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Tuesday, February 15, 2011

Waiving the Restriction of Annual Limits in Private Health Insurance

Mark Newsom
Specialist in Health Care Financing

Considerable congressional attention has been placed on the dollar value of health insurance coverage in terms of out-of-pocket (OOP) costs placed on policyholders. One method that lowers the dollar value of coverage is the use of annual limits on the dollar amount of coverage. Private health insurers use annual limits to require the consumer to assume 100% of the cost of coverage after a certain amount of spending for the year has been reached. While annual limits may be a benefit design feature in any type of health insurance, they are used as the primary method of cost control for limited benefit plans, which provide low premium coverage typically to low-income part-time or seasonal workers. Limited benefit plans generally have annual limits on both the total dollar coverage and on specific coverage categories (e.g., hospitalizations and outpatient surgeries). Without the limited benefit plan option, many of these low-income workers would likely be uninsured. On the other hand, these plans have been criticized as providing little value and giving a false sense of security to policyholders.

The Patient Protection and Affordable Care Act (P.L. 111-148, PPACA) prohibits the use of annual limits effective 2014 and places certain restrictions on their use effective for plan years starting on or after September 23, 2010. These restrictions would effectively eliminate limited benefit plans. Accordingly, the Secretary of Health and Human Services has implemented a waiver process for limited benefit plans under the authority provided by §1001 of PPACA to define restricted annual limits in such a way as to “ensure that access to needed services is made available with a minimal impact on premiums.”

As of January 26, 2011, 729 organizations, representing approximately 2.2 million enrollees and policyholders, have been approved by HHS for waivers of the restriction on annual limits. Some states have laws that require health insurance issuers to market a standardized policy that includes annual limits that are below the federal restricted annual limits. In these limited situations, states may apply for a waiver of the restricted annual limits on behalf of issuers of state-mandated policies. As of January 26, 2011, Massachusetts, New Jersey, Ohio, and Tennessee have obtained waivers for issuers with 93,470 enrollees or policyholders. Concern regarding the frequency of the waivers and the transparency of the waiver process has prompted oversight letters from the House Energy and Commerce Committee and the Ranking Member of the Senate Finance Committee.

Date of Report: February 9, 2011
Number of Pages: 8
Order Number: R41627
Price: $19.95

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