Limits on out-of-pocket costs in health insurance plans take effect in 2014 but may exclude prescription drug coverage in some circumstances, the Obama administration clarified in an Aug. 13, 2013, posting on the White House blog by Jeanne Lambrew, deputy assistant to President Obama on health policy.
Beginning in 2014, consumers’ annual out-of-pocket costs for health care, including deductibles, co-insurance and co-payments, are limited under the Patient Protection and Affordable Care Act (PPACA) to no more than $6,350 per individual and $12,700 per family. These limits apply to all nongrandfathered plans (grandfathered plans are those with unchanged major provisions since March 23, 2010, the date of the PPACA's enactment), whether fully insured or self-funded, and regardless of size.
The spending cap does not include out-of-network charges and certain other excluded charges.
In February 2013 the Department of Labor (DOL) issued public guidance to implement these limits. According to the guidance, for those buying a plan on the new Health Insurance Marketplace exchanges, the out-of-pocket limit in 2014 for medical and drug costs combined will not exceed $6,350 for individuals and $12,700 per family, as the PPACA stipulates. However, for those who already have insurance through their employer:
- If the employer’s coverage uses separate benefit plan administrators for major medical (doctors’ services and hospital care) coverage and prescription drug (pharmacy) coverage, and if the drug plan currently imposes a limit on out-of-pocket costs, then the PPACA’s out-of-pocket limit of $6,350 will apply separately to major medical costs and to prescription drug costs, raising the total limit to $12,700 for individuals and $25,400 for families.
- If the drug plan does not currently have a limit on out-of-pocket costs, it will not have to impose one for 2014, and the cap on employee spending will apply only to major medical expenses.
This delay in the combined limit for major medical and drug coverage will be for just one year. Beginning in 2015, the cap will apply to major medical and prescription drug coverage combined, even if the employer has separate plans.
The New York Times first reported this previously overlooked portion of the February guidance on Aug. 13, 2013. “The grace period has been outlined on the Department of Labor’s website since February, but was obscured in bureaucratic language that went largely unnoticed," the Times noted.
“The February guidance recognized that some employer plans use separate benefit administrators for major medical coverage and for drug coverage,” said Lambrew in her blog posting, widely seen as a response to the Times report. “Tech systems cannot communicate with one another yet, so the guidance allowed these existing plans to separately limit out-of-pocket spending on major medical expenses, and drug plans that currently have out-of-pocket limits. By 2015, Americans in these plans will have one single maximum out-of-pocket limit of $6,350 for combined medical and drug costs, just like in the Marketplaces,” Lambrew explained.
In practice, the effect of the guidance on out-of-pocket cost caps is expected to be limited. For instance, an Aug. 16 alert from Wolters Kluwer Law & Business advises:
Keep in mind...that the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) does not allow group health plans to apply separate out-of-pocket maximums to mental health or substance-use-disorder benefits separately from the maximum established for medical/surgical benefits.
"Because of existing rules under the Mental Health Parity Act, plans that use a separate vendor for mental and nervous disorder coverage should already have an integrated out-of-pocket maximum for medical and mental and nervous coverage, and the transition rule does not apply to this situation," explained Linda Rowings, JD, chief compliance officer of United Benefit Advisors.
And an Aug. 15 alert from benefits attorneys at Hill, Chesson & Woody observes:
Many employers use the same insurance carrier for their medical and pharmacy benefits, for example. As a result, for most employer group health plans, these requirements will continue as-is and will be implemented for the first plan year beginning on or after Jan. 1, 2014.
"In response to industry comments that it would be difficult to integrate different vendors’ systems by 2014, the FAQ provides that if a plan uses different providers for medical and prescription drugs, it will not be required to integrate out-of-pocket maximums for 2014," Rowings said. "Instead, simply ensuring that the medical benefit meets the out-of-pocket maximum will suffice. Plans that have a common medical and Rx vendor are expected to apply both medical and Rx charges to a common out-of-pocket maximum."
Stephen Miller, CEBS, is an online editor/manager for SHRM.
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