On November 20, 2012 HHS issued proposed regulations related to coverage of Essential Health Benefits (EHB) and Actuarial Value (AV), Incentives for Nondiscriminatory Wellness Programs in Group Health Plans, Health Insurance Market Rules and Rate Review. This article explains the EHB and AV regulations. Leavitt will publish separate articles on the other two sets of proposed regulations.
Brief Summary
As of the first plan year beginning in 2014 health insurance issuers that offer non-grandfathered health insurance coverage in the individual and small group markets must ensure that such policies cover a core set of “essential health benefits” and meet specified cost-sharing limitations and actuarial levels (the “metals” tiers). The proposed regulations confirm earlier guidance that allows each state flexibility to select a benchmark plan that meets the essential health benefits package and reflects the scope of services offered by a typical small employer plan in that state or nationally. All non-grandfathered small group and individual policies offered in or outside the exchange must be actuarially equivalent to the state benchmark plan.
Self-insured and large group plans are not required to meet the essential health benefits package, except that they must cap out-of-pocket maximums at the amount set for high-deductible health plans (HDHPs) that are HSA-compatible (for 2013 that will be $6,250 for individual and $12,500 for family coverage), and they must provide at least minimum value (60% actuarial value) in order to avoid potential penalties.
The section immediately below provides background on “essential health benefits” and “actuarial value.” Following that is a summary of provisions in the proposed regulations that may be of particular interest to many clients (based on questions we’ve received recently from clients). The rest of the article after that provides detail on specific requirements under the proposed regulations. Most of the detail in the proposed regulations relates to the requirements of the “EHB package.”
Background on Essential Health Benefits and Actuarial Value
As of the first plan year beginning in 2014 health insurance issuers that offer non-grandfathered health insurance coverage in the individual and small group markets must ensure that such coverage includes the EHB package (defined in section 1302(a) of the Affordable Care Act (ACA)). The EHB package includes:
- Covering essential health benefits (EHB)
- The essential health benefits (EHB) include items and services in 10 specified benefit categories, such as hospitalization, maternity and newborn care and prescription drugs. (See complete list at the end of this article)
- Complying with cost-sharing limitations
- The cost-sharing limits are detailed in this article, and generally are that the out-of-pocket maximum cannot exceed the amount for high deductible health plans (HDHPs) associated with health savings accounts (H.S.A.s) (for 2013 those amounts are $6,250 and $12,500 as noted above), and the maximum deductible on small group insurance plans cannot exceed $2,000 for self-only coverage or $4,000 for non-self-only coverage for 2014.
- Ensuring that coverage meets specified actuarial values (AV)
- The AV is the percentage of covered benefits that are paid by the plan, not by the enrollee. It is expressed as “metal levels”: a bronze level plan pays on average for 60% of covered benefits, a silver level plan 70%, a gold plan 80% and a platinum plan 90%.
- The AV is a general indicator of a plan’s payment generosity and is intended to help consumers compare health insurance options. It is not calculated separately for each individual, but is a measure of what the plan pays on an actuarial basis.
Since December 2011 the federal agencies charged with implementing health care reform (HHS, DOL and IRS) have issued several phases of prior guidance (as well as several reports) on EHB and AV. This has included a DOL report describing the scope of benefits typically covered by employer-sponsored plans, a report by the Institute of Medicine (IOM) recommending criteria and methods for determining and updating the EHB, HHS’s list of the plans from which states can select their benchmark plan, HHS’s outline of its intended approach for calculation of AV, and HHS’s proposed approach to recognizing accrediting entities that will determine which health plans meet the requirements to be “qualified health plans” (QHPs) that will be offered by the exchanges.
Provisions in the Proposed Regulations that may be of Particular Interest to Plan Sponsors
Cost-sharing requirements.
- In 2014, the maximum annual deductible for non-grandfathered plans in the small group market will be $2,000/$4,000.This limit on deductibles does NOT apply in the individual market, and there is an exception to this limit even in the small group market:a plan may have higher deductibles if it could not reasonably reach the actuarial value of a given level of coverage (e.g., bronze) and comply with the deductible limits.
