On December 16, 2011, the Department of Health and Human Services (HHS) issued a Fact Sheet and an Information Bulletin outlining its proposed approach in defining essential health benefits (EHBs) under section 1302 of the Affordable Care Act. No action is required of plan sponsors at this time. The definition of essential health benefits affects all plan sponsors because as of January 1, 2014, small group and individual plans will be required to provide coverage that includes the “essential health benefits package,” which includes essential health benefits (EHB), limits on cost-sharing, and provision of specific actuarial levels of coverage (i.e., 60% – 90%, labeled “bronze” to “platinum”). HHS intends to allow each state to select a benchmark plan to serve as a reference point, and all small group and individual plans in that state (both within and outside the state Insurance Exchange) must offer benefits that are “substantially equal” to the benchmark plan. This approach is intended to give each state flexibility in defining essential health benefits appropriate for that state, while also offering the 10 categories of essential health benefits defined by the health care reform law.
No action is required of plan sponsors at this time or when formal guidance is issued (probably in the first quarter of 2012). It is really the health insurance companies that must ensure their individual and small group policies are “substantially equal” to the applicable state benchmark plans. All employers will be significantly affected by how essential health benefits are defined and by what their state selects as its benchmark plan. Small employers will be directly affected. Large employers also will be affected because their employees will likely compare their benefits to those available in the state Exchange, and because as of 2017 states can allow large employers to purchase coverage through the Exchange. HHS is accepting comments on its proposed guidance on essential health benefits through January 31, 2012. Comments should be sent to: EssentialHealthBenefits@cms.hhs.gov.
- Non-grandfathered plans in the small group market (both inside and outside the Exchanges) are directly affected because they must offer essential health benefits as of January 1, 2014.
- Grandfathered plans, self-insured group health plans, and health insurance in the large group market are not required to offer essential health benefits, but they are significantly affected by the definition of EHB because their employees will likely compare their benefits to those available in the state Exchange, and because as of 2017 states can allow large employers to purchase coverage through the Exchange, so their policies also would be subject to these rules.
- All plans are affected by the definition of EHB because of the prohibitions on lifetime and annual dollar limits on essential health benefits.
Four Benchmark Plan Types
HHS intends to propose that each state can define essential health benefits using a benchmark approach that reflects the scope of services offered by a “typical employer plan” within that state or nationally. Specifically, HHS will allow each state to choose one of the following as its benchmark health insurance plan:
- 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;
- The largest HMO plan offered in the state’s commercial market by enrollment.
The default benchmark plan, if a state chooses not to select a benchmark, will be the small group plan with the largest enrollment in the state.
To determine enrollment in plans for specifying the benchmark options, HHS will propose using enrollment data from the first quarter two years prior to the coverage year (i.e., Q1 of 2012 for coverage year 2014). States must select their benchmark plan in the third quarter two years prior to the coverage year (i.e., Q3 of 2012 for coverage year 2014).
What Benefits and Services must be Included in the Benchmark Plan?
The benefits and services included in the benchmark plan must be the essential health benefits package defined by the health care reform law (see the 10 categories listed below). Based on HHS review of various surveys of “typical” employer plans, HHS believes that the above benchmarks will cover most of the essential health benefits. The HHS Bulletin also addresses what happens if a state’s benchmark plan either does not cover all 10 categories of care or if it covers categories in addition to the 10 listed in the health care reform law.
- Benchmark plan does not cover all 10 categories: If a state’s benchmark plan does not cover all 10 categories of care, the state must supplement the omitted categories using benefits from any other benchmark option. HHS cites the Federal Employee Health Benefits Plan and the Children’s Health Insurance Program (CHIP). Categories in which HHS says certain benchmark plans are deficient: pediatric oral or vision services, habilitative services, and mental health and substance use disorder benefits.
Additionally, HHS notes that currently the Mental Health Parity and Addiction Equity Act (MHPAEA) requirements do not apply to individual health policies or to group health coverage sponsored by employers with 50 or fewer employees. Since the health care reform law includes mental health and substance use disorder services as one of the 10 categories of essential health benefits, individual and small plans will be required to provide these benefits as of January 1, 2014, and HHS intends to propose that the MHPAEA parity requirements will apply. (Since, as noted above, states will select their 2014 benchmark plans in the third quarter of 2012, if the benchmark plan is a small group plan it might not have included mental health and substance use disorder benefits, so as the 2014 benchmark plan these benefits would have to be added.)
- Benchmark plan covers state-mandated benefits in excess of the 10 categories: If a state elects—or defaults to—a small group insurance plan as its benchmark plan, that benchmark plan will include state-mandated benefits even if they are in excess of the essential health benefits list. The health care reform law generally prohibits this, because federal money will be used to help lower- and middle-income people purchase health insurance through the Exchanges, and the law is not intended to provide federal subsidies of state-mandated benefits. As a transition in 2014 and 2015, HHS will allow a state’s benchmark plan to cover state-mandated benefits in excess of federal essential health benefits, but after 2015 states will be required to defray the cost of such excess benefits.
Small Group and Individual Plans Must be “Substantially Equal” to the Benchmark Plan
All health plans in the small group and individual market must offer benefits that are “substantially equal” to the benchmark plan selected by the state and modified as necessary to provide coverage in the 10 categories of essential health benefits. HHS will allow a plan or insurer to adjust benefits within a particular benefit category—such as by changing specific services covered or quantitative limits—so long as the plan offers coverage for all 10 categories and does not decrease the value of coverage. This flexibility is intended to increase consumer choice and promote plan innovation.
The 10 Categories of Essential Health Benefits
Essential health benefits must include items and services within at least the following 10 categories:
- 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
Plan sponsors are not required to take any action at this time, but keep in mind that as of January 1, 2014 small employer plans will have to provide benefits that are “substantially equal” to the benefits provided by the applicable state’s benchmark plan. Employees in large employer plans also will likely compare their benefits to those available in the state Exchange, and as of 2017 states can allow large employers to purchase coverage through the Exchange. Employers who want to send comments to HHS on its proposed guidance on essential health benefits may do so by January 31, 2012. Comments should be sent to: EssentialHealthBenefits@cms.hhs.gov.
HHS proposes that benchmarks will be updated in the future and that state mandates outside the definition of essential health benefits may not be included in future years. More formal guidance from HHS is expected in 2012, though the current guidance doesn’t indicate when. Prior guidance on Essential health benefits was issued October 6, 2011 including a report by the Institute of Medicine (IOM) that recommended a framework for how HHS should decide what benefits are most important for coverage. (IOM Report on Essential Health Benefits) [http://www.iom.edu/Reports/2011/Essential-Health-Benefits-Balancing-Coverage-and-Cost.aspx ]
HHS also noted in its December 16th guidance that the health care reform law distinguished between a health plan’s covered services and the plan’s cost-sharing features (such as deductibles, copayments and coinsurance). The cost-sharing features will be addressed in subsequent rules. The December 16th guidance addresses only covered services.