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 2022. It is generally issued early in the year to give stakeholders, like states, insurance carriers, and self-funded plans, time to prepare for the upcoming changes.
The 2022 version came in two parts. The first part did not have a direct impact on employer plans, but the second part did. In general, the Payment Notice principally focuses on individual market coverage and the operation of the ACA exchanges/marketplaces. (An HHS summary of the second part is available here.) However, for 2022, below are the items most relevant to employers:
- 2022 Out-of-Pocket Maximums. For 2022, the ACA out-of-pocket maximum (OOPM) limits will be $8,700 for self-only coverage and $17,400 for family coverage (defined as anything other than self-only coverage). This is up about 1.8% from the 2021 limits of $8,550 and $17,100. Interestingly, HHS has proposed a different methodology to calculate these increases that would have resulted in much higher limits. However, due to extensive comments criticizing the alternative calculation, HHS went with the measure used in prior years.
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 and the ACA out-of-pocket-maximum. Detailed information about the challenges required to navigate these different thresholds is available in our prior article.
- Loss of COBRA Subsidy Officially Added as Exchange Special Enrollment Period. For some time now, there has been an open question whether the loss of subsidized COBRA coverage allows an individual to drop their COBRA and enroll in an ACA Exchange plan. The general rule for unsubsidized COBRA is that a person on COBRA must wait until the end of their maximum COBRA period (or an Exchange open enrollment) to enroll in individual coverage. In other words, voluntarily dropping COBRA does not, by itself, trigger the right to enroll in individual coverage through an Exchange.
However, this webpage on Healthcare.gov has said for a while that an individual has the ability to drop COBRA and enroll in Exchange coverage if their employer stops paying for part or all of the COBRA coverage so that the COBRA-covered individual has to pay the full cost. In other words, if the employer completely eliminates its subsidy so that the COBRA-covered person is paying the full cost, the individual can simply stop paying for COBRA coverage and enroll in individual Exchange coverage.
The 2022 Payment Notice confirms that this has to be a complete cessation of employer contributions. In other words, an employer providing a lesser subsidy, but still subsidizing some part of the COBRA cost, does not create this special enrollment right. Additionally, the Payment Notice states that this also applies to state mini-COBRA statutes. Finally, this special enrollment right is also available when the government-funded COBRA subsidies under the American Rescue Plan Act end (generally, September 30 of this year).
- Projected 2022 Employer Mandate Penalties. As part of the rule, HHS has to calculate the health insurance premium growth rate. This rate is used to adjust both the out-of-pocket maximums, described above, and the amount of the ACA employer mandate penalties. Given the only 1.8% increase in out-of-pocket maximums and the number in the final rule, we project that the 2022 employer mandate penalty increase will be similarly small: $2,750 for the (a) penalty (up from $2,700 for 2021) and $4,120 for the (b) penalty (up from $4,060 for 2021). We await official confirmation from the IRS.
While these changes are not effective until 2022, some employers have already started preparing for 2022. 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.
With regard to the new special enrollment period, employers should be aware that employees and other covered persons may choose to drop COBRA once the subsidized coverage available under the American Rescue Plan Act ends. Additionally, employers that typically subsidize COBRA as part of severance or other arrangements should be aware of the confirmation provided by the Payment Notice. In either case, employers may want to communicate the availability of the special enrollment period since COBRA beneficiaries may be able to obtain more affordable coverage on the individual market once subsidized COBRA ends.
NOTICE OF DISCLAIMER
Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only, and is not intended to constitute legal or tax advice as to an organization’s specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and Hub International does not have an obligation to update this information. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your organization’s particular needs.