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Embedded Out-of-pocket Maximum for Family Coverage

Beginning in 2016, recent guidance from the Department of Health and Human Services (HHS) and the Department of Labor (DOL) provides that non-grandfathered health plans must apply the Affordable Care Act’s (ACA) self-only out-of-pocket maximum to all individuals, regardless of whether they have self-only or family coverage.

This guidance requires group health plans to embed an individual out-of-pocket maximum in the plan’s family coverage when the family out-of-pocket maximum exceeds the ACA’s out-of-pocket maximum for self-only coverage.

For example, assume that a family of four individuals is enrolled in family coverage under a group health plan in 2016 with an aggregate annual limitation on cost sharing of $13,000 for all four enrollees. Assume that individual #1 incurs claims associated with $10,000 in cost sharing, and that individuals #2, #3 and #4 each incur claims associated with $3,000 in cost sharing (in each case, absent the application of any annual limitation on cost sharing). In this case, under the new guidance discussed above, because the self-only maximum annual limitation on cost sharing ($6,850 in 2016) applies to each individual, cost sharing for individual #1 for 2016 is limited to $6,850, and the plan is required to bear the difference between the $10,000 in cost sharing for individual #1 and the maximum annual limitation for that individual, or $3,150.  With respect to cost sharing incurred by all four individuals under the policy, the aggregate $15,850 ($6,850 + $3,000 + $3,000 + $3,000) in cost sharing that would otherwise be incurred by the four individuals together is limited to $13,000, the annual aggregate limitation under the plan, under the assumptions in this example, and the plan must bear the difference between the $15,850 and the $13,000 annual limitation, or $2,850.

For more in-depth information, read our full Healthcare Reform Legislative Brief.