Written by Alden J. Bianchi
In a rare display of bipartisanship, Congress voted to eliminate the Affordable Care Act’s separate cap on deductibles that applies to individual and small group insurance products. (These limits never applied to large fully-insured groups or to self-funded plans.) While this change affects only a subset of employers, it is nevertheless noteworthy since Congress rarely reaches consensus on any modifications to the Act.
The Affordable Care Act includes two cost-sharing limits that take effect for plan and policy years beginning in 2014:
- An aggregate limit on “out-of-pocket maximums” (or “OOPMs”) on essential health benefits that applies generally to policies of health insurance in the individual and group markets (small and large) and to group health plans (other than grandfathered plans); and
- A separate limit on deductibles that applies only in the individual and small group markets
The OOPM limits
“Cost-sharing” for OOPM purposes includes deductibles, coinsurance, copayments, or similar charges, and any other expenditure required by a participant for a “qualified medical expense” with respect to essential health benefits covered under the plan. The term “qualified medical expense” generally means any tax-deductible medical expense, but it does not include premiums, billing amounts for non-network providers, or spending for non-covered services. Beginning in 2014, OOPMs for essential health benefits may not exceed the cost-sharing caps imposed on high deductible health plans for a plan year. (For 2014, these amounts are $6,350 for self-only coverage and $12,700 for coverage other than self-only. For 2015, they are $6,600 for self-only coverage and $13,200 for coverage other than self-only.)
Under a transition rule announced in February 2013 that applies only to the 2014 plan year, a group health plan with multiple service providers will be deemed to satisfy the OOPM limit if—
- The plan complies with the OOPM requirements with respect to its major medical coverage (excluding, for example, prescription drug coverage and pediatric dental coverage), and
- The plan includes a separate OOPM that applies to nonmedical benefits (e.g., prescription drug coverage), that does not exceed the OOPM limit.
In no case, however, may a group health plan or an insurer impose an annual OOPM maximum on all medical/surgical benefits and a separate annual out-of-pocket maximum on all mental health and substance use disorder benefits.
Limit on deductibles
In the case of individual and small group health insurance policies, the Act imposes separate limits to annual deductibles, which may not exceed $2,000 for individual coverage or $4,000 for family coverage. These amounts are indexed for future increases in the cost-of-living (for 2015, $2,050 for individual coverage and $4,100 for family coverage). (Annual deductibles do not apply to preventive health services.)
The Protecting Access to Medicare Act
Signed into law on April 1, 2014, the Protecting Access to Medicare Act eliminates the Affordable Care Act’s separate limits on deductibles.
The repeal is generally seen as a victory for consumer-driven health care arrangements, since, according to proponents of the change, allowing higher deductibles offers greater flexibility to tailor health insurance with account-based plans (permitting the option of lower premiums with higher deductibles). According to Natasha Rankin, Executive Director of the Employers Council on Flexible Compensation (in a post by Stephen Miller to SHRM Online):
“This is a real victory for consumer-based health care and consumer-based benefit accounts… [I]t allows small employers to continue to provide affordable medical insurance to their employees, including flexible compensation options such as FSAs, HRAs and HSAs that let employees set aside tax-advantaged dollars to help pay for their health care out-of-pocket and deductible expenses.”
Though getting little attention in the aftermath of the new law, there is a second consequence of the new law. The separate limit on deductibles posed something of a challenge in designing Bronze-level and Silver-level plans, i.e., plans with, respectively, 60 and 70 percent actuarial value. The Department of Health and Human Services recognized as much in final regulations implementing the Affordable Care Act’s rules governing essential health benefits. According to 45 C.F.R. § 156.130(b)(3):
“A health plan’s annual deductible may exceed the annual deductible limit if that plan may not reasonably reach the actuarial value of a given level of coverage. . . without exceeding the annual deductible limit.”
In other words, the separate cap on deductibles could be exceeded where necessary in order to get to a particular level of actuarial value. As a result of the change in the law, this accommodation is no longer necessary.