Beginning in 2014, Section 1302 of the Patient Protection and Affordable Care Act (PPACA) requires health insurance plans offered to individuals and small businesses to provide health benefit services in each of ten categories, called essential health benefits (EHBs). A recent Health Affairs policy brief examines the requirements, process, and outstanding issues states must consider when determining what health plans must cover for the individual and small group market.
Essential Health Benefits: The Requirements
The U.S. Department of Health and Human Services (HHS) has left the ability to define what services must be included as EHBs to the states, allowing for more flexibility. The rule offers state regulators several options to define their state’s EHBs. State regulators may choose any of the following:
- One of the three largest small group plans in the state by enrollment
- One of the three largest state employee health plans by enrollment
- One of the three largest federal employee health plan options by enrollment, or
- The largest health maintenance organization (HMO) plan offered.
Pros and Cons of the Flexible Approach
State regulators, health plans and the business community support the flexibility afforded to states: the essential benefits package will be drawn from policies already approved, offered and popular in each state.
Many state officials consider this the best choice given the time constraints to establish Exchanges. Consumer and patient advocates as well as providers have criticized the decision. They prefer a national standard to reduce variation between states and share concern that some plans currently have inadequate benefits.
The State’s Role
States now face the challenge of how to best balance coverage verses cost and reduce the number of uninsured and underinsured with the selection of their benchmark plan.
Each state benchmark plan will apply to both the individual and small group market plans. Insurers are not required to replicate the benefits; rather, benefits offered must be “actuarially equivalent” with approximately the same value in each required category. If a state chooses a benchmark plan that does not cover services in a required category, it must supplement the package by adopting benefits from another benchmark plan. Also, if a state does not select a benchmark, the plan with the largest enrollment in the small group market becomes the default plan. HHS has indicated this overall approach may change in 2016 based on evaluation and feedback.
Most observers expect states to select an existing small group or individual health benefit plan as their benchmark that already been approved by state regulators. Another goal would be to minimize the impact of state-mandated benefits to keep the plan offerings affordable. However, a review of the small and individual market shows gaps in some benefits not seen in the large group market. HHS estimates that 62% offer no maternity services (although often available as a rider), 9% offer no prescription coverage, and 18% offer no mental health services. So there are some benefit coverage questions that will need to be addressed during the final selection process within each state Exchange system.
Historically, most states have mandated benefits that vary widely from commonly offered services (emergency room care) to those infrequently offered (in-vitro fertilization). The number of a state’s mandated benefits ranges from as many as 69 in Rhode Island to a low of 13 in Iowa, according to the Health Affairs policy brief. While state mandates do not always apply to all markets within a state, most are typically included in the plans that will be considered as a benchmark.
States will likely consider the issue of state mandates in selecting their benchmark plan. Under Section 1311(d)(3)(B) of PPACA, if a state requires coverage of a specific benefit not included in the EHB package, the state must cover these additional costs for enrollees in plans subject to the requirement.
A study cited in the policy brief suggests Maryland may pay an additional $10 - $80 million annually if they retain all mandates, depending on which benchmark plan they select. However, study authors also state HHS has indicated that it may, beginning in 2016, start to exclude some state benefit mandates from essential health benefits even if they are covered in a state’s benchmark plan. Neither PPACA nor federal guidance specifies how the money will be paid, and where it will go.
Benefit Design and Limits
Although PPACA requires that health insurance plans afford coverage to those with pre-existing conditions, and prohibits limiting coverage by means of annual or lifetime dollar limits, health plans will be allowed to limit the scope and duration of services. As an example, the policy brief points out that plans could legally limit the annual number of mental health outpatient visits by a beneficiary. (In this case, they would still be required to meet other federal requirements such as mental health parity). By allowing plans to limit coverage in this manner, advocacy groups have voiced their concern that sicker beneficiaries would be discouraged from enrolling.
Definition of Medical Necessity
Health plans currently use their own definition of “medical necessity” to determine what services they cover and want to continue to do so. Despite the flexibility given to the states on EHB, patient advocacy groups believe HHS should develop a universal definition of medical necessity to be used by all insurers. Insurers are particularly concerned about covering “habilitative services,” which are often not clearly defined and most often are not covered. The resolution of this issue will likely generate vigorous debate.
Federally Facilitated Exchanges
The policy brief is silent on how any federally-facilitated Exchanges (FFEs) would define the benefits offered to individuals or small employers participating in the Exchange system. Clearly, a process would need to be defined to set the benefit levels within an FFE system.
While most action on this issue has shifted to states, some important policy and procedural issues need to be addressed at the federal level. These include:
- What process will HHS use to determine if states meet all the benchmark requirements?
- How will HHS and the states determine the costs of mandated benefits that exceed the essential benefits package?
- How will the FFEs define their EHBs?
HHS has no timeline on release of additional guidance on these issues. Stay tuned.
We have written previously about EHB requirements, click here to read more about them.
We will continue to endeavor to keep you up-to-date on these and other developments in our ever- evolving marketplace. Please visit www.HealthcareExchange.com for blog posts, polls, surveys and numerous resources, or you may visit www.BenefitMall.com to view past Legislative Alerts.