New Cost-sharing Limits
Smart first steps
Group health plans, except grandfathered health plans, will have to comply with new limits on out-of-pocket maximums and deductibles.
The limit on out-of-pocket maximums initially will be the same as the out-of-pocket maximum for high-deductible health plans (HDHPs) in effect for 2014, but will be subject to a separate inflation adjustment in 2015 and later years. For 2011 the out-of-pocket maximum for HDHPs will be $5,950 for single coverage and $11,900 for other coverage tiers.
The maximum deductible limit initially will be $2,000 for single coverage and $4,000 for other coverage tiers. These limits also will be subject to adjustment for inflation in 2015 and beyond.
The deductible limit for a participant can be increased by the maximum amount of reimbursement reasonably available to the participant from a health reimbursement arrangement (HRA) or by the amount of employer contributions to the participant’s health FSA.
Available reimbursements from an HSA may not be used to increase a participant’s deductible limit even if the employer contributes to the HSA.
What expenses will count towards the out-of-pocket maximum?
Most out-of-pocket expenditures the participant must make to receive covered benefits – i.e., deductibles, copays, and coinsurance payments – will count towards the out-of-pocket maximum.
The participant’s out-of-pocket premium payments will not count towards the out-of-pocket maximum.
Any out-of-pocket expenses a participant incurs for items or services not covered by the plan will not count towards the maximum.
Effective Date: Plan years beginning on or after January 1, 2014. Does not apply to grandfathered health plans.
Key Implication: Plan Design
Many plans may need to be amended to incorporate the out-of-pocket maximum. Consumer-directed health plans (CDHPs) – including those that incorporate an HDHP – may need to be modified if their deductibles exceed the new limit.
Key Implication: Cost
The out-of-pocket and deductible maximums might affect employers’ ability to manage their costs by shifting costs to participants in the form of higher deductibles, copays, or coinsurance requirements.
Smart First Steps for Employers to Consider
Plan Design: All group health plan sponsors might consider reviewing existing plan designs to determine if the out-of-pocket and deductible maximums will be an issue. This early assessment might be particularly helpful to sponsors of CDHPs that already have deductibles approaching the new limit. For example, CDHPs that incorporate an HSA/HDHP are subject to minimum deductible limits of $1,200 for single coverage and $2,400 for family coverage in 2011, and may be higher in 2014 due to annual inflation adjustments.
Cost: Analyze the potential impact of the new limits on implementing cost-sharing and cost-shifting strategies in the future. If the limits are potentially going to make these tools less effective, begin developing alternative cost-management strategies.
Grandfathered Status: Determine whether and how the new limits will affect decisions to maintain grandfathered health plan status, and for how long. Remember to take into account the restrictions on cost-sharing and cost-shifting that must be adhered to in order to maintain grandfathered health plan status.