The Centers for Medicare and Medicaid Services (CMS) and the U.S. Department of Health and Human Services (HHS), collectively known as the Departments, released their final rule on cost-sharing parameters and cost-sharing reductions on February 27, 2015. It finalizes the medical loss ratio programs and a myriad of other related topics in 80 FR 10750. Of particular interest is the finalization of the annual limitation on cost sharing for self-only coverage that applies to all individuals regardless of whether the individual is covered by a self-only plan or by a plan that is other than self-only (family) coverage.
Why is this important? With the proliferation of qualified high deductible health plans (HDHPs) that are paired with health savings accounts (HSAs), HSA-eligible health insurance plans that cover more than one individual with a family deductible required that the family deductible be met prior to paying medical expenses. For example, if a family plan’s deductible is $10,000 and one individual in the family plan incurred expenses of $15,000, the individual would be required to pay the $10,000 family deductible before the plan would begin coverage. However, non-HSA eligible plans that generally begin coverage for one individual prior to reaching the family deductible would be considered to have an individual embedded deductible.
These final rules on cost sharing for essential health benefits (EHBs) require that the individual be responsible for paying the cost sharing related to the costs of medical care EHBs up to the annual limit on cost sharing for self-only coverage regardless of whether the individual has family coverage. The annual limitation on cost sharing applies on an annual basis regardless of whether it is a calendar year or non-calendar year plan. This is a major change in HDHPs for HSAs and could require carriers to change their systems and perhaps impact underwriting and rates for such plans.
HHS and CMS did point out that the deductible limit is not regulated in the same manner as the annual limitation on cost sharing. Therefore, family high-deductible health plans that count the family’s cost sharing to the deductible limit can continue to be offered under this ruling. The only limit will be that the family high-deductible health plan cannot require an individual in the family plan to exceed the annual limitation on cost sharing for self-only coverage. Final rules become effective for plans beginning on or after January 1, 2016.
CMS FAQs
On May 8, 2015, CMS published two FAQs, one of which is related to embedded deductibles in family policy deductibles. Some issuers or plans required participants to exhaust the entire family deductible, regardless of which member incurred health care expenses, before paying the insurance portion of health care expenses. CMS references the final rule published February 27, 2015.
In the final 2016 Notice of Benefit and Payment Parameters (2016 Pay Notice) (80 FR 10750), HHS clarified that the self-only annual limitation on cost sharing applies to each individual, regardless of whether the individual is enrolled in a self-only or other than self-only plan in regard to qualifying HDHPs for HSA compatibility.
Q2. How can an issuer be in compliance with the requirements that the self-only annual limitation on cost sharing applies to each individual, regardless of whether the individual is enrolled in a self-only or in an other than self-only plan, and offer a family high deductible health plan with a $10,000 family deductible?
A2. For 2016, the maximum annual limitation on cost sharing for self-only coverage is $6,850. Consequently, for 2016, an issuer can offer a family HDHP with a $10,000 family deductible as long as it applies a maximum annual limitation on cost sharing of $6,850 to each individual in the plan, even if the family $10,000 deductible has not been satisfied. This standard does not conflict with IRS rules on HDHPs.
Under the requirements for an HDHP, except for preventive care, an HDHP plan may not provide benefits for any year until the minimum statutory annual deductible for that year has been met. The minimum annual deductible for a family HDHP is $2,600 for 2016. Because the $6,850 self-only maximum annual limitation on cost sharing will exceed the 2016 minimum annual deductible amount for family HDHP HSA coverage, it will not cause the plan to fail to satisfy the requirements for a family HDHP.
What about large and self-funded group health plans? On May 26, 2015, the Departments issued FAQ Part XXVII to clear up any uncertainty about the type of group health coverage that must contain self-only embedded deductibles. All non-grandfathered group health plans, including self-insured and large group health plans, must comply with the maximum annual limitation on cost sharing.
This clarification applies for plan or policy years that begin in or after 2016. The purpose of cost-sharing proposals was to ensure that issuers could not reset the annual limitation on cost sharing more frequently than once a year.
Further clarification would be welcome for plans that do not run on a calendar year. WageWorks will keep you apprised of developments as they are issued.
The information contained in this article is not intended to be legal, accounting or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations.
