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Overlooking high-deductible health plan rule could cost employers

Some health care plans may need revisions

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Recent federal regulatory health care reform law guidance will require many employers with high-deductible health care plans to redesign those plans to reduce claim costs picked up by employees with family coverage.

The little-publicized guidance from the U.S. Department of Health and Human Services leaves untouched annual limits set by the health reform law on the maximum out-of-pocket expenses employers can require employees to pay before plan coverage kicks in: $6,850 for single coverage and $13,700 for family coverage when the rules go into effect in 2016.

The rules add a new and potentially costly requirement for employers, who will have to cap at $6,850 the maximum out-of-pocket expense any individual with family coverage — whether an employee or covered dependent will have to pay before plan coverage kicks in.

In short, the $6,850 annual cap on how much a plan participant can be asked to pay will apply, regardless if the individual has single or family coverage.

“The intent is once an individual with family coverage hits the out-of-pocket limit for single coverage,” he is or she would have full coverage, said J.D. Piro, a senior vice president with Aon Hewitt in Norwalk, Connecticut.

“HHS is saying that even under a plan covering a family — or any plan covering more than a single individual — no individual can be required to pay more than the $6,850 out-of-pocket maximum,” said Anne Waidmann, a director at PricewaterhouseCoopers L.L.P. in Washington.

An example illustrates how the HHS-imposed “embedded” limit on out-of-pocket expenses will work:

An employer plan has a $10,000 out-of-pocket expense limit for employees with family coverage. An employee's spouse incurs $15,000 in medical care expenses. The spouse's out-of-pocket expense will be capped at $6,850, the same cost-sharing limit that would be imposed if the individual had single coverage.

For many employers, the new cost-sharing limitation for employees with family coverage will be irrelevant. That is because their out-of-pocket limits or deductibles are far below the $6,850 maximum the HHS rules will allow for any individual plan participant.

For example, in 2014, the median out-of-pocket limit for family coverage in preferred provider organization plans offered by employers with at least 500 employees was $6,000, according to a Mercer L.L.C. survey.

But smaller employers, especially those with high-deductible plans linked to health savings accounts, could be affected. The Mercer survey found that the median out-of-pocket limit for family coverage offered by employers with between 10 and 499 employees was $8,000.

The HHS rules “would be a problem for high-deductible plans,” said Andy Anderson a partner with Morgan Lewis & Bockius L.L.P. in Chicago.

In fact, few employers include embedded cost-sharing limits in their group health care plans. An Aon Hewitt survey found that just 17% of large and midsize employers offering high-deductible health care plans with HSAs had an embedded out-of pocket limit.

Despite the potential effect the HHS rules would have on plan design, as well as shifting costs from plan participants to employers, there has been little discussion — or even awareness of the new rules.

“This is not very well-known,” said Rich Stover, a principal with Buck Consultants at Xerox in Secaucus, New Jersey.

There is good reason this new cost-sharing limitation has been under employers' radar: The requirement was included as part of much broader health care reform law regulations issued late last month. The cost-sharing requirement was not in the body of the regulations, but in the preamble to the regulations.

And some think the way the requirement was presented could cause enforcement issues.

The embedded requirement “is described in the preamble to the regulation, not the regulation itself. A court might refer to a preamble for help interpreting a rule, but the preamble typically does not have the force of law on its own,” said Judy Bauserman, a Mercer partner in Washington.

Adding to the uncertainty is that unlike many other health care reform law-related regulations, which have been jointly issued by three federal agencies — the U.S. Department of Labor, the Internal Revenue Service and HHS — the limits on employee health care cost sharing came only from HHS.

“This lack of tri-agency guidance is leading some employers wondering if this is something they have to care about,” Ms. Bauserman said.