States Face Crucial Choices Over Essential Health Benefits

States must decide what to use as a benchmark for their health insurance exchanges, but dissimilarities among plan benefits and costs cause concerns.
by | February 3, 2012

In December, the U.S. Department of Health and Human Services (HHS) released some initial guidance for states on the essential health benefits (EHB) -- 10 areas of care -- that must be covered by plans sold within the health insurance exchanges created under the Affordable Care Act (ACA). Last month, HHS outlined three small-group insurance plans in each state that could provide a benchmark.

But with less than a year until states must demonstrate to HHS that they can operate an exchange (if they so choose to pursue one), questions about the essential health benefits and the costs that will result from states’ benchmarks linger, a panel assembled by the Alliance for Health Reform and the Commonwealth Fund said Friday.

Regardless of whether a state opts to develop its own exchange or allow the federal government to do so, each state still must select a benchmark plan. If a state chooses not to do that either, the largest small-group plan in the state will be the default.

As states evaluate their choices and make decisions about their EHB benchmark, though, a few fundamental uncertainties remain, according to the panelists, which included Chris Koller, Rhode Island’s health insurance commissioner; Kavita Patel, a fellow at the Engelberg Center for Health Care Reform at the Brookings Institution; and Janet Trautwein, CEO of the National Association of Health Underwriters.

Firstly, there is “no common language” between insurance companies and across states regarding benefits, Koller said. The nomenclature for maternity and newborn care or rehabilitative services could vary significantly from one company to the next. Standardization of defining benefits is a necessary step for states evaluating their options, he said, but in most states, there is “no structure in place for doing this work.” Rhode Island has therefore created a joint exchange planning group, appointed by Gov. Lincoln Chafee, to undertake the decision-making process.

Secondly, there is considerable cost disparity between the potential benchmark plans. Patel broke down the differences in Colorado’s choices. The annual deductible for the top three small-group plans ranges from $750 to $1,500. The state employee plan’s deductible is $1,500, and the federal employee plan’s deductible is $350. Co-payments for office visits run from $15 to $30.

HHS has said it will release guidance on the cost-sharing requirements of plans sold on the exchanges, but none has been given so far. Those rules could have a significant impact on the affordability of the plans offered, the panelists agreed. Many employers are concerned that they won’t be able to continue offering coverage to their employees, Trautwein said, while employees are worried they won’t be able to afford their share of the cost of insurance. Further instruction from HHS is the only way to know if those fears are warranted or not.

There is also a question of existing state mandates for insurance coverage. Many states have their own mandates, which require coverage for services ranging from tobacco cessation programs to orally administered cancer medication. Under the ACA, states must pay for those mandated benefits that fall outside the law’s 10 coverage categories, but HHS has proposed a transition period through 2015, during which states will not be forced to pay for that coverage.

What’s the solution to these issues? Koller has a guess: he expects most states will opt to use their largest small-group plan as their EHB benchmark because that plan would already be required to cover any state mandates. And according to a survey by the National Association of Health Underwriters, most of the 10 categories covered under essential health benefits are already included more than 90 percent of all small-group plans.

So, although some concerns about standardization persist, establishing an EHB benchmark seems to be moving forward as planned. But questions of costs for plans sold on the exchanges are yet to be addressed and likely won’t be until HHS issues another bulletin.

Rhode Island has modeled its expected exchange plans and population, Koller said, and doesn’t anticipate premiums increasing on average. But, Trautwein pointed out, reforms to underwriting for small-group plans could mean that some individuals will see their premiums go up, even if the averages don’t. There could be “winners and losers,” she said. And regardless, Trautwein continued, the fears will linger as long as the details of the cost-sharing aspects of the plans sold on the exchanges remain unclear.

Patel observed that pressure is being placed on state pilot programs approved by the Center for Medicare and Medicaid Innovation to demonstrate that they are capable of producing cost-savings that can be implemented on a larger scale. The lessons learned from those efforts could also impact the long-term efforts to reduce costs.

These questions of affordability will need to be answered, Koller said, but the federal government has been consistent in one way regarding the EHB provision: they are offering flexibility and deferring to the states to make the final decisions. So, despite the challenges that remain, states will have a greater degree of control than would have existed if HHS had issued specific federal mandates. Given the amount of political resistance to the ACA, Koller suggests that course of action is no accident on the part of the Obama administration.

“They’ve threaded that needle very carefully,” Koller said. “State flexibility is important if they want to maintain momentum.”

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