Health Care Reform: Navigating Annual and Lifetime Limits

The Patient Protection and Affordable Care Act ("PPACA") generally prohibits group health plans from placing annual or lifetime limits on the dollar value of health benefits for any participant or beneficiary. Recently released interim final regulations provide employers with new guidance on how these restrictions will operate, including when annual and lifetime limits are permissible. The rules apply to both grandfathered and non-grandfathered group health plans and are effective for plan years beginning on or after September 23, 2010 (January 1, 2011 for calendar year plans).

Essential vs. Non-Essential Health Benefits

The regulations confirm that the general prohibition on annual and lifetime limits applies only to "essential health benefits." That is, annual and lifetime limits are permissible for "non-essential" health benefits. The agencies have not yet released regulatory guidance on exactly what constitutes essential versus non-essential health benefits. However, PPACA provides that "essential health benefits" must be defined to include the following categories of 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 and chronic disease management; and
• Pediatric services, including oral and vision care.

This list of benefits may be expanded in future regulations. Until the agencies issue guidance that clarifies the scope of essential health benefits, group health plans are subject to a "good faith" compliance standard in how they define essential benefits.

Annual Limits

Before January 1, 2014: For plan years beginning before January 1, 2014, group health plans may establish annual limits on the total dollar value of essential health benefits for any individual, so long as those limits are not below the following dollar amounts:

• $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.

The regulations clarify that these minimum annual limits apply on an individual-by-individual basis. For example, if the plan applies an annual limit to families, a plan must determine whether each individual in that family has exceeded the minimum annual limit before denying coverage to that individual.

Beginning January 1, 2014: For plan years beginning on or after January 1, 2014, group health plans may not establish any annual limits on essential health benefits. Annual limits on non-essential health benefits—which, as noted above, are yet to be defined—are permitted.

Mini-Med Plans: One issue of interest to many employers is whether the restricted annual limits apply to "mini-med" or "limited health benefit" plans, which usually have annual benefit or service limits. The regulations authorize the Secretary of Health and Human Services to establish a program that would allow plans to be exempted from the restricted annual limits if the plans could prove that compliance with the restrictions would result in a significant decrease in access to benefits or a significant increase in costs. Additional guidance about this waiver opportunity is expected to be released soon.

Flexible Spending Arrangements: As expected, the regulations confirm that the restrictions on annual limits do not apply to health Flexible Spending Arrangements (FSAs), Medical Savings Accounts (MSAs), and Health Savings Accounts (HSAs). It is worth noting that a separate provision of PPACA places a $2,500 annual contribution limit on health FSAs beginning January 1, 2013. While the regulations clarify that the annual limit restrictions do not apply to retiree-only, stand-alone Health Reimbursement Arrangements (HRAs), it is still unclear whether the annual limit restrictions will apply to stand-alone HRAs that are not limited to retirees.

Lifetime Limits

Lifetime limits on essential health benefits are prohibited for plan years beginning on or after September 23, 2010. Lifetime limits on non-essential health benefits—which, as noted above, are yet to be defined—are permitted.

Notice & Special Enrollment: The regulations create a special notice and enrollment opportunity for any individual who reached a lifetime limit before the new restrictions were effective, but would otherwise be eligible for the plan. Plans must provide these individuals with notice that the lifetime limits are no longer effective; if the individual is not enrolled in the plan, they must be given notice of and a right to a 30-day special enrollment opportunity to re-enroll in the plan. The notices and enrollment opportunity must be provided before the first day of the first plan year beginning on or after September 23, 2010.