Applying the Annual Cost-Sharing Limit to Family HDHP Coverage

In the preamble to the “Final Notice of Benefit and Payment Parameters for 2016” issued in April, the Department of Health and Human Services (HHS) established that the cost-sharing limit for self-only coverage should apply to all covered individuals — whether or not they’re covered by a self-only plan.

More recently, the HHS posted a FAQ explaining how the annual cost-sharing limit under the Affordable Care Act (ACA) 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.

Deductible approaches

The FAQ notes that, under the rules for Health Savings Accounts (HSAs), HDHP family coverage cannot provide any benefits until covered expenses (other than for preventive care) exceed the minimum annual deductible for family coverage. For 2015, that minimum family deductible is $2,600. (Note: A plan might have an embedded individual deductible, but it would have to be higher than the family minimum.)

Family HDHP coverage could impose a much higher deductible. The deductible, however, still couldn’t exceed the HDHP out-of-pocket maximum for family coverage of $12,900 for 2015.

For example, if the HDHP had a family deductible of $10,000 — higher than the self-only annual limit on cost sharing ($6,600 for 2015) — the plan would have to begin covering the expenses of any family member whose expenses exceeded the self-only annual cost-sharing limit, notwithstanding the plan’s higher family deductible. The FAQ indicates that this policy applies starting in the 2016 plan year, when the self-only annual limit on cost-sharing will increase to $6,850.

Cost impact

This interpretation of the ACA’s annual cost-sharing limitation effectively embeds an individual out-of-pocket limit in all family group health plans with a higher family deductible — whether or not the high-deductible coverage is meant to make employees HSA-eligible. (The annual cost-sharing limit on spending for covered essential health benefits applies to all nongrandfathered, nonexcepted group health plans.) This may affect plan costs, potentially prompting sponsors and insurers to reconsider and adjust benefits, premiums or both.

Total commitment

Ultimately, this FAQ eliminates any doubt about the commitment of the HHS to its position on applying the annual cost-sharing limit within the regulations. Fortunately, the FAQ also makes it clearer that plans won’t have to apply this rule until their 2016 plan years. So plan sponsors and insurers will have time to respond.

The last word on wraparound coverage as an excepted benefit

Earlier this year, the Department of Labor, the IRS and the Department of Health and Human Services jointly issued proposed regulations to place another item in the “excepted benefit” category. Under the proposal, employers in certain circumstances could offer limited health coverage designed to “wrap around” individual health insurance. Thereafter, such “wraparound” coverage would qualify as an excepted benefit — that is, be exempt from certain mandates under the Affordable Care Act and the Health Insurance Portability and Accountability Act.

These proposed regulations have now been finalized. As such, employers may now offer limited health coverage designed to wrap around either: 1) eligible individual coverage, or 2) coverage in a multistate plan. In these two cases, the coverage will be considered an excepted benefit. Of course, organizations that opt to do so will face a variety of requirements affecting areas such as meaningful additional benefits, nondiscrimination, limited amounts, plan eligibility and information reporting.

Because it’s too late for employers to implement limited wraparound coverage for the 2015 plan year, the final regulations have modified the implementation period of an available pilot program to start with plans first offered in 2016 through 2018. According to the government news release, wraparound coverage gives employees who otherwise may be unable to get employer-sponsored coverage access to “high-level benefits.” From an employer perspective, it appears wraparound coverage would primarily appeal to some larger organizations seeking to offer additional limited benefits to part-time employees.

© 2015