Eliminating Essential Health Benefits Will Shift Financial Risk Back to Consumers
Congress is voting today on legislation to repeal parts of the Affordable Care Act (ACA), including protections requiring insurers to cover a minimum package of health benefits. While the original House repeal-and-replace bill retains the ACA’s benefit rules for private health insurance, a manager’s amendment released late Thursday night would punt the requirement to the states. This latest legislative language is ambiguously drafted but has the potential effect of returning the insurance markets to a 50 state patchwork of benefits requirements and giving insurers more flexibility to exclude benefits and leave enrollees without coverage for the health care services they need.
Essential Health Benefits Are a Signature Component of the ACA
Prior to the ACA, health insurance in the individual market was often significantly less comprehensive than the coverage available to employees of large companies. The ACA sought to make individual market insurance more robust, and more like typical employer-sponsored coverage, by requiring plans to cover 10 categories of “essential health benefits” (EHBs) (Exhibit 1). Implementing regulations gave states flexibility to choose from among existing health plans in their states in identifying the benefit benchmark. In most states, the EHB benchmark is a small-group plan.
Exhibit 1. The Affordable Care Act’s 10 Essential Health Benefits Categories
Source: The Affordable Care Act, Section 1302(b)(1).
Prior to the ACA, Plans Routinely Excluded Essential Benefits
Before the ACA, most individual market plans did not cover all 10 essential health benefits, and the benefits that were covered frequently had dollar limits. The combination of fewer services covered and higher cost-sharing meant more than half of Americans who had health coverage through the individual insurance market in 2010—before the new rules went into effect—had plans that would not have qualified to be sold in the individual market under the ACA.
One of five people enrolled in the individual market had no prescription drug coverage, compared with just 5 percent in the employer market. Coverage of habilitative services, particularly important to children who need to learn developmentally appropriate skills, varied widely by state and in scope and was often quite limited. Only 12 states required pregnancy-related services to be covered by individual market plans, and four of those states only required pregnancy coverage in HMOs. Six of 10 people (men and women) enrolled in the individual market had no maternity benefits. Even then, coverage might only be available for an additional premium and with annual limits as low as $2,000, yet the average cost of pregnancy care and delivery for women with private insurance and delivery is more than $32,000 for a vaginal birth and $51,000 for a caesarean section without complications.
Mental health coverage also was often excluded, or else very limited. Only 17 states and the District of Columbia actually required plans to include mental health coverage. Five states required only that insurers offer mental health coverage, which gave enrollees the option to elect mental health coverage but for an additional charge. One of five people with individual market coverage had no mental health coverage, and those who had coverage faced costly surcharges and limits on the conditions that would be covered. With enactment of the ACA, all new individual market plans must cover mental health services and the coverage must be at least as generous as other health services, with no more restrictive rules on accessing care or out-of-pocket costs. And whereas the vast majority of individual market consumers in the years leading to health reform enrolled in policies with lifetime limits on coverage, the ACA eliminated lifetime and annual limits and imposed an annual cap on out-of-pocket costs for essential benefits.
These gaps and limits were hallmarks of so-called major medical plans. But insurers aggressively marketed other, still more limited forms of coverage. Limited benefit plans, critical illness policies, fixed-dollar indemnity plans, and discount plans were marketed as providing financial protections. In practice, they often left consumers exposed to exorbitant out-of-pocket costs and uncovered treatments. Some of these plans, such as discount plans, are not insurance and paid nothing toward the cost of health care services. Others would reimburse just a small portion of critical health services, such as covering only $250 per day for hospital services, or impose annual limits as low as a few thousand dollars.
If the ACA is replaced with state-determined essential benefits that don’t contain a minimum federal standard for health benefits, consumers can expect a return to a patchwork system where the adequacy of a person’s coverage varies widely depending on where they live. Insurers will have flexibility to design plans that cherry-pick healthy people and exclude coverage for critical services. The likely result is that many consumers with illness or injury will once again bear the financial risk under policies that purport to provide full coverage but in reality offer much less.