Helping Clients Understand Their Annual Plan Maximums

Annual Maximum

Employees and employers commonly inquire about their health insurance plans’ annual maximums, and their personal “out-of-pocket” cost maximums for selected coverage.

An annual plan maximum, sometimes known as a plan’s “annual limit,” is the maximum amount an insurance company (or a company that self-insures its employee benefits) will pay toward an insured person’s claims during an annual or other specified period.

In the days before the Affordable Care Act (ACA), an “annual limit” or “lifetime maximum” were common with health plans – both in the Individual & Family Plan (IFP) and Group Health markets. These would be the most a plan would pay for a person’s care annually or during the insured’s lifetime. Now, though, the ACA prohibits ACA-compliant IFP and Small Group health plans from implementing annual maximums and/or lifetime maximums. For Essential Health Benefits (EHBs) under IFP and Small Group plans, as set forth in the ACA, there is no annual dollar limit and no lifetime dollar limit for health care.

Conversely, non-ACA compliant grandfathered plans are not required to follow the ACA’s rules on annual limits.

It’s also worth noting that Large Group health plans (for groups with 101 or more employees in California or 51+ employees in Nevada) are not required to cover all ten EHBs. However, for each EHB that is included, plans are prohibited from imposing annual or lifetime maximums upon them. Furthermore, all ACA-compliant health plans are required to cover preventive care without cost sharing, unless the plans are grandfathered.

Annual Maximum Health Plans

For health plan years starting between September 23, 2010, and September 22, 2011, plans could no longer limit annual coverage for essential benefits such as hospital, physician, and pharmacy benefits to less than $750,000. For plan years starting on or after September 23, 2011, the restricted limit was $1.25 million; for 2012-2013, the limit was $2 million. After January 1, 2014, all dollar limits for ACA-compliant plans EHBs were prohibited. Again, though, an exception applies to grandfathered plans, which are IFP and Small Group plans in place before the ACA was signed into law, and which have remained unchanged ever since.

If a plan has an out-of-pocket maximum (OOP max), that is the maximum amount an insured person will spend annually for deductible(s), copayments, and coinsurance. It does not include plan premiums. After that, the insurer pays 100% of the bills until the plan maximum resets at renewal (or replacement). ACA-compliant health plans include these OOP maximum limitations. Some HSA-compatible High Deductible Health Plans (HDHPs) can have OOP maximums that exceed standard OOP limits; that’s because the member has access to a Health Savings Account.

Out-of-Pocket Maximums Include Health Plan Deductible, Copays, Co-Insurance

An insured person’s OOP max includes his/her/their deductible, copay, and co-insurance amounts. Usually, a deductible must be paid before the ACA-compliant health plans begin to pay for covered benefits (except for EHBs that are considered preventative and wellness care).

As an example, for in-network benefits, if your client has a $2,000 deductible, it must generally be paid first, then any copayment or coinsurance amount applies. The health plan pays the rest. ACA-compliant plans pay the full cost of certain preventive benefits – even before your clients meet their deductibles.

Some plans have separate deductibles for certain services, such as prescription drugs. Family plans often have individual deductibles that apply to each member/enrollee and/or an aggregated family deductible that is applicable to all family members. Always advise your clients to review their plan’s benefit summary and ERISA Summary Plan Description (SPD) for more information.

Almost all costs paid by an insured member of an ACA-compliant plan will generally count toward his/her/their out-of-pocket maximum, including any or all of the following:

̶ Calendar year deductible
̶ Copays for covered services, including:

• doctor visits
• specialist visits
• lab work
• X-rays
• specialty tests (such as an MRI, CT, and PET)
• virtual/telemedicine office visits
• emergency room
• urgent care
• outpatient hospital services provided by a surgical facility or ambulatory surgical center
• ambulance services
• prescription benefits
• other services such as chemotherapy, chiropractic, acupuncture, physical therapy, occupational therapy, or speech therapy, rehabilitative or habilitative service or devices, home health care, skilled nursing facility
• durable medical equipment
• mental health care
• drug or substance abuse care
• infertility (if covered)
• for eligible children: Basic, Major, or Orthodontic services under a plan’s Pediatric Dental coverage if the plan includes dependent care

For complete information concerning your client’s plan deductible, copays, and co-insurance amounts or percentage, refer them to the carrier or administrator enrollment materials.

