Law Removes Deductible Limits for Small-Group Plans

Minimum-value and out-of-pocket maximum requirements remain in place

By Stephen Miller, CEBS April 3, 2014

President Barack Obama signed into law on April 1, 2014, the Protecting Access to Medicare Act. Although the main thrust of the bill is to prevent double-digit cuts in Medicare reimbursement to doctors from taking effect this year, tucked away inside the legislation was an important change to an Affordable Care Act (ACA) provision affecting group plans for small employers.

Section 213 of the law now eliminates deductible limits imposed under the ACA for small-group market employer health plans. The new law, which took effect immediately, will allow more flexibility for plan designs.

Section 1302(c)(2) of the ACA had limited deductible amounts offered by small group plans to $2,000 for individuals and $4,000 for families, which had the effect of driving up plan premiums, small-business advocates contended. The department of Health and Human Services had interpreted the health care law as requiring all group health plans to comply with the ACA's annual limit on out-of-pocket spending, while only plans and issuers in the small-group market were subject to the ACA's deductible limits.

Plans must still provide "minimum value," meaning the percentage of the total allowed costs of benefits paid by the plan is no less than 60 percent.

Also unaffected are the annual out-of-pocket maximum spending limits under the ACA. This limit must include deductibles, co-insurance, co-payments or similar charges for essential health benefits, excluding premiums. This limit also does not have to count premiums or billing amounts for non-network providers and other out-of-network cost-sharing, or spending for non-essential health benefits.

The maximum out-of-pocket cost limit for 2014 can be no more than $6,350 for an individual plan and $12,700 for a family plan. These limits apply to all nongrandfathered plans (grandfathered plans are those with unchanged major provisions since March 23, 2010, the date of the ACA's enactment, whether fully insured or self-funded, and regardless of size).

In April 2014, the IRS announced that maximum out-of-pocket amounts in calendar year 2015 for high-deductible health plans would rise to $6,450 for self-only coverage or $12,900 for family coverage.

Advantage Seen for Consumerism

Account-based health options, including health savings accounts (HSAs), health reimbursement arrangements (HRAs) and flexible spending accounts (FSAs), are often provided in tandem with high-deductible plans. And, by law, HSAs can only be offered to those whose health plans have a minimum deductible of $1,250 (individual) or $2,500 (family) in 2014—rising to $1,300 (individual) or $2,600 (family) in 2015.

While those requirements could be satisfied under the ACA's (now repealed) deductible limits on small-group plans, advocates of consumer-directed health care contended that allowing higher deductibles provides greater flexibility to tailor health insurance with account-based plans, opting for lower premiums with higher deductibles, for instance.

“This is a real victory for consumer-based health care and consumer-based benefit accounts,” said Natasha Rankin, executive director of the Employers Council on Flexible Compensation, a trade group, in an e-mailed response to SHRM Online. “It allows small employers to continue to provide affordable medical insurance to their employees, including flexible compensation options such as FSAs, HRAs and HSAs that let employees set aside tax-advantaged dollars to help pay for their health care out-of-pocket and deductible expenses.”

“For small employers, in particular, the repeal of the deductible restrictions provides a significant incentive to make medical plans available to their workforce,” Rankin added. “Once in place, employers now have the flexibility to work with their employees to create and customized account-based benefit plans to cover their out-of-pocket deductible expenses and exposure with pre-tax dollars.”

“The impact of this legislation should be pretty significant for small employers,” concurred Gary Kushner, president and CEO of benefits consultancy Kushner & Co. in Portage, Mich. Many employers use high-deductible plans paired with HRAs and HSAs “to keep premiums at a minimum while taking on a small amount of claims risk or employer contributions,” he noted. “This legislation should allow significantly more flexibility in design and contributions once again.”

The small-group market has traditionally included employers with up to 50 employees. However, under the ACA each of the 50 states can set the size of its small-group market at either one to 50 employees or one to 100 until 2016; these employers can participate in the ACA's Small Business Health Options Program (SHOP) to purchase small-group plans on the public exchanges. Beginning in 2016, all states must let employers with up to 100 workers purchase small-group market plans through SHOP.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

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