HHS Proposes Higher 2020 Out-of-Pocket Maximums for Health Plans

ACA cost-sharing limits differ from maximum out-of-pocket limits for HSA-compatible plans

By Leslye Laderman and Richard Stover, © Buck February 15, 2019
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updated May 28, 2019

Update: HHS Issues Final 2020 Out-of-Pocket Maximums

On April 25, 2019, the Department of Health and Human Services (HHS) published the final Notice of Benefit and Payment Parameters for 2020 (also see the SHRM Online post HHS 2020 Out-of-Pocket Maximums Alter Employer Penalties).

The final 2020 annual out-of-pocket (OOP) maximums for nongrandfathered group health plans are:

  • Self-only coverage: $8,150
  • Other than self-only coverage: $16,300

These figures represent an increase of 3.16 percent from the 2019 final cost-sharing limits of $7,900 (self) and $15,800 (other). These limits apply to all OOP costs for in-network essential health benefits.

The 2020 employer shared responsibility (ESR) penalties for employers are projected to increase to these amounts:

  • Not offering coverage: $2,570 per full-time employee, up from $2,500 in 2019.
  • Offering coverage that is unaffordable or lacks minimum value: $3,860 per full-time employee who receives subsidized coverage through a public exchange, up from $3,750 in 2019.

Employers with nongrandfathered plans should update their maximum annual OOP limits for 2020. Employers should also note the slight increase in ESR assessments for 2020, as IRS continues to actively enforce these penalties.

HHS and IRS Out-of-Pocket Limits Differ

There are two sets of limits on out-of-pocket expenses for health plans, determined annually by federal agencies, which can be a source of confusion for plan administrators: the HHS's annual out-of-pocket limits for ACA-compliant plans, and the IRS out-of-pocket limits for HSA-qualified high-deductible health plans (HDHPs).

On May 28, in Revenue Procedure 2019-25, the IRS confirmed HSA contribution limits effective for calendar year 2020, along with minimum deductible and maximum out-of-pocket expenses for the HDHPs with which HSAs are paired.

The HHS's annual out-of-pocket maximums have been slightly higher than those set by the IRS, but to qualify as an HSA-compatible HDHP, a plan must not exceed the IRS's lower out-of-pocket maximums (see the SHRM Online article 2020 HSA Limits Rise Modestly, IRS Says).

-- SHRM Online


Original story appears below.

The Department of Health and Human Services (HHS) in January 2019 proposed for nongrandfathered health plans—including employer-sponsored self-insured and large group health plans—2020 plan enrollee out-of-pocket (OOP) maximums of $8,200 for self-only coverage and $16,400 for other than self-only coverage.

This represents an approximately 3.8 percent increase over 2019 OOP limits, which are $7,900 for self-only coverage and $15,800 for other than self-only coverage.

These proposed amounts reflect a change in how HHS determines the amount of the adjustment—a change that, if finalized, would also affect the employer shared responsibility assessment amounts for 2020. In addition, HHS has also proposed rules that would change how amounts paid for brand-name drugs are applied towards the OOP maximums.

Background

Each year, HHS releases the HHS Notice of Benefit and Payment Parameters that provides important guidance related to the Affordable Care Act (ACA) marketplaces and various ACA provisions. On Jan. 24, 2019, HHS published the proposed rule for 2020 and a fact sheet that summarizes its most significant elements, and called for comments through Feb. 19. While primarily focused on the ACA marketplaces and insurers offering programs, the proposed rule also includes guidance affecting large employer and self-insured group health plans. OOP maximums do not apply to grandfathered plans or retiree-only plans.

Last year, HHS issued its final rule on 2019 OOP maximums on April 17.

Out-of-Pocket Maximums

The ACA imposes annual OOP maximums on the amount that an enrollee in a nongrandfathered health plan must pay for essential health benefits (EHB) through cost-sharing. These limits are subject to adjustment annually based on a "premium adjustment percentage" determined each year by HHS.

The premium adjustment percentage is used to determine changes to:

  • Annual OOP maximum limits.
  • Employer shared responsibility assessment amounts.
  • Premium tax credit affordability thresholds,

HHS proposes to change its method for determining the premium adjustment percentage by using the average per enrollee premium for private individual and group health insurance (other than Medigap and property and casualty insurance) instead of the average per enrollee premium for employer-sponsored coverage as it had in previous years.

The table below summarizes the OOP proposed maximum dollar limits for 2020 and prior years.

