Health Care Reform

Annual Limits

Plans may impose any annual dollar limits on essential health benefits no lower than:

  • $750,000 for plan years beginning on or after September 23, 2010;
  • $1.25 million for plan years beginning on or after September 23, 2011; and
  • $2 million for plan years beginning on or after September 23, 2012.

Annual limits are prohibited for plan years beginning on or after January 1, 2014.

Note: The restrictions on annual limits only apply to certain types of health plans, such as major medical insurance.  They do not apply to HIPAA excepted benefits, such as disability, cancer, hospital indemnity, or accident insurance. Click here for more information about the types of benefits that are exempt from the Health Care Reform plan design mandates.

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Annual Limits Hot Topics & FAQs

  • Standalone HRAs Do Not Comply with the Prohibition on Annual or Lifetime Limits
    FAQs published by the Federal agencies on January 24, 2013 clarified that employer-sponsored Health Reimbursement Arrangements (HRAs) that are offered on a “stand-alone” basis (i.e., not in connection with other health coverage) must comply with the Health Care Reform prohibition on annual or lifetime dollar limits on coverage. Because, by definition, an HRA limits the amount of benefits a participant may receive based on the amount of credits the employer makes available, an HRA alone cannot comply with the requirement to offer unlimited coverage.
    When an HRA is integrated with other group health plan coverage, as long as the two together provide unlimited coverage, the fact that benefits under the HRA by itself are limited does not violate the law. The FAQs also provide that, if the employer offers both an HRA and health coverage but the employee fails to enroll in the employer’s coverage, the HRA will fail to comply with the law. (This would also prohibit an arrangement where the employer provides HRA credits to individuals who opt out of major medical coverage.) Finally, the FAQs clarified that a stand-alone HRA used to purchase individual market coverage does not comply with the rule prohibiting annual or lifetime limits even if the purchased individual coverage does comply with the rule.
    From a practical standpoint, this means that stand alone HRAs are no longer allowed for active employees. Future guidance is expected to provide that, whether or not offered on a stand-along basis, unused amounts credited before January 1, 2014 under the terms of an HRA in effect on January 1, 2013 may continue to be used by participants. Retiree-only HRAs (with fewer than two current employees) are exempt from the Health Care Reform plan design mandates so are still allowed on a stand-alone basis.
  • Annual Limit Waivers
    Under Health Care Reform, plans could have restricted annual dollar limits on essential health benefits for plan years before 2014, after which such limits are prohibited. HHS waived this requirement for certain plans that could show that these limits would result in a significant decrease in access to benefits or a significant increase in premiums. The waivers expire on the first day of the plan year in 2014. The FAQs reaffirms that the waivers are only valid through the plan or policy year in effect when the plan applied for the waiver. As such, a change in the plan year will not extend the waiver.
  • May plans still impose service-based limits?

    Answer: Generally yes. For example, a plan may limit physical therapy coverage to a certain number of treatment sessions per illness or injury. However, a plan that limits coverage to a certain number of events (such as treatment sessions) and to a certain dollar limit per event (such as $100 per treatment session) probably would be considered to include an annual limit.

  • What are essential health benefits?

    Answer: Health Care Reform list the following as essential health benefits: ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health, prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive and wellness, disease management, and pediatric services.

    Agency guidance allows states to decide, among benchmark plans, the parameters of essential health benefits for covering within an Exchange.

    For purposes of the annual and lifetime dollar limitations, a self-funded plan may use any permissable definition of essential health benefit, including any available benchmark plan. Click here to learn more about essential health benefits. 

American Fidelity Assurance Company does not provide tax or legal advice.

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