The U.S. Department of Health and Human Services (HHS) outlined its approach for defining the essential health benefits package that insurers must offer under the Affordable Care Act (ACA).

The approach is intended to give states more flexibility as they set up their health insurance exchanges, according to a HHS press release. Under the proposal, states would be given the option of selecting an exisiting health insurance plan as their benchmark for the essential health benefits package. They could choose from four options, all based on enrollment:

One of the three largest small group plans in the state One of the three largest state employee health plans One of the three largest federal employee health plan options The largest HMO plan offered in the state's commercial market The ACA mandates that health insurance plans offered to individuals and small groups, both inside and outside the health insurance exchanges, provide a comprehensive package of coverage and services in 10 categories, called "essential health benefits," according to HHS. Such benefits include preventive care, emergency services, maternity care, hospital and physician services, and prescription drugs.

If the state selects a plan that doesn't include all 10 categories considered to be essential benefits, they can look at one of the other benchmark options to determine what kind of benefits should be included for the missing categories. Insurers would also be giving the option of modifying coverage within a benefit category, as long as the overall value of the coverage doesn't change.

If a state does not choose a benchmark plan, HHS will propose that the largest small group plan in the state serve as the benchmark. HHS noted that Friday's announcement did not relate to cost sharing, such as deductibles, co-payments and co-insurance. Future bulletins will cover the actual value of an essential health benefits package.

Carly Kelly, director of healthcare reform practice at Avalere Health, a consulting group, told Governing that the HHS proposal is "probably good news for consumers that were concerned there wasn't going to be enough variation in plans on the exchange." She also said that states will have to figure out how to make the variations between plans easy for consumers to navigate in the insurance exchanges.

"If you were shopping on the exchange, whether as an individual or an employer, there are still going to be variations in the types of services that are covered, the types of plan designs that you can select," Kelly said.

Input on the proposal is encouraged, the department said. Comments are due by Jan. 31, 2012, and can be sent to