By: HUB’s EB Compliance Team
Each year, the U.S. Department of Health and Human Services (“HHS”) issues a “Notice of Benefit and Payment Parameters” under the Affordable Care Act (“ACA”). This annual rule announcement is sometimes called the “Payment Notice.” The latest version is not effective until 2021, but it is issued early in the year to give states, insurance carriers, and self-funded plans time to prepare for the upcoming changes.
As with previous announcements, the newest (quite large) Payment Notice predominantly centers on individual market coverage and the operation of the ACA exchanges/marketplaces. (A six-page HHS fact sheet summary is available here.) However, there are always a few items relevant to employers, and this year’s key items include:
- 2021 Out-of-Pocket Maximums. For 2021, the ACA out-of-pocket maximum (OOPM) limits will be $8,550 for self-only coverage and $17,100 for family coverage (defined as anything other than self-only coverage). This is up about 4.9% from the 2020 limits of $8,150 and $16,300. As a reminder, HHS requires that the individual out of-pocket maximum be embedded for each individual within the family OOPM. (Loosely defined, the embedded requirement applies an individual limit for each family member ahead of the family cap. This design helps a single family member access medical benefits sooner than having to meet the full family amount.) High deductible health plans will need to comply with the lesser of the IRS OOPM (described here for 2021) and the ACA out-of-pocket-maximum. Detailed information about the challenges required to navigate these different thresholds is available in our prior article.
- Drug Manufacturer Coupons May or May Not Count Toward Deductibles and Out-of-Pocket Maximums. Last year, HHS created quite a stir by trying to exclude drug manufacturer subsidies (such as coupons or direct support) for brand drugs from accumulating toward the OOPM when a medically-appropriate generic was available. Commentators pointed out that there were challenges with this, including some question about how these subsidies are treated under high deductible health plans. HHS rule makers subsequently backed off.
For 2021, HHS is giving plans the choice to count, or not count, drug manufacturer subsidies toward the OOPM if a medically-appropriate generic is available. However, any treatment must be consistent with state law. The new rule gives plan sponsors two options:
- Count the coupon: Counting the coupon towards the OOPM means that the individual gets credit toward the OOPM for the amount of financial support (coupon, discount, etc.) received on the cost of the brand drug. For example, a coupon for $100 off a particular medication represents $100 toward the OOPM even though the coupon enabled the person to avoid paying that $100.
- Don’t count the coupon: Not counting the coupon means a coupon’s dollar value will not accrue towards the OOPM. This design is meant to encourage participants to pursue generic drugs, when they are available and appropriate.
In making the decision, employers with high deductible health plans (“HDHPs”) should consider how this manufacturer subsidy counts toward the HDHP deductible. IRS guidance that applies to prescription “discount cards” says that only the amount the participant actually pays counts toward the deductible. Although it is not clear whether this guidance applies to drug manufacturer subsidies, many commentators take the position that it does. Moreover, while it is not within the HHS’s authority, the preamble to the Payment Notice seems to agree. Additionally, self-funded employers should coordinate with their third-party administrators regarding how they want to implement this rule.
- Projected 2021 Employer Mandate Penalties. As part of the rule, HHS has to calculate the health insurance premium growth rate. This rate is used to adjust the amount of the ACA employer mandate penalties. Based on the number in the final rule, we predict that the 2021 employer mandate penalties will be $2,700 for the (a) penalty and $4,060 for the (b) penalty. Although we await official confirmation from the IRS, if confirmed, 2021 would be the first year the annual (b) penalty exceeded $4,000. (Original ACA employer mandate “A” and “B” level penalty dollar amounts were $2,000 and $3,000 respectively.)
While these changes are not effective until 2021, some employers have already started preparing for 2021. The most immediate impact from a design standpoint is the change to out-of-pocket-maximums applicable to all insured and self-insured non-grandfathered medical plans.
NOTICE OF DISCLAIMER
The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.