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Planned out-of-pocket caps for health care could cost employers

Planned out-of-pocket caps for health care could cost employers

New federal health care reform law regulatory guidance ends lingering uncertainty on how much in out-of-pocket costs employers with high-deductible plans can require employees to pick up.

The guidance, jointly issued Tuesday by the Departments of Health and Human Services, Labor and Treasury, like earlier HHS guidance, leaves intact the maximum out-of-pocket expenses employers can require employees to pay before health plan coverage kicks in: $6,850 for single coverage and $13,700 for family coverage when the rules go into effect in 2016.

The earlier HHS guidance also added 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 — can be required to pay before family coverage kicks in.

Specifically under the earlier guidance, the $6,850 annual cap on how much a plan participant can be required to pay, will apply, regardless if the individual has single or family coverage.

But that earlier guidance triggered widespread confusion. That confusion was the result of several factors, including that the rules were only issued by HHS and that a reading of the text of regulations suggested to some that the cost-sharing limitations applied only to insured plans available in the individual and small-group market, and not to self-insured plans or large insured group plans.

The latest guidance, issued in question-and-answer format by the three federal agencies with responsibility for implementing the Patient Protection and Affordable Care Act, definitively and unambiguously, ends that uncertainty.

“The self-only maximum annual limitation on cost sharing applies to each individual, regardless of whether the individual is enrolled in self-only coverage or in coverage other than self-only. Accordingly, the self-only maximum annual limitation on cost sharing applies to an individual who is enrolled in family coverage or other coverage that is not self-only coverage under a group health plan,” the agencies said.

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.

The biggest impact on the new cost-sharing rules will be on employers with high-deductible plans. For example, an Aon Hewitt survey found that just 17% of large and midsize employers offering high-deductible health care plans with health savings accounts had an embedded out-of pocket limit.

“This guidance will especially impact many employers with high deductible plans with HSAs, requiring significant plan design changes or increased costs,” said Rich Stover, a principal with Buck Consultants at Xerox in Secaucus, New Jersey.

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