Family Plans Must ‘Embed’ Out-of-Pocket Limits in 2016

Typical high-deductible plan design will not be permitted if the family deductible is greater than $6,850

By Julia Zuckerman, JD Leslye Laderman, JD, LLM © Buck Consultants Jun 5, 2015

Update: In a letter to business groups dated Sept. 15, 2015, federal regulators affirmed they are sticking with the new embedded out-of-pocket spending limit for 2016. That embedded limit “prevents consumers from being penalized for purchasing family coverage rather than self-only coverage,” Kevin Counihan, CEO of the health insurance marketplace at the Department of Health and Human Services, wrote to business groups that had told federal regulators that an “embedded” cost limit was not supported by the Affordable Care Act.

The federal departments overseeing the Affordable Care Act (ACA) confirmed in May 2015 guidance that, effective for plan years beginning in 2016, nongrandfathered health plans—even self-funded plans and large-group plans—must apply an embedded self-only out-of-pocket (OOP) maximum to each individual enrolled in family coverage if the plan’s family OOP maximum exceeds the ACA’s OOP limit for self-only coverage ($6,850 for 2016).

This significant change affects the design of many employer-sponsored plans—in particular, high-deductible health plans that commonly impose a single overall family OOP limit on family coverage without an underlying self-only OOP maximum for each covered family member.


The ACA limits the annual amount of cost sharing that small group plans and individual plans can impose on an enrollee for essential health benefits (EHBs). In 2013 final regulations, the Department of Health and Human Services (HHS) confirmed that these ACA OOP maximums, indexed annually, apply to nongrandfathered self-insured and large group health plans. Cost sharing, for these purposes, includes deductibles, co-insurance and co-payments for in-network providers.

In February 2015, HHS issued its 2016 Notice of Benefit and Payment Parameters . While focused primarily on ACA marketplaces and insurers, the guidance also covers a number of topics affecting large employer and self-insured group health plans, such as the ACA’s OOP maximums on EHBs for 2016. The OOP limits for 2016 are $6,850 for self-only coverage and $13,700 for other than self-only coverage.

In the preamble to this guidance, HHS stated it was “clarifying” that, effective for plan years beginning on and after Jan. 1, 2016, the ACA’s annual OOP maximum for self-only coverage applies to all individuals—including those enrolled in other-than-self-only [i.e., family plan] coverage. This means that no individual can be required to pay more in annual cost-sharing than the ACA self-only OOP limit, even though a family unit as a whole may be subject to the higher overall OOP maximum. In essence, the self-only ACA OOP maximum is “embedded” in the other-than-self-only coverage.

Significantly, the preamble language interprets ACA Section 1302, which applies to small group and individual coverage—and not directly to self-funded and large group plans. But in a May 8, 2015 memo , HHS instructed issuers to provide the self-only annual cost-sharing limitation for each individual “regardless of whether the individual is enrolled in a self-only or other than self-only plan.” The DOL posted this memo on its website, indicating that it viewed health plans subject to the Employee Retirement Income Security Act (ERISA) as subject to this requirement. However, the applicability of embedded self-only OOP limits to self-funded and large group plans remained uncertain given Section 1302’s direct application to small group and individual coverage.

Embedded OOP Limits Apply to Self-Funded and Large Group Plans

On May 26, 2015, the Departments of Labor and Treasury, along with HHS (the departments), issued FAQs removing this uncertainty. The guidance states that, for plan or policy years beginning in or after 2016, the ACA’s self-only OOP maximum applies to each individual in any nongrandfathered group health plan, including self-insured and large group health plans, regardless of whether the individual is enrolled in self-only or other-than-self-only coverage. This means that self-funded and large group plans may not require any individual to pay more than $6,850 in cost-sharing for EHB in 2016—even if the individual has not reached the plan’s family OOP limit. Because a deductible is a form of cost-sharing, a plan with a family deductible greater than $6,850 in 2016 must incorporate an embedded self-only deductible that does not exceed that amount.

To illustrate this rule, the guidance provides the following breakdown of how a plan’s OOP limits would apply in 2016 to a family of four (for example, a mother, father, son and daughter) enrolled in family coverage with a family OOP maximum of $13,000:

Mother incurs claims associated with $10,000 in cost-sharing

Father, son, and daughter each incur claims associated with $3,000 in cost-sharing

Because the ACA self-only OOP maximum applies to each individual, the mother’s cost-sharing is limited to $6,850 and the plan would pay the $3,150 difference between the $10,000 in cost sharing and the $6,850 self-only OOP maximum

Because the plan’s family OOP maximum is $13,000, the plan would pay the $2,850 difference between the family’s $15,850 aggregate cost sharing ($6,850 for mother plus $3,000 each for the father, son and daughter) and the plan’s $13,000 annual OOP limit for family coverage.

Note : Some third party administrators (TPAs) and insurers currently have system or technical limitations that could affect an employer’s approach to complying with the embedded self-only OOP maximum requirement. Therefore, an employer should consult with its claims administrator to determine if such limitations exist—and if so, what plan design changes would be required.

