Annual Limits on Insurance Benefits: New State Roles under ACA

Four states and many "Mini-Med" health plans get waivers and a reprieve for 2011-2013

Updated February 2012

The Affordable Care Act (ACA) sets a nationwide minimum for annual dollar limits for several types of health insurance. Under HHS regulations, plans offered between September 23, 2010 and September 22, 2011 generally may not limit annual coverage of core coverage benefits, such as hospital, physician and pharmacy benefits, to less than $750,000.  The minimum acceptable annual dollar coverage will incraese to $1.25  million for the year beginning Sept. 23, 2011 and increase again to $2 million in September 2012. For plans issued or renewed beginning January 1, 2014, all annual dollar limits on coverage of essential health benefits will be prohibited. 

In February 2011 , The Center for Consumer Information and Insurance Oversight (CCIIO), announced that four states, Florida, New Jersey, Ohio and Tennessee, received waivers allowing health insurance companies to continue offering less generous annual limits on benefits.  In these cases, existing state law already mandates that policies with lower annual limits on coverage be offered.  CCIIO explained that because “limited benefit plans, or mini-med plans, are often the only type of insurance offered to some workers,” the one-year waivers allow continuity.1

HHS officials, writing in the Federal Register, estimated that nearly 1.7 million people have plans with annual limits of less than $750,000 this year. Only about one of every 435 people with policies covering less than $250,000 in health-care expenses will exceed that amount, the regulators estimated.

The February 2011 list of Approved Applications for Waivers includes a breakdown of about 90,000 enrollees in three states.   HHS waivers are reviewed on a case by case basis by Department officials based on whether “a premium increase is large or if a significant number of enrollees would lose access to their current plan because the coverage would not be offered in the absence of a waiver.”   In addition to the state-based waivers, other categories granted include: Self-Insured Employers (384), Health Reimbursement Arrangements [HRAs]  (285); Multi-Employer Plans (196); Non-Taft Hartley Union Plans (22); Health Insurance Issuers (23); States (3) ; Association Plans ( 2) .  Enrollees in various states are affected by the waivers directly to plan innsuers, including 265,000 CIGNA enrollees and 209,000 Aetna enrollees. 

Most states allow insurers to sell such plans, but some have set additional rules. Connecticut, for example, requires the policies to note that they are “not designed to cover the costs of serious or chronic illness.” Washington state allows a “fixed payment” plan, under which insurers pay flat dollar amounts toward medical care, no matter how much the care actually costs, such as $25 for a doctor office visit or a few hundred a day for hospital care.  Beth Berendt, Washington’s deputy insurance commissioner, in August said she worries that consumers might not understand what they are buying. A policy might emphasize that it pays $300 a day for hospital care, for example, but “$300 a day might get you a gown and a bedpan, but not much else.

On June 17, 2011, the Centers for Medicare & Medicaid Services (CMS) introduced a process for plans that have already received waivers and want to renew those waivers for plan or policy years beginning before January 1, 2014. The new guidance extends the duration of waivers that have been granted through 2013, if applicants submit annual information about their plan and comply with requirements to ensure that their enrollees understand the limits of their coverage. Existing waiver recipients must apply to extend their current waiver and all applications must be submitted by September 22, 2011; after that date applications for an extension will no longer be considered. Any plans that have not yet applied for a waiver also must apply by September 22, 2011.

In addition, CCIIO has issued guidance with respect to the application of the existing annual limit waiver criteria to Health Reimbursement Arrangements (“HRAs”). CCIIO published supplemental guidance on August 19, 2011 that exempts HRAs that are subject to the restricted annual limits as a class from having to apply individually for an annual limit waiver. An HRA in effect prior to September 23, 2010 is exempt from applying for an annual limit waiver for plan years beginning on or after September 23, 2010 but before January 1, 2014. These HRAs still must comply with the record retention and Annual Notice requirements to participants and subscribers set forth in the supplemental guidance issued on June 17, 2011. CCIIO has tailored the model notice to the unique circumstances of HRAs.

                            Making Exceptions in Obama's Health Care Act Draws Kudos, and Criticism
Health Care Overhaul Waivers Draw Kudos, and Criticism- Robert  Pear, (c) New York Times, March 20, 2011

Obama administration officials say they were expecting praise from critics of the new health care law when they offered to exempt selected employers and labor unions from a requirement to provide at least $750,000 in coverage to each person in their health insurance plans this year.

Instead, Republicans have seized on the waivers as just more evidence that the law is fundamentally flawed because, they say, it requires so many exceptions. To date, for example, the administration has relaxed the $750,000 standard for more than 1,000 health plans covering 2.6 million people. The waivers have become a flash point as supporters and opponents try to shape public perceptions of the law, the Affordable Care Act, signed by President Obama last March 23.

Administration officials, labor unions and consumer advocates plan to celebrate the first anniversary with a week of events highlighting benefits of the law to consumers. But Senator Michael B. Enzi of Wyoming, the senior Republican on the Senate health committee, asked, “If the law is so good, why are so many waivers needed?”

Waivers are usually seen as a way to deal with exceptional circumstances in which the enforcement of a law or policy might cause hardship. But with the new health care law, exceptions like these have become increasingly common. They provide wiggle room in a law originally thought to be strict and demanding.

Under the law and rules issued by the administration, health plans this year must generally provide at least $750,000 in annual coverage for essential benefits like hospital care, doctors’ services and prescription drugs. The government may grant a one-year exemption from the requirement if it is shown that compliance would cause a significant increase in premiums or a significant decrease in access to benefits.

Such waivers have gone to entities as diverse as the Waffle House and Ruby Tuesday, health plans run by Aetna and Cigna, and labor unions representing Teamsters, electrical workers, plumbers, carpenters and food and commercial workers.

Administration officials said the waivers showed a pragmatic, flexible approach to carrying out the law. Without the waivers, said Kathleen Sebelius, the secretary of health and human services, many employers would have increased premiums, and some would have dropped coverage altogether.

Edmund F. Haislmaier, a health policy expert at the conservative Heritage Foundation, said the waivers “result in unequal application of the law and create a temptation to engage in political favoritism.”

Republicans like Representative Darrell Issa of California said that in granting waivers, the administration had favored political allies, including labor unions.

Tom Leibfried, a lobbyist for the A.F.L.-C.I.O., said: “This is just union bashing. The numbers do not show a pro-union bias.”

Mr. Leibfried said some union health plans had a legitimate need for waivers because they had annual coverage limits lower than $750,000. If they had to increase coverage to that level, he said, they would incur significant new costs. But, Mr. Leibfried said, the main source of financing for such health plans — employer contributions — will not immediately increase because they are set by collective bargaining agreements, which are typically in effect for several years.

Steven B. Larsen, director of the federal Center for Consumer Information and Insurance Oversight, which carries out many of the health law’s provisions, said the waivers provided a “bridge to 2014,” when more affordable insurance options should be available. He denied that unions had received “special treatment.” Indeed, he said, the center has granted waivers to 94 percent of all applicants.

Additional Resources

1 - "Four States Get Waivers to Carry Out Health Law - New York Times, February 16, 2011

OCIIO Supplemental Guidance on Waivers of the Annual Limits Requirements - November 5, 2010

CCIIO Report: Approved Applications for Waiver of the Annual Limits Requirements of the PHS Act Section 2711 - 2/9/2011

2 -Health Insurance Debate: Is A Little Coverage Better Than None At All? _ Kaiser NetworkNews -August 13, 2010.

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 NCSL staff contact: Richard Cauchi, Health Program, Denver