A new regulation from the Centers for Medicare and Medicaid Services (CMS) includes some important provisions that will affect private health insurance coverage including: (1) the 2022 maximum out-of-pocket limits for all private health plan options; (2) a change to the annual premium adjustment formula that could impact the employer coverage “affordability test”; and (3) clarification that when a person loses access to the new COBRA subsidies, then they qualify for an individual market special enrollment period.
The Notice of Benefit and Payment Parameters is an annual publication that outlines federal policy changes that will affect private health insurance coverage in the year ahead. The Trump Administration issued part of the regulation in January, but the Biden administration just finalized the sections that will most directly impact people with private health insurance in 2021 and 2022.
Maximum Out-Of-Pocket Limits
According to the new rule, the maximum out-of-pocket cost-sharing limit for all traditional private health insurance coverage will rise slightly next year. In 2022, the maximum amount a person can spend on cost-sharing beyond their premium payments will be $8,700 for self-only coverage and $17,400 for anything other than self-only coverage. These caps are 1.8 percent more than the 2021 limits.
The rule also includes lower maximum out-of-pocket limits for people with family incomes between 100-250 percent of the federal poverty level who buy subsidized coverage through a health insurance exchange. Qualified high deductible health plans that can pair with a health savings account typically have lower out-of-pocket limits too. However, the Internal Revenue Service sets those through other regulatory guidance typically issued in late May or June of each year.
Premium Adjustment Formula Change
Out-of-pocket limits will remain relatively stable from 2021 to 2022 because the Biden Administration plans to change the calculation process for the annual premium adjustment percentage. Between 2015-2019, CMS used average per enrollee employer-sponsored insurance premium projections as the basis for the yearly adjustment rate. For 2020 and 2021, the agency switched to a method that also factored in individual market rates, making cost-sharing limits rise significantly. However, this year, the Biden Administration will switch back to the old formula to better mitigate premium fluctuations.
The decision to change to the premium adjustment formula will probably affect how the IRS sets the annual percentage of family income that an individual can pay for self-only group coverage and have that coverage be “affordable.” The “affordability” percentage is what applicable large employers use to set their premium contribution rates each year and avoid employer-shared responsibility provision (employer mandate) liability. If the IRS uses the same formula, then the affordability rate for 2022 should be lower than in years past. However, we’ll have to wait until later in May or June when the IRS releases that number to know for sure.
New Special Enrollment Periods
The new rule clarifies that if a person has COBRA coverage fully paid by either their employer or by a government entity, then the person qualifies for an individual market special enrollment period (SEP) when the employer or government stops paying for the COBRA coverage. So if a person is receiving a 100 percent COBRA subsidy due to the American Rescue Plan Act, when the subsidy ends, this triggers an SEP. The triggering event is the last day of subsidized coverage. Eligible individuals then have 60 days before or after that date to enroll in an individual market plan.
Rob is an employee benefits expert with over 25 years of experience. He is the founder and principal of Precision Benefits Group, a leading provider of corporate benefits plans. He is a member of the Philadelphia Business Journal Leadership Trust and regularly contributes to the publication.