HHS has posted an FAQ explaining how the annual cost-sharing limit under health care reform will affect high-deductible health plan (HDHP) coverage. The new FAQ explains the agency’s position by applying it to a hypothetical HDHP with a $10,000 family deductible.
On February 27, 2015, HHS released finalized regulations establishing limits on annual out-of-pocket maximums for 2016. The regulations set the 2016 out-of-pocket maximum limit for self-only coverage at $6,850 and for family [more than 1 covered individual] coverage at $13,700. The Department also finalized that the annual limit for self-only coverage applies to all individuals, including each individual under family coverage. In essence requiring embedded deductible plans.
The final regulations also provide that the embedded out-of-pocket limit applies to all plans, including HDHP plans. Under the requirements for an HDHP, except for preventive care, a plan may not provide benefits for any year until the deductible for that year has been met. As discussed in IRS Notice 2004-2, in the case of family coverage, a plan is an HDHP only if, under the terms of the plan and without regard to which family member or members incur expenses, no amounts are payable from the HDHP until the family has incurred annual covered medical expenses in excess of the minimum annual deductible for family coverage [$2,600 for 2015].
Could we have a conundrum on our hands?
Keep in mind that the out-of-pocket limits set by the IRS for HSA compatible HDHPs are lower than the limits set by HHS for Affordable Care Act purposes. Using 2015* as an example:
HDHP Minimum Deductible/
|
ACA Out-of-Pocket limits: |
$1,300/$6,450
|
$6,600
|
$2,600/$12,900
|
$13,200
|
*2016 HDHP limits have not been announced yet
Conundrum Averted
A family HDHP can comply with both limits as long as no individual is required to pay more than the self-only ACA limit and pays all expenses for all family members once the group’s expenses reach the family out-of-pocket maximum established by the IRS for HDHPs (or the family maximum limit of the plan, if it is lower than the ACA limits).
Let’s see how this might work with some examples using the numbers above. A family HDHP may include an embedded individual deductible but is not required to do so. If an HDHP does not have an embedded individual deductible, it will not begin paying benefits until the cumulative medical expenses of all covered family members exceeds the deductible.
- If an HDHP without an embedded individual deductible has a family deductible of $6,000 and pays 100% of claims thereafter, it would also comply with the ACA limits since no individual would be required to pay more than $6,600 for covered medical care.
- If an HDHP without an embedded individual deductible has a family deductible of $7,000 and pays 100% of claims thereafter, it would not comply with the ACA limits because it is possible that if all the claims are incurred by one person in the family, that person would be required to pay more than $6,600 for covered medical care.
- In contrast, if an HDHP has a family deductible of $12,900 and pays 100% of claims thereafter and also includes an embedded individual deductible of $6,600, it would meet ACA requirements.
Health Care Reform and the ACA…..are we having fun yet?