- The maximum annual limitation on cost-sharing (out-of-pocket maximum) will be the amount that applies for HDHPs associated with H.S.A.s.For 2013 this amount is $6,250 for self-only coverage and $12,500 for family coverage. This limit applies to all plans, not just those in the small group and individual market.
- After 2014, both cost-sharing limits above may be increased by the “premium adjustment percentage,” which is the amount by which each future year’s average cost of health coverage exceeds the average cost in 2013 (HHS will publish this percentage annually).
- For plans that use a network of providers, the annual limits on cost-sharing and deductibles do not apply to amounts paid for out-of-netowrk services.
HSAs and HRAs.Annual employer contributions to HSAs and amounts newly made available under HRAs for the current year can be counted in the calculation of actuarial value, which appears to mean that annual deductible limits are increased by such employer contributions. However, this does NOT apply in the individual market, but only to plans in the small group market.
Maternity coverage for dependent children.A plan may not exclude dependent children from the category of maternity and newborn coverage. HHS specifies this as an example of the general rule that a plan may not exclude an enrollee from coverage in an entire EHB category covered by the plan. (The exception is that a plan can exclude enrollees age 19 and older from pediatric dental and vision services).
Age threshold for pediatric coverage.Pediatric dental and vision services must be provided to individuals who are under age 19.This is the same age limit under the current requirement that a plan cannot impose pre-existing conditions limitations (to enrollees under age 19).
Actuarial value (AV). HHS specifically notes that research indicates the overwhelming majority of employer-sponsored health plans meets and exceeds an AV of 60%.In both small and large group combined, only an estimated 1.6%-2% of people covered are in plans that do NOT have an AV of at least 60%.
Definition of EHBs. HHS will stick with the state benchmark approach through 2015 – rather than one national definition of EHB that would require issuers to offer a uniform list of benefits—because HHS believes this approach best strikes the balance between comprehensiveness, affordability, and state flexibility.
“Child-only” individual coverage. Issuers that provide any level of coverage in the individual market (for adults or families) also must provide the same product(s) to individuals under age 21 who want to purchase “child-only” coverage.
Calculation of AV. Issuers must use a standard population in calculating AV, and each issuer cannot use its own utilization and pricing data either.
Overview of the Proposed RegulationsThe three parts of the proposed regulations are:
- Health Insurance Reform Requirements for the Group and Individual Health Insurance Markets (Part 147 of 45 CFR)
- Exchange Establishment Standards (Part 155 of 45 CFR)
- Health Insurance Issuer Standards (Part 156 of 45 CFR)
- The bulk of this section details the “essential health benefits” package.
- Additionally, HHS includes two Appendices at the end of the regulations: Appendix A is a List of state EHB Benchmarks, and Appendix B lists the Largest FEDVIP Dental & Vision plans.
Requirement that Small Group and Individual Products Comply with EHB Package (Section 147)
A health insurance issuer offering health insurance in the individual or small group market must ensure that its products provide coverage that includes the essential health benefits (EHB) package as defined in ACA 1302(a), for plan or policy years beginning on or after January 1, 2014. If a health insurance issuer offers coverage in the individual market in any level of coverage (bronze to platinum), it must offer child-only coverage in that level (i.e., to individuals who, as of the beginning of the plan year, are under age 21).
State-Required Benefits that are in Addition to EHB (Section 155)States can require qualified health plans (QHPs) to offer benefits in addition to EHB; however, for individuals who purchase coverage in an exchange and receive a federal subsidy toward the cost of coverage, the federal subsidy will not apply to that portion of the premium that is allocable to state-required benefits that are in excess of the EHB. The state must pay to defray the cost of such additional benefits, and can pay either directly to enrollees or to issuers on behalf of enrollees.
State-required benefits enacted before December 31, 2011, even if not effective until a later date, may be considered EHB, so states are not required to pay for these state-mandated benefits. This will apply for at least plan years 2014-2015. HHS expects there will be few, if any, state payments for state-required benefits, because most states did not enact new state-required benefits after December 31, 2011.