Additionally, employers with carve-out benefits (e.g., prescription drugs) should ensure that the embedded self-only OOP maximums incorporate those benefits. Hospitals with multi-tier in-network benefits will also need to coordinate compliance with this OOP requirement across all in-network tiers.

Significant Concerns for HDHPs

Many health savings account (HSA)-compatible high-deductible health plans (HDHPs) currently have a single overall family deductible without an embedded self-only deductible. For example, where an HDHP has a deductible of $5,000 for self-only coverage and a deductible of $10,000 for family coverage, a single individual enrolled in family HDHP coverage could incur OOP costs up to $10,000 before meeting the family deductible. A plan’s deductible counts towards its OOP maximum.

According to the new guidance, this typical HDHP plan design would not be permitted in 2016 if the HDHP’s family deductible is greater than $6,850. Thus, for example, family HDHP coverage with a 2016 family deductible of $10,000 would need an embedded self-only deductible of no more than $6,850.

Note: HSA-compatible HDHP OOP maximums are lower than ACA OOP maximums. For example, in 2016, the HSA-compatible HDHP OOP maximum is $6,550 for self-only coverage and $13,100 for family coverage, while the ACA’s OOP maximum is $6,850 for self-only coverage and $13,700 for other-than-self-only coverage. Employers offering HDHP/HSA plans must ensure that they satisfy the lower HDHP OOP maximums. [See the SHRM Online article IRS Issues 2016 HSA Contribution Limits.]

In Closing

The application of embedded OOP limits to nongrandfathered self-funded and large group plans is a significant new development. Sponsors of group health plans featuring an overall family deductible or OOP maximum greater than $6,850 must evaluate their 2016 plan designs in short order and discuss with their TPA or insurer how it will administer embedded self-only OOP limits.

Julia Zuckerman, JD, is a director at Buck Consultants in Washington, D.C. Leslye Laderman, JD, LLM, is a principal in the Knowledge Resource Center at Buck Consultants in the Greater St. Louis area. This article originally appeared in the June 4, 2015, issue of For Your Information, produced by Buck Consultants’ Knowledge Resource Center. © 2015 Xerox Corp. and Buck Consultants. All rights reserved. Republished with permission.

Other Viewpoints:

Maximum Out-of-Pocket ‘Clarification’ Spawns Confusion

The federal government’s recently issued “clarification” confusingly reverses earlier requirements so that for each person covered under a nongrandfathered family plan, the maximum out-of-pocket (MOOP) limit for individuals under the health plan applies separately to each individual “embedded” in a family plan, wrote Leah Binder, president & CEO of The Leapfrog Group, a Washington, D.C.-based nonprofit that rates hospital quality and safety, in a June 4, 2015, commentary at

The federal departments’ May 26, 2015, FAQs apply the so-called embedded self-only out-of-pocket limits to self-funded and large group plans, Binder explained. For instance, if a plan has a MOOP of $6,000 for individuals and $12,000 for families, an employee who is part of a family plan and incurs out-of-pocket expenses for herself that amount to more than $6,000 in a year still won’t pay more than the $6,000 individual MOOP. Family members who incur expenses of less than $6,000 per year would be subject, when their expenses are added together, to the $12,000 family MOOP.

“Employers have to cover this loss right now, so many are hastily redrafting their HR budgets as you read this,” wrote Binder. “The money will come from employee premiums, lower wage increases, reduced benefits and/or creating fewer new jobs. And even though the new regulation sounds friendly to families on its face, in fact it makes already expensive family coverage even less affordable, since family premiums are likely to increase substantially with this new rule in place.”

Similarly, in a comment letter dated June 16, 2015, the ERISA Industry Committee (ERIC) urged the Departments of Labor, Treasury, and Health and Human Services to immediately retract the recent “clarification” of the rules applicable to cost-sharing limits in large group health plans, stating:

The assertion that these plans are subject to the self-only limit when they provide coverage other than self-only coverage is not supported by the statute. The manner in which the departments have created this new requirement is not consistent with the Administrative Procedure Act or with the most basic principles of fairness and good government. We ask the departments to recognize that the requirement is unenforceable and to announce that it has been withdrawn.

— SHRM Online staff

Related Resources:

HHS Proposes 2017 OOP Maximums and Marketplace Guidance, Buck Consultants, December 2015

Health Plans May Need to Change Out-of-Pocket Maximums to Comply with New Guidance, Quarles & Brady LLP, June 2015

Quick Links:

Compensation & Benefits e-Newsletter:

To subscribe to SHRM's Compensation & Benefits

e-newsletter, click below.

Sign Up Now


Join SHRM's exclusive peer-to-peer social network

Join Today

Job Finder

Find an HR Job Near You


Find the Right Vendor for Your HR Needs

SHRM’s HR Vendor Directory contains over 3,200 companies

Search & Connect