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Employer Health Reform Issues Brief: Ban on Annual and Lifetime Limits

Smart first steps for employers


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The Provision

Group health plans, including grandfathered health plans, will not be permitted to impose annual or lifetime limits on the dollar amount of certain benefits for any individual. Plans currently imposing lifetime limits on those benefits will be required to allow certain individuals who have reached those limits to re-enroll when the lifetime limit ban becomes effective.

Otherwise prohibited annual limits will be permitted for plan years beginning before January 1, 2014 if they satisfy certain minimum thresholds as summarized in the following table.

Restricted Annual Limits on Essential Health Benefits
Plan Years Minimum Annual Limit
Beginning on or after September 23, 2010, but before September 23, 2011 $750,000
Beginning on or after September 23, 2011, but before September 23, 2012 $1.25 million
Beginning on or after September 23, 2012, but before January 1, 2014 $2 million

The ban will not prevent group health plans from imposing annual or lifetime limits on specific covered benefits that are not “essential health benefits.” The types of benefits that will be considered “essential health benefits” include emergency services, hospitalization, maternity and newborn care, mental health and substance use disorders, prescription drugs, and pediatric services. Additional guidance is needed on the full scope of this term.

The ban also will not prevent group health plans from excluding all benefits for a particular condition. However, if the plan provides any benefits for a condition, then the exclusion of other benefits relating to that condition may violate the ban.

Effective Date: Plan years beginning on or after September 23, 2010, subject to a special transition rule for the ban on annual limits. Applies to grandfathered health plans.

Key Implication: Cost

Annual and lifetime dollar limits are used by group health plans to manage costs. Plan costs likely will increase when existing annual or lifetime limits are eliminated to comply with the ban. The magnitude of the increase will be greatest for plans with very low annual or lifetime limits.

Key Implication: Plan Design

Plans will need to eliminate existing annual or lifetime limits on the dollar value of benefits. Those plan sponsors wanting to take advantage of the transition rule relating to annual limits will need to modify their plans accordingly.

Key Implication: Administration

A special enrollment opportunity is required for former participants who have reached the current lifetime maximum but are otherwise eligible for coverage on the first day of the first plan year beginning on or after September 23, 2010. These individuals must be given at least 30 days to elect coverage. If elected, coverage must be effective as of the first day of the first plan year beginning on or after September 23, 2010.

Smart First Steps

Cost: Assess the cost impact of eliminating annual and lifetime limits. Mitigation strategies to consider include imposing new benefit-specific annual or lifetime limits on non-essential health benefits and or reducing the scope of covered benefits. Be aware that certain changes – including implementing the transition rule for the ban on annual limits – might cause the plan to lose grandfathered status.

Plan Design: Prepare and adopt necessary plan amendments.

Administration: Identify current participants and beneficiaries who have reached the plan’s lifetime limit and former participants eligible for the special enrollment opportunity. Be prepared to distribute the required notice and offer the special enrollment opportunity during the plan’s annual open enrollment season. Consider using model notices, available from the Department of Labor at www.dol.gov/ebsa.

As used in this document, “Deloitte” means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.

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