Mismatch Made in Heaven – Out-of-pocket Maximum Limits for PPACA and HSA-compatible HDHP’s

May 12 2014 | Chase Cannon

From a compliance standpoint, out-of-pocket (OOP) maximum limits are important for at least two reasons: the Patient Protection and Affordable Care Act (PPACA) and health savings account (HSA)-compatible high-deductible health plans (HDHPs). PPACA restricts the OOP maximum limit that a non-grandfathered group health plan may apply to essential health benefits.

Similarly, to couple an HSA (for both employee and employer contributions) with an HDHP, the HDHP’s OOP maximum must not exceed a specified limit. The HDHP restriction is found in Internal Revenue Code Section 223 (as annually updated for inflation by the IRS).

Logically, the two limits should be a match made in heaven: perfectly aligned to allow for simplicity and ease of administration. For 2014, the law follows logic, as PPACA states that the 2014 OOP maximum limits (determined by the U.S. Department of Health and Human Services [HHS]) should mirror the Section 223 HDHP limits. So, for plan years beginning in 2014, the limits are the same: $6,350 for self-only coverage and $12,700 for family coverage (anything other than self-only coverage).

However, governmental reasoning often defies logic. Such is the case here, as PPACA’s OOP maximum limits will not mirror the Section 223 HDHP limits for plan years beginning on or after 2015. This is because PPACA ties its OOP maximum limit to the “premium adjustment percentage,” determined through a method developed by HHS that relates to an estimate of the average annual change in health insurance premiums. Conversely, the Section 223 HDHP limits are calculated by the IRS using inflation numbers tied to the Consumer Price Index.

The IRS and HHS recently released both sets of 2015 numbers, demonstrating the mismatch. PPACA’s OOP maximum limits for non-grandfathered plans with plan years beginning during 2015 are $6,600 and $13,200 for self-only and family coverage, respectively. The HDHP limits for 2015 plan years are $6,450 and $12,900 for self-only and family coverage, respectively. Going forward, because health insurance premiums are generally increasing more rapidly than other costs, the mismatch will create an even wider gap between PPACA and HDHP OOP maximum limits.

The mismatch creates confusion for brokers and their employer clients. Not only does it create an additional set of numbers to track, it also opens the door for benefit planning mistakes. For example, a non-grandfathered health plan that sets its OOP maximum limits in accordance with PPACA may at the same time be disqualifying its participants from establishing and contributing to an HSA. Complicating this further, the OOP maximum limits only apply to essential health benefits provided in-network, while the Section 223 HDHP limits generally include all covered benefits payable under the terms of the plan.