Can health insurance policies still have lifetime or annual benefit maximums?

Q.  Can health insurance policies still have lifetime benefit maximums?  What about annual benefit maximums?

A.  All new individual and small-group plans have covered essential health benefits (EHBs) since 2014, and there cannot be dollar limits on the lifetime or annual benefit maximums for these benefits. Insurers can still use limitations like a cap on the number of visits for a certain benefit — like physical therapy, for example — covered under the plan, but there can’t be any dollar limits for essential health benefits.

The ban on lifetime benefit limits for EHBs also applies to grandfathered and grandmothered plans (which are exempt from many of the ACA’s regulations), as this rule was put in place as of 2010, long before fully ACA-compliant plans came on the scene. Grandfathered and grandmothered plans are not required to cover EHBs. But for any EHBs that they do cover, they cannot impose lifetime benefit limits.

The ban on annual benefit limits for EHBs also applies to grandmothered plans, but not to grandfathered plans. For grandmothered plans, annual benefit limits were gradually phased out and eliminated altogether by the end of 2013.

Large group plans don’t have to cover all EHBs, which also gives them flexibility on benefit maximums

If a large-group plan covers essential health benefits, it must do so without lifetime or annual benefit maximums (grandfathered plans can still have annual benefit maximums). But the “minimum value” requirements for large-group plans do not include the ten EHBs that apply in the individual and small group markets. So while coverage for EHBs cannot have lifetime benefit maximums (or annual benefit maximums for non-grandfathered group plans), a large group plan can be offered with no coverage at all in some of those benefit categories. Large group plans tend to be fairly generous in their coverage, and that was the case even before the ACA. But technically, they don’t have to cover all of the EHBs.

Employers who offer “skinny” plans will face fines if their employees opt for subsidized individual plans in the marketplace (exchange), but in some cases, the fines might be less expensive than paying for higher quality health insurance. Employees should be aware of this—read the fine print on your company’s health insurance policy before you sign up.

If you qualify for a premium subsidy in your state’s health insurance marketplace, you may want to apply for an individual policy instead of accepting a “skinny” group plan. You’re not eligible for premium subsidies in the exchange if your employer offers a plan that’s considered affordable and provides minimum value. But if the coverage they offer is not affordable (more than 9.61% percent of your household income for self-only coverage in 2022) and/or does not provide minimum value, you could be eligible for a premium subsidy in the exchange, depending on how your income compares with the cost of the benchmark plan in your area (note that premium subsidies are larger and more widely available through the end of 2022, due to the American Rescue Plan).

Short-term health insurance is exempt from the ACA’s rules

Under the ACA, short-term, limited duration health insurance is not considered individual health insurance. As a result, short-term plans are exempt from the ACA’s regulations, and instead, fall into the category of “excepted benefits.” So short-term plans can still have annual and lifetime benefit maximums.

Prior to 2017, the federal definition of a short-term plan was one that had a duration of not more than 364 days, although some states imposed more restrictive rules. Starting in 2017, a new rule that had been finalized in 2016 (under the Obama Administration) was implemented, capping the duration of short-term plans at 90 days. In 2018, the Trump Administration changed the rules again, allowing short-term plans (which are still exempt from ACA regulations) to have initial terms of up to 364 days, and total duration, including renewals, of up to three years. States still have the ability to set more strict definitions, and about half do so.

Regardless of whether a short-term plan is sold with a 90-day term or a term of nearly a full year, it will typically have an annual benefit limit somewhere in the range of $100,000 to $2 million. Read the fine print, as this will vary considerably from one plan to another.

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org.