Which additional state-required benefits, if any, are in excess of the EHB? The proposed rule says exchanges will determine this since Exchanges are responsible to certify QHPs. Who will calculate what the cost is of each additional benefit? HHS says each QHP issuer in each state shall calculate the cost of each additional benefit, since the QHP has the necessary data on claims, utilization, trend and other issuer-specific data typically used to calculate the cost of a benefit. Such cost calculations must be made by an enrolled actuary and must be reported to the Exchange.
Products sold in the exchanges must be accredited as “qualified health plans (QHPs). HHS proposes a phased in approach for the timeline for QHP accreditation in Federally-facilitated Exchanges (FFEs), including State Partnership Exchanges. NCQA and URAC already are recognized as accrediting entities on an interim basis, subject to submission of required documentation. The proposed rule introduces a new process by which other entities may submit an application for accreditation.
Details on Health Insurance Issuer Standards under ACA (Part 156)This section, which comprises the bulk of these proposed regulations, details the Essential Health Benefits (EHB) package. Below is a summary of significant provisions.
State Selection of Benchmark Plan (Section 156.100)
The proposed rule codifies the prior guidance that allows each state to select its “base-benchmark plan” from among one of the following four options:
· 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 (FEHBP) 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.
An “EHB-benchmark plan” is one that meets certain EHB standards (that must be met by a qualified health plan or QHP). If the state-selected “base-benchmark plan” doesn’t meet these EHB standards, it must be supplemented by benefits from one of the other options in the categories specified above.
EHB Standards for Multi-State Plans (Section 156.105)
Multi-state plans must meet benchmark standards set by the federal Office of Personnel Management (OPM), which will promulgate guidance soon related to the Multi-State Plan Program (MSPP)
EHB Benchmark Plan Standards (Section 156.110)
The proposed rule lists the ten categories of EHB (listed at the end of this article) and requires that a base-benchmark plan must be supplemented if it does not provide coverage in any one or more of the above areas. If it does not include coverage for habilitative services, the state may determine which ones must be included. If a default base-benchmark plan needs to be supplemented, HHS will supplement it in a specified order. The proposed rule also imposes the somewhat vague standards that an EHB benchmark plan must have an appropriate balance among the EHB categories and must not include discriminatory benefit designs that discriminate (based on an individual’s age, life expectancy, present or predicted disability, degree of medical dependency, quality of life or other health conditions, per section 156.125).
Provision of Essential Health Benefits (Section 156.115)
An EHB benchmark plan must provide benefits that meet all the following:
- Products in the individual and small group markets (both in and outside the exchange) must provide covered benefits that are “substantially equal” to those covered by the EHB-benchmark plan. This applies to covered benefits, limitations on coverage and prescription drug benefits.
- Mental health and substance use disorder benefits (one of the 10 benefit categories) must meet the parity standards in the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA).
- Preventive services must be provided on a first-dollar basis, without cost-sharing.
- Benefit substitution (first introduced in the EHB Bulletin). Issuers may substitute benefits, or sets of benefits, that are actuarially equivalent, but substitution can only occur within benefit categories, not between different benefit categories. Also, the benefit substitution policy does not apply to prescription drug benefits. HHS notes in the preamble (page 31) that a plan may not exclude dependent children from the category of maternity and newborn coverage. But a plan can exclude enrollees age 19 and older from pediatric dental and vision services. Issuers must document that substituted benefits are actuarially equivalent by submitting certification by an enrolled actuary using generally accepted actuarial principles and methods and a standardized plan population. HHS notes that States may enforce a stricter standard on benefit substitution or prohibit it completely.
- An issuer of a plan offering EHB may not include routine non-pediatric dental or vision services, cosmetic orthodontia, or long-term care/nursing home care benefits as EHB. HHS solicits comments on this provision.
Prescription Drug Benefits (Section 156.120)
A plan providing EHB must cover at least the greater of:
- one drug in every category and class, or
- the same number of drugs (though not the same drugs) in each category and class as the EHB-benchmark plan.
A QHP must report its drug list to the Exchange, an EHB plan operating outside the Exchange must report its drug list to the state, and a multi-state plan must report its drug list to OPM. Plans must have procedures in place to allow an enrollee to request clinically appropriate drugs not covered by the health plan.
