New Guidance on PPACA’s Out-of-Pocket Maximum

This post will provide an overview of the new guidance on PPACA’s out-of-pocket maximum issued jointly by the HHS, the DOL, and IRS. This guidance is particularly important for plan sponsors who provide essential health benefits (EHBs) through multiple vendors. While previous guidance provided transitional relief for such plans, the new guidance confirmed that the transitional rules will expire in 2015.

Background

PPACA’s out-of-pocket maximum is effective for all non-grandfathered health plans for plan years beginning on or after January 1, 2014. The out-of-pocket maximum limits annual out-of pocket costs health plans charge participants for essential health benefits (EHBs). The charges subject to the maximum include deductibles, coinsurance, copayments, and similar charges (but not premiums). Once a participant pays the out-of-pocket limit during the plan year, the health plan cannot charge additional out-of-pocket costs for EHB coverage.

The maximum is initially set at the limitation applicable to high-deductible health plans combined with a Health Savings Account, and will be adjusted annually.  For 2014, the limit is $6,350 for self-only coverage and $12,700 for all other coverage.

Multiple Service Providers

The out-of-pocket maximum poses administrative challenges for group health plans that administer EHBs through multiple vendors. Because the maximum applies to total out-of-pocket costs for all EHBs, separate vendors must coordinate their charges to ensure that enrollees are not charged more than the allowable amount.

The Departments previously announced a transitional rule for plan years beginning during 2014. For that plan year, where a group health plan or insurance issuer uses multiple vendors to administer benefits subject to the out-of-pocket maximum, the maximum applies separately to major medical coverage and all other coverage subject to the rule. As a result, separate service providers are not required to coordinate out-of-pocket costs for the plan year beginning in 2014 and participants may incur out-of-pocket expenses exceeding PPACA’s total limit.

The new guidance confirms that this transition rule will not apply for plan years beginning on or after January 1, 2015. Plan sponsors should be prepared to coordinate vendor charges. As an alternative, the new guidance allows plans to impose separate out-of-pocket limits for each service provider, provided that the combined amount does not exceed the annual limitation for all EHBs. For example, the plan could create an out-of-pocket maximum of $5,000 for major medical coverage and $1,350 for pharmaceutical coverage, for a combined maximum of $6,350.

Out-of-Pocket Costs Subject to the Maximum

The guidance also addresses the categories of out-of-pocket costs that will be subject to the out-of-pocket maximum. For all plans, the maximum applies only to benefits that are considered EHBs. Self-funded plans and large group health plans may use any definition of EHBs approved by the Secretary of HHS.  The Departments indicated that they will use their enforcement discretion and work with self-funded and large group plans that make a good faith effort to apply an authorized definition of EHBs.

The guidance confirmed that plans need not count costs for out-of-network items and services toward the plan’s out-of-pocket limit, even if they are EHBs. Additionally, the guidance provided that a plan is not required to count costs for any services not covered by the plan.

Today’s post was contributed by Graham P. Widmer