Background

Public Health Service (PHS) Act section 2707, as added by the ACA, imposes an annual cost-sharing limit on (1) non-grandfathered individual and small group market health insurance coverage and (2) non-grandfathered group health plans (i.e., employer-sponsored health plans). As implemented by CMS, the annual cost-sharing limit applies only to EHBs.

PHS Act section 2711, as added by the ACA, prohibits annual dollar limits in (1) non-grandfathered health insurance coverage, and (2) all group health plans. It also prohibits lifetime dollar limits in (1) all health insurance coverage, and (2) all group health plans. By statute, the prohibitions on lifetime and annual dollar limits apply only to EHBs.

CMS’s longstanding policy has been that all covered prescription drugs, including those beyond the minimum required to be covered under the EHB coverage requirement (but excluding such drugs required to be covered pursuant to a state mandate), should be treated as EHBs. This policy, however, was stated only in (non-binding) guidance.

In the 2025 NBPP rulemaking, CMS expressed concern that its policy was not being consistently followed. Accordingly, in the Final Rule, it codified its policy in (binding) regulation.

Codification of CMS’s Prescription Drug EHB Policy in Regulation

In the Final Rule, CMS finalized, with non-substantive technical edits, its proposed regulatory codification of its longstanding prescription drug EHB policy. Specifically, the Final Rule amends 42 C.F.R. § 156.122 to add a new subsection (f):

If a health plan covers prescription drugs in excess of the prescription drugs required to be covered under paragraph (a)(1) of this section, the additional prescription drugs are considered an essential health benefit and subject to requirements including the annual limitation on cost sharing and the restriction on annual and lifetime dollar limits, unless coverage of the drug is mandated by State action and is in addition to an essential health benefit pursuant to § 155.170, in which case the drug would not be considered an essential health benefit.

This new regulation provides that all covered prescription drugs, including those beyond the minimum required to be covered under the EHB coverage requirement (subject to the state mandate exception), are EHBs, and therefore subject the annual cost-sharing limit (as well as the prohibitions on annual and lifetime dollar limits). CMS explained its decision to codify its policy in regulation by noting that it had heard a number of concerns regarding non-compliance with its policy in response to its 2022 EHB Request for Information.

CMS also notes that the Final Rule “primarily addresse[s] the application of this policy with respect to issuers of non-grandfathered individual and small group market plans subject to the requirement to provide EHB [and] does not address the application of this policy to large group market health plans and self-insured group health plans.” CMS intends to work with the Department of Labor and the Department of the Treasury to propose rulemaking applying the same policy to large group market health plans and self-insured health plans.

What to Watch for

The Final Rule may have implications for pharmacy benefit manager (PBM) accumulator and maximizer programs, under which manufacturer cost-sharing assistance is not counted toward the annual cost-sharing limit. CMS acknowledges in the Final Rule stakeholder concerns regarding PBM copay maximizer (as well as alternative funding) programs in particular, explaining: “given the prevalence of these programs, we are concerned that consumers lose important protections if a covered drug is no longer considered EHB. The impacts of these practices, including additional out-of-pocket costs and loss of consumer protections, justify the finalization of this policy.”

The Final Rule follows other notable developments regarding PBM accumulator and maximizer programs. For example, on September 29, 2023, a federal district court vacated a regulation promulgated by CMS in the 2021 NBPP Final Rule that permitted plans not to count manufacturer cost-sharing assistance toward the annual cost-sharing limit, to the extent consistent with state law. We previously reported on the 2021 NBPP Final Rule here. In addition to vacating the regulation, the court remanded to the agency for further consideration consistent with its ruling.

We will continue to report on developments in this space. In the meantime, if you have any questions about the Final Rule and its implications for your company, please contact any of the authors of this alert or the Hogan Lovells lawyer with whom you regularly work.