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Sunday, June 26, 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.”

Considerable attention has been paid to the fairness and transparency of the waiver process. For context, it is relevant to note that Congress has not consistently specified the manner in which information concerning health care waivers is to be released to the public. Indeed, the annual limits provision of PPACA does not even have a specific public reporting requirement. As a result of different legal standards, or in some cases the absence of a congressional directive, no standardized practice for releasing information about health care waivers has ever been developed. With respect to the annual limits waivers, no obvious bias could be found in the publicly available application materials. Moreover, the Government Accountability Office found that the waivers were granted when an application projected a significant increase in premiums or significant reduction in access to health care benefits and not based on organizations factors (e.g., being a union).

Date of Report: June 15, 2011
Number of Pages: 13
Order Number: R41627
Price: $29.95

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