Annual Maximum Dental Plans

Dental coverage, not generally subject to federal ACA law, varies by company/administrator and plan type. Many have in-network and out-of-network plan annual maximums. This is the total amount that may be payable each year by the insurer for covered Dental services received in-network or out of network.

The annual maximum may differ for in-network services as compared to out-of-network services; it all depends on the plan. Ask your Word & Brown rep about the plan offerings available in your area.

The plan year may be on a calendar year basis, or it may be a 12-month period starting on your client’s coverage effective date. Some Dental plans feature an annual maximum that resets at the beginning of the calendar year (which is most common); others may reset when the employer’s benefit year begins.

Some Dental plans include an annual deductible, while others – most often Dental Health Maintenance Organization (DHMO) plans – do not. Preventive services such as an exam, X-rays, and cleaning are often not subject to a deductible.

Co-payment percentages vary by services provided, and often do not apply to preventive care – and may not apply to diagnostic services. Out-of-network preventive services, if covered, may be subject to a copayment amount or percentage.

Some DHMO plans include low or no copays for some services, with higher copays for endodontics, periodontics, crowns, orthodontics, and prosthodontics.

Dental Preferred Provider Organization (DPPO) plans typically have a similar structure, with preventive care covered in-network at 100% and tiered benefits for Basic, Major, and Endo/Perio services.

Orthodontia may be included, may be optional, or may not be available, depending on the selected plan. If orthodontics are included, a separate maximum annual benefit is applicable.

If a Dental carrier pays costs that meet the plan’s annual maximum, costs for any services above that amount are the patient’s/insured’s responsibility.

You should encourage your clients to refer to the plan’s summary of benefits and ERISA Summary Plan Description (SPD) for details on plan provisions.

Vision Plans

Depending on your client’s selected plan, Vision coverage may include benefits for eye exams, frames and lenses, contact lenses, and other services, such as discounted LASIK.

Vision plans may offer discounted fees for services or coverage up to a specified dollar amount for a routine eye exam or a contact lens exam. Coverage may also include a specified dollar amount for single vision, bifocal, or trifocal lenses and a percentage discount on frames.

Additional dollar amounts may be payable for options such as progressive, polycarbonate, scratch-resistant, ultraviolet-coated, solid or gradient tint, anti-reflective, or photochromic lens options.

Always refer to the plan’s Summary of Vision Benefits for details, including the availability of benefits on an annual or less-frequent basis (such as every other year) – as well as the plan’s ERISA SPD.

Chiropractic Plans

Chiropractic care normally includes a copay for each office visit (whether it’s for an exam, manipulation, conjunctive physiotherapy, and/or X-ray). There is usually a maximum number of visits covered annually. One plan offered by Landmark Healthplan in California, for example, includes a maximum of 20 visits annually as part of its Office Visits benefit. Discounted fees often apply for visits beyond the annual office visit maximum.

Other Plans

Supplemental health plans, such as those for accidents, cancer, disability, hospital indemnity, etc., may include plan maximums. That means the plan pays up to a specified dollar amount or a flat dollar amount for qualifying treatment or conditions during the coverage period.

The amount payable may have an annual payout limit or a total payout limit over the life of the policy.

Some life insurance policies offer an advanced payout – sometimes called an Accelerated Death Benefit – that allows a policy owner to receive a cash advance against a Life Insurance policy’s death benefit in the event of critical illness or terminal illness diagnosis. Typically, only one single advance payout is allowed while coverage is in force. The remaining death benefit is paid following the insured’s death. Each plan varies.

Added Resources

If you are interested in learning more about health care terms and lifetime and annual limits, you may want to use one or more of the links below:

Finding the Right Coverage

Word & Brown makes it easy for you to help your clients find the coverage they want for employees. We offer a broad range of Medical plans for both Small Groups and Large Groups. We also offer Ancillary, Voluntary, and Worksite plans from a roster of premier insurers and administrators. If you work in the Individual & Family Plan (IFP) marketplace, we can help you with that, too.

Visit our website for details on our Medical and Ancillary carrier partners.

If you have questions, contact your Word & Brown representative. If you’re not already working with us, our sales professionals throughout California and Nevada are just a phone call away. Call (800) 869-6989 to get started today.


How Much Can You Earn as an Insurance Broker?

Find out what you can be earning as an insurance agent in our handy, up-to-date salary guide. Produced by our in-house experts, this resource is bound to help you in advancing your career.

Word & Brown Salary Guide