Essential Health Benefits: Balancing State Flexibility with Consumer Protections
Last week, the U.S. Department of Health and Human Services (HHS) issued a bulletin that outlines its intended approach to defining the essential health benefit (EHB) package—or minimum coverage standards—that will apply to health plans sold through the new state health insurance exchanges, as well as in the individual and small group markets, starting in 2014. The bulletin aims to offer states flexibility by allowing them to select an existing plan in their state as the "benchmark" coverage option. It will be critical that HHS balances the desire of states and health insurers to determine what benefits are included with the law's intended goal of providing consumers and employers in every state with comprehensive and clearly defined health insurance coverage options.
What Are Essential Health Benefits?
Under the Affordable Care Act, all nongrandfathered plans offered in new state insurance exchanges, as well as the small-group and individual markets, must provide an EHB package. Health insurers will be required to offer plans at four different levels of cost-sharing ranging from bronze (60 percent of average medical costs covered) to platinum (90 percent of average medical costs covered), but benefits will be the same within and across each of the four tiers. The scope of benefits provided must be equivalent to the scope of benefits provided by a typical employer-sponsored plan. The law stipulates that essential benefits must include, at a minimum, the following 10 categories of benefits:
- ambulatory patient services;
- emergency services;
- maternity and newborn care;
- mental health and substance use disorder services, including behavioral health treatment;
- prescription drugs;
- rehabilitative and habilitative services and devices;
- laboratory services;
- preventive and wellness services and chronic disease management; and
- pediatric services, including oral and vision care.
These requirements represent a dramatic change from the individual market of today, where health plans often do not cover a comprehensive set of services. Maternity services in particular are rarely included in health plans purchased on the individual market. In addition, requiring plans to cover this minimum set of benefits provides new transparency about benefits for consumers who must purchase coverage on their own. Ideally, people choosing among plans will no longer have to worry about benefit variation across plans, but will be able to focus on how plans differ in terms of out-of-pocket costs and premiums.
How Does HHS Propose to Define the Essential Health Benefits?
The law instructs the secretary of HHS to “define” essential health benefits or determine what services within the 10 categories are covered. The secretary must also ensure that benefits are appropriately balanced among the categories and that the benefits serve the health care needs of a diverse population. Rather than defining one standard benefit package for all state insurance exchanges and insurance markets, however, HHS is proposing that each state select a benchmark plan that covers all 10 categories named in the law. Under the proposal, states would have four options from which to select a benchmark plan:
- Any of the three largest small-group plans in the state by enrollment;
- Any of the three largest state employee health plans by enrollment;
- Any of the three largest federal employee health benefits program (FEHBP) plan options by enrollment; or
- The largest insured commercial non-Medicaid HMO plan operating in the state.
If one of the 10 categories is missing in a benchmark plan, states must add the categories to the EHB package to be offered in the state. HHS notes that this benchmark approach is currently used for health plans offered through the state Children’s Health Insurance Program (CHIP) and for certain Medicaid enrollees.
What Is the Default Option in States That Decline to Select a Benchmark Plan?
All states will have to select a benchmark plan whether or not they decide to operate a state health insurance exchange in their state, or allow the federal government to establish a federally facilitated exchange. This is because the EHB package will apply to health plans sold in the individual and small-group markets as well as in the exchanges. In states that decline to select a benchmark plan, the EHB package will be defined as that of the largest small-group plan in the state.
Will State Benefit Mandates Be Included in Benchmark Plans?
The Affordable Care Act requires states to pay for benefits mandated by state law that fall outside of the 10 benefit categories for individuals that are enrolled in so-called qualified health plans that will be sold in the exchanges and the individual and small-group markets. But in the bulletin, HHS proposes to allow states a transition period in 2014 and 2015. During those years, states that select a benchmark plan that includes state benefit mandates that fall outside the 10 categories will not have to pay the cost of the additional benefits.
Will Health Plans Be Required to Meet All Provisions in the Benchmark Plan?
HHS is proposing that health plans be required to offer benefits that are “substantially equal” to the benefits of the benchmark plan. This is the same standard that is applied to health plans participating in CHIP. Similar to CHIP, HHS proposes that a health plan have some flexibility to adjust services covered and quantitative limits, as long as they continue to offer coverage for all 10 categories. HHS is considering whether health plan substitutions for the benchmark plan only be allowed within each of the 10 categories, or if health plans might be permitted to substitute benefits across the categories, while maintaining actuarial equivalence, i.e., that the plan would be of the same value in terms of protection to the consumer. However, such plan flexibility may make it more challenging for people to make informed choices to the extent that plans offer considerably different benefits within, or across, the 10 categories.
Strong Protections, Informed Choice
HHS’s proposed approach to defining the EHB package will provide considerable flexibility to states and to health plans as the Affordable Care Act is implemented over the next several years. But as the law instructs, HHS will still need to create strong protections that ensure that consumers in every state have access to comprehensive plans that meet their needs, regardless of their health status. Moreover, one of the major goals of the exchanges is to facilitate informed consumer choice so that enrollees can be assured that plans within a tier offer comparable coverage and will be able to select plans with lower premiums without being concerned that cheaper plans have less adequate benefits. HHS will need to ensure state variation in essential health benefits doesn’t cloud the law’s intended goal to achieve new transparency for consumers and employers in health plan choice.