Cost-sharing Requirements (Section 156.130)
Cost-sharing is defined as any expenditure required by or on behalf of an enrollee with respect to EHB. It includes deductible, coinsurance, copayments or similar charges, but excludes premiums, balance billing amounts for non-network providers, and spending for non-covered services.
- In 2014, the maximum annual deductible for plans in the small group market will be $2,000/$4,000.This limit on deductibles does NOT apply in the individual market, and there is an exception to this limit even in the small group market:a plan may have higher deductibles if it could not reasonably reach the actuarial value of a given level of coverage (e.g., bronze) and comply with the deductible limits.
- The maximum annual limitation on cost-sharing (out-of-pocket maximum) will be the amount that applies for HDHPs associated with H.S.A.s. For 2013 this amount is $6,250 for self-only coverage and $12,500 for family coverage.
- After 2014, both cost-sharing limits above may be increased by the “premium adjustment percentage,” which is the amount by which each future year’s average cost of health coverage exceeds the average cost in 2013 (HHS will publish this percentage annually).
- For plans that use a network of providers, the annual limits on cost-sharing and deductibles do not apply to out-of-network benefits.
HSAs and HRAs.Annual employer contributions to HSAs and amounts newly made available under HRAs for the current year can be counted in the calculation of actuarial value, which appears to mean that annual deductible limits are increased by such employer contributions. However, this does not apply in the individual market, but only to plans in the small group market.
Levels of Coverage (Section 156.140) and Actuarial Value Calculation for Determining Level of Coverage (Section 156.135)
Individual and small group health policies must meet specified actuarial values. The actuarial value (AV) is the percentage paid by a health plan of the total allowed cost of benefits. It is named as four “metals” levels: bronze – pays 60% actuarial value; silver – pays 70%; gold – pays 80%; and platinum – pays 90%. HHS will allow a margin of error of +/- 2%. For example, a silver plan can have an AV of 68-72%.
“Actuarial value“ and “minimum value” are similar. Small group and individual policies must meet specified actuarial values, while self-insured and large insured plans need not meet specified actuarial values, but they must provide a minimum value of at least 60%.
How will issuers determine the actuarial value of a given product? They must use the AV calculator developed by HHS to calculate AV, except that if a “health plan’s design is not compatible with the AV calculator,” (e.g, more complex), the issuer can instead either:
- Fit the plan design into the parameters of the AV calculator and have an enrolled actuary certify that the fit was appropriate, or
- Use the AV calculator to determine the AV for the provisions that do fit within the calculator’s parameters and have an actuary calculate the AV for the features that do not.
HHS notes in the preamble that most plans can use the calculator. It cites an example of plan design that cannot: multiple coinsurance rates at different levels of out-of-pocket spending.
Determination of Minimum Value (Section 156.145)
An issuer of an employer-sponsored plan may use the following methods (which were in Notice 2012-31, issued 5/14/12, to determine whether it provides minimum value:
- The Minimum Value calculator that HHS and the IRS will make available. This will be similar to the AV calculator.
- Any safe harbor established by HHS and the IRS. These design-based safe harbors are checklists that plans can use to compare their provisions to those in the checklists to determine if they meet minimum value. Each checklist describe cost-sharing provisions that apply to the following four categories of benefits and services which comprise the vast majority of GHP spending:
- Physician and mid-level practitioner care
- Hospital and emergency room services
- Pharmacy benefits, and
- Lab and imaging services
- An actuarial certification to determine minimum value.
A group health plan that offers a benefit outside the parameters of the MV calculator may use an actuary to determine the value of that benefit and adjust the MV appropriately.
Stand-alone Pediatric Dental Plans inside the Exchange (Section 156.150)
Stand-alone pediatric dental plans cannot use the standard AV calculator provided by HHS. They must provide either a low level of coverage with an actuarial value of 75%, or a high level at 85%. The level must be certified by an enrolled actuary and can have a valuation variation of not more than +/- 2%.
The 10 Categories of Essential Health Benefits
Ambulatory patient services
Emergency services
Hospitalization
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
Pediatric services, including oral and vision care