The Affordable Care Act and the Essential Health Benefits Package

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1 October 24, 2011 The Affordable Care Act and the Essential Health Benefits Package A. Background Under the Affordable Care Act (the ACA or the Act ), and starting in 2014, certain low to moderate income individuals and small business employers will be eligible to purchase private health insurance through state-based health insurance exchanges. While only "qualified health benefit plans" will be sold through exchanges, both qualified health plans and insurers in the individual and small group markets must offer coverage that includes the essential health benefits package. 1 The ACA does not define essential health benefits, but requires the Secretary of the Department of Health and Human Services (the Secretary or HHS ) to determine the nature of those benefits, subject to certain listed criteria. The ACA itself provides that beginning in 2014 an essential health benefits package must include coverage for specific categories of benefits, meet certain cost-sharing standards, and provide certain levels of coverage. At a minimum, coverage must include the following items and services: Ambulatory patient services; Emergency services; Hospitalization; Maternity and newborn care; Mental health and substance use disorder services; 1 A small group is defined as one with no more than 100 employees.

2 Prescription drugs; Rehabilitative and habilitative services and devices; Laboratory services; Preventive and wellness services (including chronic disease management); and Pediatric services (including oral and vision care). A qualified health plan under the essential health benefits package will be subject to costsharing limits that are equal to the amount of out-of-pocket expenses that would qualify a plan as a high deductible health plan under the Internal Revenue Code as of 2014 (these limits for fiscal year 2010 were set at $5,950 for self-only coverage and $11,900 for family coverage). For this purpose, the term cost-sharing includes deductibles, coinsurance, copayments or similar charges and any other expenditure required of an insured individual that is a qualified medical expense for such essential health benefits covered under the plan (the Internal Revenue Code defines qualified medical expenses as the amounts paid by an insurance beneficiary for medical care that are not compensated by an insurer). It does not include premiums, balance billing amounts for non-network providers, or spending for noncovered services. Small group health plans providing the essential health benefits package will be further prohibited from imposing a deductible greater than $2,000 for self-only coverage, or $4,000 for any other coverage in 2014 (annually adjusted thereafter). Additionally, a qualified health plan offering the essential health benefits package must offer one of four specific levels of coverage. A plan in the bronze level provides a level of coverage that is designed to provide benefits that are actuarially equivalent to 60 percent of the full actuarial value of the benefits provided under the plan. Silver-level plans, gold-level plans and platinum-level plans are designed to provide benefits actuarially equivalent to 70 percent, 80 percent and 90 percent, respectively, of the full actuarial value of the benefits provided under the plan. The ACA further requires the Secretary to ensure that the benefits defined as essential health benefits must be equivalent to the scope of benefits provided under the typical employer-sponsored plan. In order to determine the scope of benefits provided in a "typical" employer-sponsored plan, the Act requires the Department of Labor to conduct a survey of employer-sponsored plans and report the results to the Secretary.

3 The ACA grants HHS some discretion to determine specific elements of the essential health benefits package. When designing the benefits package, the Secretary must factor in the following considerations: The package must reflect an appropriate balance among the essential benefits; The package must not be designed regarding reimbursement rates or coverage decisions in ways that discriminate against individuals because of their age, disability, or expected length of life; The package should reflect the health needs of women, children, persons with disabilities, and other diverse segments of the population; Essential health benefits cannot be denied to individuals based on age, life expectancy, current or predicted disability, degree of medical dependency, or quality of life; The package must provide coverage for emergency room services in situations where the service provider does not have a contractual relationship with the plan; Cost sharing for such out-of-network service may not exceed what would apply if the service were performed in-network; and If a stand-alone dental plan is offered through an exchange, other health plans offered through that exchange need not provide for the pediatric dental care that is otherwise required as an essential benefit. The Secretary must also periodically review the essential health benefits package and provide a report to Congress that contains an assessment of whether changes are merited either because enrollees face difficulty accessing services or because of medical advances. The report must describe how the Essential Health Benefits will be modified to address these issues, and must also assess the relationship between additional benefits and additional costs. To the extent such review identifies gaps or necessary changes, the Secretary must periodically update the definition and scope of the Essential Health Benefits to address those issues.

4 B. Defining Essential Health Benefits At the request of the Secretary, the Office of the Assistant Secretary for Planning and Evaluation contracted with the Institute of Medicine ( IOM ) to help HHS determine the process for defining the benefits that should be included in the essential health benefits package. 2 Specifically, the IOM was asked to: (1) identify the criteria and policy foundations for determining the meaning of essential health benefits; (2) assess the methods used by insurers to measure medical necessity; (3) advise the Secretary on how to take into account certain required considerations under the law when implementing the essential health benefits package; (4) advise the Secretary regarding a periodic review process; and (5) advise the Secretary on the interaction between the essential health benefits package and different sections within the ACA, including coverage of preventive services, utilization of uniform explanation of coverage documents, and other matters. The IOM s report on this process, Essential Health Benefits: Balancing Coverage and Cost, was released on October 7, The IOM stressed the importance of general affordability and the cost-effectiveness of providing each benefit. The IOM recommended that HHS consider potential benefits against a set of criteria, including medical effectiveness, safety, and value compared with alternative options, and evaluate whether the essential health benefits package protects vulnerable individuals, promotes effective services, and addresses the public s most important medical concerns. Specific benefits mandated by state law should be subject to the same review and criteria. The IOM also suggested that the initial essential health benefits package should include the design and scope of benefits that are usually provided by small employers in the current market (a silver plan as defined for qualified health plans sold through the exchanges). The 2 The IOM is an independent, nonprofit organization that provides health-related advice to government decision makers and the general public.

5 IOM stated that these benefits are often less generous than those provided by larger employers, but that small employers will be among the main customers for policies in the state-based exchanges. 3 Additional recommendations contained in the IOM report include the following: By May 1, 2012, HHS should establish an initial essential health benefits package guided by a national average premium target, defined as what small employers would have paid, on average, in 2014; By January 1, 2013, HHS should establish a framework for obtaining and analyzing data necessary for monitoring implementation and updating the essential health benefits package; States operating their own exchanges should be allowed to create their own version of the essential health benefits package as long as certain standards are met; HHS should create a framework and infrastructure for collecting data and analyzing the implementation of the initial essential health benefits package; HHS should create a National Benefits Advisory Council to advise the Secretary on updates to the essential health benefits package; and HHS should require Part D sponsors submitting prescription drug event records to include prescribers National Provider Identifiers, and require pharmacy benefit managers under Part D to report additional financial information to increase transparency. Although it is not required to adopt IOM s recommendations, HHS has indicated that it will consider them and expects to issue its proposed rule on the essential health benefits package soon, although not before holding a series of listening sessions with various stakeholder groups. 4 3 Under the ACA, a large employer generally has more than 100 employees while a small employer generally has 100 or fewer employees. Sec. 1304(b) of the ACA. 4 The Secretary is expected to issue guidance on the essential benefits package during 2012 because Section 1321(c) of ACA requires the Secretary to make an assessment by January 2013 that the states will have operational exchanges by January 1, 2014.

6 More information on Essential Health Benefits: Balancing Coverage and Cost is available at Cost.aspx. This Update provides general information and not legal advice or opinions on specific facts.