Health Care Reform

Annual Limits

Health plans may impose annual dollar limits on essential health benefits no lower than:

  • $750,000 for plan years beginning on or after September 23, 2010;
  • $1.25 million for plan years beginning on or after September 23, 2011; and
  • $2 million for plan years beginning on or after September 23, 2012.

Annual limits are prohibited for plan years beginning on or after January 1, 2014.

Note: The restrictions on annual limits only apply to certain types of health plans, such as major medical insurance.  They do not apply to HIPAA excepted benefits, such as disability, cancer, hospital indemnity, or accident insurance. Click here for more information about the types of benefits that are exempt from the ACA plan design mandates.

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Annual Limits Hot Topics & FAQs

  • Stand-alone HRAs do not comply with the prohibition on annual and lifetime limits.

    FAQs published by the Federal agencies on January 24, 2013  clarified that employer-sponsored Health Reimbursement Arrangements (HRAs) that are offered on a “stand-alone” basis (i.e., not in connection with other health  coverage) must comply with the ACA prohibition on annual or  lifetime dollar limits on coverage.   Because, by definition, an HRA limits the amount of benefits a participant may receive based on the amount of credits the employer makes available,  an HRA alone cannot comply with the requirement to offer unlimited  coverage.  When an HRA is integrated with other group health plan coverage, as long as the two together provide unlimited  coverage, the fact that benefits under the HRA by itself are limited does not  violate the law.  The FAQs also provide that, if the employer offers both an HRA and health coverage but the employee fails to enroll in the employer’s  coverage, the HRA will fail to comply with the law.  Finally, the FAQs clarified that a stand-alone HRA used to purchase individual market coverage does not comply  with the rule prohibiting annual or lifetime limits even if the purchased  individual coverage does comply with the rule.

    From a practical standpoint, this means that stand-alone HRAs are no longer allowed for active employees.  Future guidance is expected to provide that, whether or not offered on a stand-along basis, unused amounts credited before  January 1, 2014 under the terms of an HRA in effect on January 1, 2013 may continue to be used by participants.   Retiree-only HRAs (with fewer than two current employees) are exempt  from the ACA plan design mandates so are still allowed on a  stand-alone basis.   Learn more about the  prohibition on lifetime and annual limits. 

  • Do the annual limit restrictions apply to mini-med plans?

    Answer: Mini-med, or expense-based limited medical plans, were allowed to apply to the U.S. Department of Health and Human Services (HHS) for an annual limit waiver prior to 2014. The waiver does not apply to any other ACA requirements.

  • May plans still impose service-based limits?

    Answer: Generally yes. For example, a plan may limit physical therapy coverage to a certain number of treatment sessions per illness or injury. However, a plan that limits coverage to a certain number of events (such as treatment sessions) and to a certain dollar limit per event (such as $100 per treatment session) probably would be considered to include an annual limit.

  • What are essential health benefits?

    Answer: ACA list the following as essential health benefits: ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health, prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive and wellness, disease management, and pediatric services.

    Agency guidance allows states to decide, among benchmark plans, the parameters of essential health benefits for covering within an Exchange.

    For purposes of the annual and lifetime dollar limitations, a self-funded plan may use any permissible definition of essential health benefit, including any available benchmark plan. Click here to learn more about essential health benefits.

American Fidelity Assurance Company does not provide tax or legal advice.


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