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Institute of Medicine Stresses "Affordability" in Essential Health Benefits Design

By Jane Norman, CQ HealthBeat Associate Editor

October 6, 2011 -- The "essential health benefits" that every insurer will have to provide beginning in 2014 should be tied to a typical small-employer plan, the Institute of Medicine recommended in a long-awaited report that will be closely scrutinized by patient advocates and the health care industry.

The packages should reflect small-employer costs because the plans will be offered in state insurance exchanges whose main customers—an estimated 68 million Americans—likely will be small businesses and individual workers, the nonpartisan IOM said in its 297-page report that was released last week.

It recommended that Health and Human Services (HHS) Secretary Kathleen Sebelius develop by May 1, 2012, an initial essential health benefits package based on the general categories specified in the health care law (PL 111-148, PL 111-152). These preventive, diagnostic and therapeutic services include such items as ambulatory patient services, maternity and newborn care, laboratory services, emergency services and more.

The agency then should determine what the national average premium of typical small-employer plans would be in 2014 and ensure that the package's benefits in a so-called "silver" plan do not exceed that amount, said the report. A silver plan is one of the four levels of coverage required under the health care overhaul; it's a higher level of coverage than in a bronze plan but less than gold or platinum.

Sebelius is not bound by the IOM recommendations, and the report was not designed to offer direction on what specific health care services or products should be covered or excluded. Nonetheless, its proposals are bound to be dissected by many groups with competing interests and likely will wield influence on final decisions by HHS.

There are advocates for expanded benefit coverage who may see the tie to small-employer plans as insufficient for an adequate benefits package, given that such plans often are less generous than large-group-based plans. But the report's strong emphasis on affordability may calm employer, insurance and business groups who worry that the benefit package HHS will design will be too lavish and expensive.

Initial reaction from the insurance industry was positive. America's Health Insurance Plans President and CEO Karen Ignagni said in a statement that the report urges a balance between affordability and comprehensiveness of coverage.

"The recommendation that the initial EHB package reflect the scope of benefits and design provided under a typical small-employer plan is an important step toward maintaining affordability," said Ignagni. "Focusing on 'medical effectiveness, safety and relative value' is a top priority for health plans and is vital to creating a patient-centered health care system that promotes and rewards evidence-based quality care throughout the system."

The Essential Health Benefits Coalition, which is made up of groups representing employers and business, said HHS should "hold the cost and affordability of the essential health benefits package paramount as recommended" by the IOM.

"An expansive, costly essential health benefits package could cause many employers to drop coverage and force more Americans into government-subsidized health care at a significant cost to taxpayers," National Retail Federation vice president and employee benefits policy counsel Neal Trautwein said in a statement. He is chairman of the coalition.

Sebelius said in a statement that HHS will issue its proposal on essential health benefits "soon." It is expected sometime early next year, and states are eager to see it so they can get on with designing their exchanges. But she said that before HHS formulates the package, the agency will hold a series of listening sessions to gain input from Americans on what should be in the benefits package.

"These conversations will help us ensure that every American can access quality, affordable health care coverage they can rely on," she said. The IOM in the report also urged widespread public input and transparency.

The IOM recommendations have been in the works for months. holding numerous meetings and public briefings. The institute is an arm of the National Academy of Sciences that gives independent and objective advice to policy makers. The committee that developed the recommendations was headed up by John R. Ball, former executive vice president of the American Society for Clinical Pathology.

"This report offers guidance for developing a package of essential health benefits that will achieve two equally important goals: to provide coverage for a range of Americans' health needs and to ensure the affordability of coverage, particularly for small employers and individuals who must buy their own insurance," Ball said in a statement.

The services are to be considered against criteria that they are medically effective, safe and offer high value, and also protect the vulnerable and address medical concerns of the most importance to consumers.

Benefits mandated by states should be subject to the same criteria and review, the IOM said. States that want to adopt variations on the federal package for their exchanges must make them consistent with the health care law and produce a package that is actuarially equivalent to the federal package, the report said.

The report repeatedly emphasizes that the package of benefits must be affordable for consumers while covering health care necessities. IOM committee members who prepared it say in their preface that they heard from many groups, some of whom wanted the broadest possible coverage of services and others who argued for affordability and flexibility.

"The committee's solution is this: build on what currently exists, learn over time, and make it better," said the report. "That is, the initial EHB package should be a modification of what small employers are currently offering. All stakeholders should then learn enough over time—during implementation and through experimentation and research—to improve the package."

The recommendation thus would take the approach of defining a premium target for the package, which the committee said takes into account the "fundamental reality" that health benefits are a resource and no resource is unlimited.

Accompanying material compares the premium target to walking into a grocery store with a firm idea of how much to spend and filling the cart with enough food to fit a budget, rather than filling the cart with groceries and then finding out what they cost.

"The committee concludes that the EHB should be defined as a package that will fall under a predefined cost target rather than building a package and then finding out what it would cost," says the report.

In addition, the IOM said that the government should be as specific as possible about which benefits are included and which can be left out, though it won't be possible to spell out every product or service that initially will be covered.

The package should be updated beginning in 2015 for implementation in 2016 and every year thereafter, and health care costs should be explicitly incorporated by the department in that update, said the IOM. The package should have the goal of becoming more fully evidence-based and specific. Both the cost of the current package and medical inflation should be taken into account.

A "National Benefits Advisory Council" making recommendations on changes should be established, with members appointed through a nonpartisan process by the Office of the Comptroller of the United States, said the report.

And HHS needs to develop a strategy for controlling rates of growth in health care spending across all areas of the economy, so that it is in line with the rate of growth in the economy, the IOM said.

Institute of Medicine Report on Essential Health Benefits

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