What are Health Insurance Lifetime and Annual Limits?
BY Colin Bean Updated on August 08, 2022
Insurance companies place limits on the benefits that individuals can receive from their plans. This means the insurance company sets a cap on what it will pay for covered services. Generally, these limits are classified as annual maximum benefit and lifetime maximum benefit.
- Annual maximum benefit: The yearly maximum amount that the insurance company will pay for the benefits for which you are covered.
- Lifetime maximum benefit: The maximum dollar amount that an insurance company will pay for benefits for as long as an individual is enrolled in the plan.
Prior to enactment of the Patient Protection Affordable Care Act, many health insurance plans set a lifetime limit—a dollar limit on what they would spend for covered benefits during the entire time an individual was enrolled in the plan. People enrolled in the plan were required to pay the cost of all care exceeding those limits. But that changed with the passage of the Patient Protection Affordable Care Act, also referred to as Obamacare or simply as the ACA.
What happens to lifetime limits and annual limits under the ACA?
The ACA requires fully insured group and individual health plans (both on and off the public exchange/Marketplace) to provide coverage for a core package of health care services, known as “essential health benefits”. This rule also applies to many self-funded health plans sponsored by employers and unions. This requirement intends to balance comprehensiveness and affordability for consumers by ensuring essential services are covered and consumer out-of-pocket expenses are limited.
Generally, an employer or union who sponsors a group health plan, or a health insurance issuer offering group or individual health insurance coverage, also may not establish any annual or lifetime maximum on the dollar amount of essential health benefits for any individual. This prohibition exists whether the services are provided within a plan’s healthcare network or out-of-network.
What are the “essential benefits” that insurers cannot apply an annual or lifetime maximum to?
- Ambulatory care services (outpatient care you get without being admitted to a hospital)
- Emergency services
- Hospitalization (like surgery and overnight stays)
- Laboratory services
- Pregnancy, maternity, and newborn care (both before and after birth)
- Mental health disorder and substance use services, including behavioral health treatment (this includes counseling and psychotherapy)
- Rehabilitative and habilitative services and devices (services and devices to help people with injuries, disabilities, or chronic conditions gain or recover mental and physical skills)
- Preventive and wellness services and chronic disease management
- Pediatric services, including oral and vision care (but adult dental and vision coverage aren’t essential health benefits)
- Prescription drugs
Are there exceptions where an annual and/or lifetime maximum benefit limit may exist?
The maximum benefit dollar limit refers to the maximum amount of money that an insurance company (or self-insured company or union) will pay for claims within a specific period—a benefit year or the lifetime in which the individual is covered by the plan.
While the ACA eliminated annual and lifetime limits in most cases for essential health benefits, grandfathered plans can still have annual limits, but not lifetime maximum benefit limits on essential benefits. Grandfathered plans include group health and individual insurance policies purchased on or before March 23, 2010, the date the ACA was enacted. To keep its grandfathered status, the plan cannot undergo any significant changes that would result in reduced benefits or increased cost to plan members.
Also, all health insurance plans may place annual limits and/or lifetime limits on their spending for health care services that aren’t considered essential health benefits.
Under the ACA, short-term health insurance is not considered individual health insurance. As a result, short-term plans are exempt from the ACA’s regulations. Therefore, short-term plans can still have annual and lifetime benefit maximums.
If you are interested in an individual health insurance plan, visit our Individual and Family Health Insurance page. You can explore your plan options independently simply by entering your zip code and responding to a few questions. In addition, our licensed insurance agents can help you assess your needs and compare plans instantly, for free and without any obligation to purchase.