Employers often have questions on practical considerations related to healthcare, retirement and other employee benefit regulations. In this “Since you asked” feature, we discuss cost-sharing limits under the Affordable Care Act (ACA).
Our organization offers two group health plan options, including a health savings account (HSA)-qualified high-deductible health plan (HDHP). We are contemplating increasing the out-of-pocket maximum (OOPM) for each plan (from $4,000 to $5,000 for individual coverage and from $8,000 to $10,000 for family coverage). Would that comply with the ACA OOPM requirements?
Under the ACA, the definition of essential health benefits (EHBs) includes certain items and services that fall into 10 general categories, including emergency services, maternity and newborn care, mental health and substance use disorder services, and prescription drugs, among others. Non-grandfathered employer-sponsored self-insured group health plans and insured large group health plans are not required to offer EHBs, but the ACA imposes certain cost-sharing limits on any EHB they do offer. To determine which benefits are EHBs, plan sponsors must choose a state benchmark plan. A benchmark plan is the plan used by a state to set minimum standards for EHBs for individual and small group plans within that state.
For plan years beginning or after January 1, 2014, the ACA imposes an OOPM for in-network EHBs on all non-grandfathered group health plans (both fully insured and self-funded), including HSA-qualified HDHPs. This requirement does not apply to excepted benefit and retiree-only plans.
The maximum annual limits on cost sharing that a group health plan can impose for 2023 is $9,100 for self-only coverage and $18,200 for family coverage ($9,450 and $18,900, respectively, for 2024).
Out-of-pocket expenses include deductibles, coinsurance, copayments and similar charges, along with any other qualified medical expense with respect to EHBs covered under the plan. Plans are not required to include premiums, balance billing amounts for non-network providers or spending for non-covered services. While the OOPM limit only applies to EHBs, many employers apply the OOPM limit to all in-network benefits to ease plan administration.
In 2015, HHS clarified that, for plan years beginning in or after 2016, the OOPM for self-only coverage applies to each individual regardless of whether he or she is enrolled in self-only coverage or other-than-self-only (i.e., family) coverage. If the plan’s OOPM for family coverage is more than the limit for self-only coverage, the group health plan must include an embedded OOPM where no single individual in a family plan has to pay a higher deductible than the individual deductible amount.
For example, assume that a group health plan (not an HSA-qualified HDHP) has the following design:
The employee enrolls in family coverage. The following sequence of events illustrates the dollar amount the covered participants and beneficiaries would be responsible for when first the employee incurs expenses, then the spouse, and then the child:
If the plan in the example had a family OOPM that did not exceed $9,100, then the plan would not have to adopt the embedded individual OOPM because no individual could possibly have out-of-pocket expenses of more than $9,100. The embedded individual OOPM is based on the statutory limit and not the single OOPM limit established under the plan. For example, if the plan had OOPM limits of $5,000 single/$10,000 family, the embedded individual OOPM amount would be $9,100, not $5,000 (although the plan could always choose to use a lower limit).
The ACA’s OOPM requirements apply to non-grandfathered HSA-qualifying HDHPs. In related guidance, HHS explained how an employer can offer an HDHP that complies with both the Internal Revenue Code HDHP OOPM requirements and the ACA’s OOPM requirements.
Under the tax code requirements for HSA-qualified HDHPs, an HDHP may not provide benefits, except for preventive care, for any year until the minimum annual deductible for that year has been met. The minimum annual deductible for a family HDHP is $3,000 for 2023 (2024 limits are not yet available). An HDHP will not be HSA qualified if it has an embedded individual OOPM that is lower than the minimum required deductible for HDHP family coverage.
Because the ACA’s annual OOPM for self-only coverage exceeds the 2023 minimum annual deductible amount for family HDHP coverage, it will not cause the plan to fail to satisfy the requirements for a family HDHP. Note that for 2023 the ACA OOPM limits are different from the IRS HDHP limits (which are $7,500 for self-only and $15,000 for family); therefore, an individual with self-only coverage under an HDHP could have an OOPM of $7,500, and an individual with family coverage in the same HDHP could have an embedded OOPM limit of $9,100 (assuming the plans are using the maximum limits).
The table below illustrates compliance with ACA and HSA-qualified HDHP requirements in 2023.
| If family OOPM is: | To comply with ACA limits |
|---|---|
| ≤ $9,100 | Compliant; embedded OOPM not required |
| $9,101 – $18,200 | Compliant only if includes embedded individual OOPM of < $9,100* |
| > $18,200 | Non-compliant with ACA rules |
| If family OOPM is: | To comply with ACA and HSA-qualified HDHP limits |
| ≤ $9,100 | Compliant; embedded OOPM not required |
| $9,101 – $15,000 | Compliant only if includes embedded individual OOPM between $3,0001 and $9,1002 |
| > $15,000 | Non-compliant with HSA-qualified HDHP rules |
