Plan Design & Coverage Issues:
Annual Limits
Lifetime and Annual Limits
Among other reforms, the Affordable Care Act (ACA) contains prohibitions for health plans regarding lifetime and annual limits on the dollar value of health benefits. This mandate is effective for plan years beginning on or after September 23, 2010. Although annual limits are generally prohibited, “restricted annual limits” are permitted for essential health benefits for plan years beginning before January 1, 2014.
On June 28, 2010, the Departments of Health and Human Services (HHS), Labor and the Treasury issued interim final rules regarding these health plan coverage mandates.
Restricted Annual Limits
The interim final rules establish a three-year phased approach for restricted annual limits. Annual limits may not be less than the following amounts for plan years beginning before January 1, 2014:
- $750,000 for plan years beginning on or after September 23, 2010, but before September 23, 2011;
- $1.25 million for plan years beginning on or after September 23, 2011, but before September 23, 2012; and
- $2 million for plan years beginning on or after September 23, 2012, but before January 1, 2014.
These are minimums for plan years; plans may use higher annual limits or impose no limits. The limits apply on an individual-by-individual basis, so that any annual limit on benefits applied to families cannot cause an individual to be denied the minimum annual benefit for the plan year.
In addition, the interim final rules allowed HHS to develop a temporary waiver program for plans that could demonstrate that complying with the restrictions would result in:
- A significant decrease in access to benefits; or
- A significant increase in premiums.
HHS granted a number of waivers and then closed the waiver program to new applications effective September 22, 2011. Waivers and/or extensions received before that date could be effective until plan years beginning on or after January 1, 2014, when all annual limits for essential health benefits will be prohibited.
Waiver recipients must provide an annual notice informing each participant that the plan or policy does not meet the restricted annual limits for essential benefits because it has received a waiver of that requirement, as well as annual updates to HHS regarding plan information and benefits. A model notice is available on the HHS website.
Covered Plans
The prohibition on lifetime and annual limits applies to both non-grandfathered and grandfathered group health plans. However, it does not apply to grandfathered individual policies. The restrictions on annual limits do not apply to account-based plans like health flexible spending arrangements (health FSAs), medical savings accounts (MSAs) and health savings accounts (HSAs).
Essential Health Benefits
ACA specifically provides that plans may impose annual or lifetime per-individual limits on specific covered benefits that are not “essential health benefits.” Each state will set its own definition of essential health benefits, but it must include at least the following general categories of items and services:
- Ambulatory patient services;
- Emergency services;
- Hospitalization;
- Maternity and newborn care;
- Mental health and substance use disorder services, including behavioral health treatment;
- Prescription drugs;
- Rehabilitative and habilitative services and devices;
- Laboratory services;
- Preventive and wellness services, including chronic disease management; and
- Pediatric services, including oral and vision care.
Until a state benchmark is set, plans can use a good faith effort to comply with a reasonable interpretation of “essential health benefits,” and must apply it consistently.
The interim final rules clarify that a plan can still exclude all benefits for a condition. This type of exclusion will not be considered an annual or lifetime limit as long as no benefits are provided for the condition.
Enrollment Opportunities
The interim final rules included a transition rule for re-enrolling individuals who previously met a plan’s lifetime limit. Eligible individuals who lost plan coverage as a result of a lifetime limit must have received an enrollment notice and an opportunity to re-enroll in the plan. The notice and enrollment opportunity must have been provided no later than the first day of the first plan year beginning on or after September 23, 2010. Anyone who was eligible for the enrollment opportunity must have been treated as a special enrollee eligible to enroll in all of the benefit packages available to similarly situated individuals upon initial enrollment.