Out-of-Pocket Maximums
Self-Only
Other Than
Self-Only
[update: 2020 (final)
$8,150
$16,300]
2020 (proposed)$8,200$16,400
2019$7,900$15,800
2018$7,350$14,700
2017$7,150$14,300
2016$6,850$13,700
2015$6,600$13,200
2014$6,350$12,700

Treatment of Brand-Name Drugs

Generally, all prescription drugs covered by a plan are considered to be EHBs. Not only does an individual's cost-sharing for those drugs count toward the applicable OOP maximum, but the plan cannot impose any annual or lifetime dollar maximum on the drugs.

Citing the need to disincentivize the use of brand-name drugs, HHS set out two proposals that would be effective for plan years beginning on and after Jan. 1, 2020.

The first proposal would permit a plan that covers both a brand prescription drug and its generic equivalent to consider the brand-name drug to not be an EHB. Treatment as a non-EHB would be permitted only if the generic drug is available and medically appropriate for the enrollee and the plan provides a method for enrollees to request and obtain an exception.

Although self-insured group health plans do not have to cover all EHBs, they cannot apply lifetime or annual dollar limits on the EHBs they do cover. Generally, all prescription drugs covered by a plan are considered to be EHBs.

If the conditions are met, the plan would only be required to attribute the cost-sharing that would have been paid for the generic equivalent toward the annual OOP maximum and could disregard the difference in cost-sharing between the brand-name drug and the generic equivalent drug. In addition, the plan would be permitted to impose lifetime and annual dollar limits on those brand-name drugs because they would no longer be considered EHBs subject to the prohibition on such limits.

Under the second proposal, the entire amount paid by a patient for a brand-name drug for which there is a medically appropriate generic equivalent could be excluded from the OOP maximum.

[SHRM members-only toolkit: Complying with and Leveraging the Affordable Care Act]

Employer Shared Responsibility Assessments

Applicable large employers (ALEs)—those with 50 or more full-time employees or equivalents during the prior year—are potentially subject to one of two nondeductible "shared responsibility" assessments if they have at least one full-time employee who enrolls in public marketplace coverage and receives a premium tax credit.

  • Play or pay assessment. This assessment may be imposed when an ALE fails to offer minimum essential coverage to at least 95 percent of its full-time employees and their dependent children during a month and at least one of its full-time employees receives a premium tax credit through a public marketplace. For 2019, the maximum annual assessment per full-time employee is estimated to be $2,500. Based on the proposed premium adjustment percentage for 2020, the maximum assessment for 2020 is estimated to be $2,590.
  • Play and pay assessment. This assessment may be imposed when an ALE offers minimum essential coverage to at least 95 percent of its full-time employees but a full-time employee receives a premium tax credit because: (1) the employer-offered coverage is unaffordable or fails to provide minimum value, or (2) the employee was not offered employer-sponsored coverage.

For 2019, the estimated maximum annual assessment for each full-time employee receiving a premium tax credit is $3,750. Based on the proposed premium adjustment percentage for 2020, the maximum assessment for 2020 is estimated to be $3,890.

The proposed premium adjustment percentage will also increase the income threshold for determining eligibility for the premium tax credit. A higher threshold would mean that fewer individuals would qualify for a premium tax credit and thus potentially reduce an employer's exposure to the "play and pay" assessment.

Leslye Laderman, JD, LLM, is a principal in the Knowledge Resource Center at HR consultancy Buck. Richard Stover, FSA, MAAA, is a principal at the consultancy. This article originally appeared in the Feb. 13, 2019, issue of For Your Information, produced by Buck's Knowledge Resource Center. © 2019 Buck Global LLC. All rights reserved. Republished with permission.

Visit SHRM's resource page for the Affordable Care Act

Reminder: 2019 OOP Cost-Sharing Limits

A checklist for plan sponsors regarding 2019 out-of-pocket maximum cost-sharing limits was included in a recent post by benefits advisory firm Strategic Benefit Services. The firm advised plan sponsors to:

  • Review their 2019 plan OOP maximum to make sure it complies with the ACA's limits for the 2019 plan year ($7,900 for self-only coverage and $15,800 for family coverage).
  • If the plan uses multiple service providers to administer benefits, confirm that the plan will coordinate all claims for employee health benefits across the plan's service providers or will divide the OOP maximum across the categories of benefits, with a combined limit that does not exceed the maximum for 2019.
  • Confirm that the plan applies the self-only maximum to each individual in the plan, regardless of whether the individual is enrolled in self-only coverage or family coverage.
  • For employers that offer employees a health savings account (HSA)-compatible high-deductible health plan (HDHP), keep in mind that the HDHP's OOP maximum is lower than the ACA's OOP maximum for health plans generally. For 2019, the OOP maximum limit for HSA-compatible HDHPs is $6,750 for self-only coverage and $13,500 for family coverage.

-- SHRM Online



Related SHRM Article:

2020 HSA Limits Rise Modestly, IRS Says, SHRM Online, May 2019

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