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Health Care: Firms with Annual Benefit Limits Must Take Care

Allowable caps will be gradually raised, then barred altogether in 2014.

Employers finalizing their 2011 health plans need to pay close attention to rules just issued that clarify the new health care law’s restrictions on benefit caps. Annual dollar limits on “essential benefits” will be gradually phased out, starting this fall. The rules apply to all employer plans and all new individual plans.

While regulators have not defined what’s considered “essential benefits,” they likely will include emergency care, hospitalization, maternity and newborn care, mental health and substance abuse services, lab work, wellness programs and prescription drugs. The rules do not address nondollar limits imposed by a plan, such as limits on the frequency of covered services.

For plan years starting on or after Sept. 23, the lowest yearly allowed cap is $750,000 per beneficiary. One year later, that will go up to $1.25 million. The following year, it increases to $2 million, and in 2014, all annual limits will be prohibited. About 8% of large employers now have annual dollar limits, as do 14% of small employers, and 19% of individual plans. As many as 3,500 policyholders a year exceed their limits and must pay any additional health care costs out of pocket.

Lifetime dollar limits are also being outlawed, beginning Sept. 23. Health plans will have to reenroll people who lost coverage because they hit their lifetime dollar caps. Beneficiaries who lost coverage will have 30 days after notification to reenroll and can’t be charged more than what similar individuals pay who did not lose coverage by reaching a cap. More than 100 million people are enrolled in plans that currently impose such limits.

Some good news for employers with limited benefit plans, or so-called mini-meds. They will be able to seek a waiver to delay compliance with the new rules on annual limits. They must prove that their plans’ caps are necessary to prevent a significant loss of coverage or hike in premiums. Guidance from the Department of Health & Human Services about how to apply for the waiver is expected soon. Such plans often have premiums as low as $50 a month and cover some routine doctor visits, limited prescription drug coverage and some hospital care. These bare-bones policies are typically offered by retailers and others with low income and part-time workers and high turnover rates.

“Without such waivers, many of these mini meds would have very significant premium increases, perhaps so high that either the employer would drop the plan or employees would not be able to afford the new, much higher premiums,” says an analysis of the new rules by Hewitt Associates, a benefits consulting firm.

In 2014, low wage workers will have an alternative to mini-med plans: That’s when they’ll have the option of buying coverage through the state health care exchanges, and most will be eligible for government subsidies to help them afford such coverage.

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