HHS Announces OOP Limitations for 2021
With the passage of the Affordable Care Act (ACA), group health plans became required to apply an out-of-pocket limitation to certain in-network benefits… meaning that once an individual or family out-of-pocket (OOP) limit was met, the plan could not charge additional OOP costs for essential health benefits. These OOP limits include both the plan’s deductible as well as cost-sharing amounts for essential health benefits (EHB) in-network as set forth under the ACA.
Although self-insured plans and large-group insured plans are not required to cover all EHBs (while small-group insured plans are), to the extent they do, in-network OOP expenses for EHBs cannot exceed the maximum OOP limit. Additionally, group health plans may not impose annual or lifetime dollar limitations on EHBs whether offered in-network or out-of-network.
The Department of Health and Human Services (HHS) has released the 2021 plan year inflation-adjusted OOP limits applicable to non-grandfathered plans.
- Self-only coverage: $8,550 (was $8,150 for 2020)
- Family coverage: $17,100 (was $16,300 for 2020)
See PPACA; HHS Notice of Benefit and Payment Parameters for 2021.
Employers with non-grandfathered group health plans must update their maximum annual OOP limits.
These rules do not apply to ACA grandfathered plans. [Please note that these cost-sharing limits are different than the maximum out-of-pocket limits for purposes of being HSA-qualifying high deductible health plans.]
HHS Announces ACA Employer Mandate (Pay or Play) Penalty Amounts for 2021
Under the ACA, applicable large employers must offer certain group health plan coverage to their full-time employees; otherwise they will risk significant penalties.
Applicable large employers are those who employ 50 or more full-time or full-time equivalent employees in the preceding calendar year. Employees of related employers (within a controlled group or affiliated service group) are counted in this determination.
- Part A requires employers to offer minimum essential coverage to 95% of their full-time employees. See Section 4980H(a).
- Part B requires the offered coverage be affordable and meet the minimum value standards. See Section 4980H(b).
Specifically, the Part A Penalty is imposed on an employer who fails to offer minimum essential coverage (MEC) to at least 95% of the employer’s full-time employees (FTEs) and dependents as defined under the ACA, and if one of its FTEs receives subsidized coverage through the Marketplace or public health insurance exchange. The penalty amount is multiplied by the number of FTEs, minus 30. Special rules exist for applicable large employer members which are part of a controlled group.
The Part B Penalty amount is imposed on an employer who fails to offer coverage that meets the minimum value (MV) requirements or fails to be affordable, again as defined under the ACA, with respect to each one of its FTEs who receives subsidized coverage through the Marketplace or public health insurance exchange.
The Internal Revenue Service (IRS) has released the 2021 inflation-adjusted penalty amounts under the Affordable Care Act’s Employer Shared Responsibility Mandate (Pay or Play):
- Part A Penalty: $2,700 (was $2,570 for 2020)
- Part B Penalty: $4,060 (was $3,860 for 2020)
See Q&A 55 on Employer Shared Responsibility Provisions under the ACA.
Specifically, HHS finalized the premium adjustment percentage as 1.3542376277 for the 2021 benefit year, which is then multiplied by the original 2015 penalty amounts (Part A was $2,000 and Part B was $3,000) and rounded down to the nearest multiple of ten.
By way of example, an employer with 200 FTEs who fails to offer MEC to 95% of those employees (and if at least one of those FTEs receives subsidized coverage through the Marketplace or an exchange), the penalty assessed for the year will be $459,000 (200-30 = 170 x $2,700). The larger the employer, the larger the penalty. If the same employer offers coverage to 95% of its FTEs but that coverage is not affordable or doesn’t provide minimum value, the penalty assessed will be based on the number of employees who receive subsidized coverage through the Marketplace or an exchange. If 20 FTEs receive subsidized coverage for each month of the year, the 2021 penalty would be $81,200 ($4,060 x 20).
Affordability Rates for 2021
As discussed above with respect to ACA penalties, an applicable large employer who does not offer affordable employer-sponsored group health plan coverage could face steep penalties.
For 2021, the ACA affordability requirement applies to the lowest-cost self-only coverage option that offers minimum value and must not exceed 9.83 percent of an employee’s household income. Please see Rev. Proc. 2020-36. This is a increase from 2020 (which was 9.78%).
As it is difficult to determine an employee’s household income, three safe-harbors are available for employers to use to determine affordability:
- Form W-2, based on an employee’s W-2 wages as reported in Box 1;
- Rate of Pay, based on the employee’s hourly wage rate, multiplied by 130 hours per month; and
- Federal Poverty Line, based on the individual federal poverty level as of six months prior to the beginning of the plan year, divided by 12…
Employers must be sure to carefully consider the safe harbors available and calculation of the lowest-cost employee coverage that should be charged.
This alert serves as a general summary, and does not constitute legal guidance. Please contact us with any specific questions.
We have created a response team to the rapidly changing COVID-19 situation and the law and guidance that follows, so we will continue to post any new developments. You can view our COVID-19 Response Page and additional resources by following the link here. In the meantime, if you have any questions, please contact your Fraser Trebilcock attorney.
Elizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2019 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or firstname.lastname@example.org.
Brian T. Gallagher is an attorney at Fraser Trebilcock specializing in ERISA, Employee Benefits, and Deferred and Executive Compensation. He can be reached at (517) 377-0886 or email@example.com.