HHS Proposes ACA Cost-Sharing Limits for 2021
In late January, the Department of Health and Human Services (HHS) released its proposed 2021 Notice of Benefit and Payment Parameters (NBPP) rule. Each year in the NBPP, HHS describes the calculation of what is called “the premium adjustment percentage.” The premium adjustment percentage is used to set the maximum annual limitation on cost-sharing (i.e., out of pocket maximums for medical plans) under non-grandfathered medical plans.
The premium adjustment percentage is defined as the percentage by which the average per capita premium for health insurance for the preceding calendar year exceeds the average per capita premium for health insurance for 2013. This calculation is performed annually by HHS. The factor included in the proposed NBPP for 2021 is 1.3542376277. That factor is then applied against premium data to establish out of pocket values.
Using this percentage, HHS’s proposed maximum out of pocket values for 2021 would be $8,550 for self-only coverage and $17,100 for all other coverage. The comparable 2020 values are $8,150 and $16,300, respectively. Note that these amounts are proposed and could be changed when the final 2021 NBPP is issued, which is typically a few months after the proposed rule is released. Last year, HHS proposed values of $8,200 and $16,400 for 2020. However, the final values released by HHS in April 2019 for 2020 were $8,150 and $16,300. Although the premium adjustment percentage factor had not changed, HHS applied the percentage to updated premium data which resulted in slightly lower dollar values than originally anticipated.
The premium adjustment percentage is also expected to be used by the IRS to calculate the increase in the Patient Protection and Affordable Care Act’s (ACA’s) Employer Shared Responsibility penalties. Essentially, the IRS will multiply the factor and the initial statutory penalties of $2,000 and $3,000 to obtain inflation-adjusted values.
Using the 1.3542376277 premium adjustment percentage, the 2021 annual Employer Shared Responsibility penalty for not offering coverage to a sufficient number of full-time employees under IRC 4980H(a) would be $2,700 per full-time employee (minus the first 30) in 2021. The annual 2021 penalty under IRC 4980H(b), which applies if the employer offers coverage to a sufficient number of full-time employees, but the coverage either does not provide minimum value or is not affordable (both as defined by the ACA), would be $4,060. These amounts would be approximately 5% higher than the 2020 values of $2,570 and $3,860. However, note that these are not the official amounts. The IRS must confirm these amounts.
The intent of this article is to provide general information on employee benefit issues. It should not be construed as legal advice and, as with any interpretation of law, plan sponsors should seek proper legal advice for application of these rules to their plans.