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Embedded Out-of-pocket Maximum for Family Coverage

Jun 16, 2015

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.

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