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Small Business Employee Benefits and HR Blog

A Look Back at the Departments' Final Rules for Reimbursing Individual Health Insurance

On November 18, 2015, the Departments of the Treasury, Labor and Health and A Look Back at the Departments' Final Rules for Reimbursing Individual Health InsuranceHuman Services issued final rules regarding many of the Affordable Care Act’s “Market Reforms.” Among the reforms addressed, the Departments highlighted the annual dollar limit prohibition (Public Health Service (PHS) Act section 2711) in relation to reimbursement plans. This article breaks down the language in the notice and how it relates to Zane Benefits' solutions for reimbursing individual health insurance.

The annual dollar limit prohibition prevents health plans from placing dollar limits on certain covered benefits. This protection ensures that patients are not confronted with devastating healthcare costs because they have exhausted their health coverage when faced with a serious medical condition. In hindsight, this improvement in health plans unintentionally limited the ways an employer can offer certain types of reimbursement plans.

Although the reforms limited certain types of reimbursement plans, the final rules reconfirm that employers can reimburse employees for individual health insurance premiums and basic preventive services using a Healthcare Reimbursement Plan (HRP), without violating the annual dollar limit prohibition.

What are lifetime and annual limits?

Prior to the Affordable Care Act, group health plans and issuers of insurance were generally allowed to place dollar limits on how much the plan would spend for covered health benefits. This could apply during the entire period an individual was enrolled in the plan (lifetime limit) or during a plan year (annual limit). Effective January 1, 2014, the annual dollar limit prohibition (PHS Act section 2711) prevents group health plans and health insurance issuers from imposing lifetime and annual dollar limits on certain benefits defined as Essential Health Benefits (EHB).

What is an Essential Health Benefit (EHB)?

The Essential Health Benefits, as defined in Affordable Care Act section 1302, include the following benefit categories and the items and services covered within:

  1. Ambulatory patient services
  2. Emergency services
  3. Hospitalization
  4. Maternity and newborn care
  5. Mental health and substance use disorder services, including behavioral health treatment
  6. Prescription drugs
  7. Rehabilitative and habilitative services and devices
  8. Laboratory services
  9. Preventive and wellness services and chronic disease management
  10. Pediatric services, including oral and vision care.

While the annual dollar limits prohibition prevents plans from imposing limits on covered benefits that fall within the definition of an EHB, the rules do not prevent plans from placing limits on covered benefits that do not meet the definition of an EHB. This allows plans to reimburse non-EHBs, such as Individual Health Insurance Premiums, without violating the annual limits prohibition.

Examples of Non-Compliance

The Final Rules define and refer to “account based plans,” as employer-provided group health plans that provide reimbursements of medical expenses other than individual market policy premiums with the reimbursement subject to a maximum fixed dollar amount for a period. Such plans, including the stand-alone HRA and Employer Payment Plan, are subject to the annual dollar limit prohibition. These arrangements will fail to comply with the ACA’s reforms for two primary reasons:

  1. The maximum fixed dollar amount for a period places a limit on any covered Essential Health Benefits, violating the annual dollar limit prohibition (PHS Act section 2711), and
  2. The maximum fixed dollar amount for a period may impose limits and cost-sharing on certain preventive services, violating the preventive service requirement (PHS Act section 2713)

How to comply with the annual dollar limit prohibition?

The Final Rules reconfirm that employers may use a Healthcare Reimbursement Plan (HRP) to reimburse employees for individual health insurance premiums. An HRP is carefully designed to satisfy the annual dollar limits prohibition by only allowing reimbursement for health insurance premiums (not an Essential Health Benefit, thus not subject to the annual dollar limit prohibition), and certain preventive services (Essential Health Benefit reimbursed without limit or cost-sharing, thus complying with the annual dollar limit prohibition and preventive service requirement).

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