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Update: Essential Health Benefits

Posted on December 20, 2011 | No Comments

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Editor's Comment
Implementation Briefs
Key Developments

By Sara Rosenbaum

On December 16, 2011, the HHS Center for Consumer Information and Insurance Oversight (CCIIO) released an Essential Health Benefits Bulletin (Accessed online December 19, 2011), whose purpose is to “provide information and solicit comments on the regulatory approach that the Department of Health and Human Services (HHS) plans to propose to define essential health benefits under section 1302 of the Affordable Care Act.” Comments on the Bulletin can be sent directly to and will be accepted until January 31, 2011.


An earlier Implementation Brief described the “essential health benefit” (EHB) provisions of the Affordable Care Act, PPACA §1302. Section 1302 directs the HHS Secretary to define EHB requirements, which under the law, apply to products sold in the individual and small group markets, both inside and outside state insurance Exchanges. The EHB definition, also applies to Medicaid benchmark and benchmark equivalent plans (covering newly eligible beneficiaries and certain other Medicaid beneficiaries at state option), as well to state Basic Health Programs (see the Basic Health Program Implementation Brief here).

Section 1302 describes EHBs as consisting of 10 benefit classes: (A) ambulatory patient services; (B) emergency services; (C) hospitalization; (D) maternity and newborn care; (E)mental health and substance use disorder services, including behavioral health treatment; (F) prescription drugs; (G) rehabilitative and habilitative services and devices; (H) laboratory services; (I) preventive services and wellness services and chronic disease management; (J) pediatric services including oral and vision care.[1] The Secretary is required to ensure that the scope of essential health benefits is “equal to the scope of benefits provided under a typical employer plan, as determined by the Secretary.”[2]

Furthermore, the Secretary must take certain “elements for consideration”[3] into account “in defining the essential health benefits”. Among these elements are the following: (A) an appropriate balance among benefit categories; (B) a prohibition against coverage decisions, reimbursement rates, or incentive programs in ways that discriminate against individuals because of their age, disability, or expected length of life; (C) take into account the health care needs of diverse segments of the population including women, children, persons with disabilities, and other groups; and (D) a bar against the denial of EHB coverage based on age, expected length of life, present or predicted disability, degree of medical dependency, or quality of life.

A report by the IOM issued in October 2011[4] recommended that the Secretary use the small group market to guide her EHB policies. The IOM further recommended that the Secretary take a nationally uniform approach to interpreting EHBs that would allow insurers wide discretion to interpret and apply the terms of the statute within broad federal standards and a national premium target tied to the small group market. Under the IOM proposal, updates of the package, within the national premium target, would also happen.

The CCIIO Bulletin

CCIIO overview of the current state of benefit design in relation to the EHB

Based on its own reviews and the IOM report, the Bulletin concludes that with certain notable exceptions, plans do not differ significantly in the range and scope of benefits offered across plan markets; instead, differences exist mainly in the area of cost-sharing. According to CCIIO, plans and products offered “appear to generally cover health care services in virtually all of the 10 statutory categories.” Differences also exist, however, with respect to both range and scope and across states:

  • Differences exist in “preventive and basic dental care, acupuncture, bariatric surgery, hearing aids, and smoking cessation programs and medications.”
  • Differences exist in coverage of in-vitro fertilization and applied behavioral analysis (ABA) for children with autism, with such procedures mandated under certain state laws but not covered by the Federal Employee Health Benefit Plan (FEHBP), or state employee health benefit plans. The Bulletin indicates that its review of state benefit mandates suggests that there are approximately 1600 separate service and provider mandates across all states and the District of Columbia. According to the Bulletin, the federal employee plan option covers about 95 percent of the “benefit and provider mandate categories required under state mandates,” but does not cover in vitro fertilization (required in 8 states) and ABA for children with autism (required in 29 states).
  • The Bulletin also reports that differences exist in how behavioral health benefits are characterized, with variations among insurers. CCIIO also notes that ABA for children with autism is not typically offered as a behavioral health benefit by small group insurers unless mandated by the state.
  • With respect to pediatric vision and oral health care, CCIIO references the federal plan, which covers “preventive and basic dental services such as cleanings and filling, as well as advanced dental services such as root canals, crows and medically necessary orthodontia.
  • In the case of habilitative services, CCIIO notes widespread non-coverage but also that certain types of procedures (e.g., physical therapy, occupational therapy, and speech therapy may be covered as rehabilitation services), although, according to the agency, at least one insurer indicates that these services are excluded for children with autism. The Bulletin does not discuss the use of exclusions by insurers in the case of people who need treatment to attain or maintain function or avoid deterioration in functioning, as opposed to recovering from an illness or injury. Nor does the overview indicate how insurers currently address issues of balance and non-discrimination.

Intended Regulatory Approach

The Bulletin describes broadly the approach that CCIIO intends to take in defining EHBs.

General approach. The Bulletin takes a broadly descriptive approach, noting that “as a general matter, our goal is to pursue an approach that will:” encompass the 10 categories of coverage; reflect “typical” employer plans; reflect balance among the categories; account for diverse needs across many populations; ensure there are “no incentives for coverage decisions, cost sharing, or reimbursement rates to discriminate impermissibly against individuals because of their age, disability, or expected length of life;” ensure compliance with the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA); provides states “a role in defining EHBs;” and balance “comprehensiveness and affordability.”

EHB benchmarks. The Bulletin identifies four potential benchmarks that “best reflect” the EHB statutory provisions: (1) the largest plan by enrollment in any of the three largest small group insurance products in the state’s small group market; (2) any of the largest three state employee health benefit plans by enrollment; (3) any of the largest three national FEHBP plan options by enrollment; or (4) the largest insured commercial non-Medicaid Health Maintenance Organization (HMO) operating in the state.

  • The Bulletin indicates that its proposed policy is that HHS will re-assess these benchmarks in 2016 and beyond “based on evaluation and feedback”, although the precise process for developing evaluation and feedback is not described.

Process for benchmark selection. The Bulletin indicates that states will be “permitted to select a single benchmark to serve as the standard for qualified health plans inside the Exchange” as well as for plans offered in the state’s individual and small group market.

  • The reference point for determining the benchmark will be “enrollment data from the first quarter two years prior to the coverage year,” with states required to select their benchmark in the third quarter two years prior to the coverage year,” so that plans have notice regarding required benefit design.
  • In states that do not select a benchmark, the Bulletin states that HHS will select a “default benchmark plan” that would be the largest plan by enrollment in the largest product in the state’s small group market.”

Alignment of EHB requirements with state benefit mandates. With respect to state benefit mandates, the Bulletin suggests that states will be expected to coordinate between the EHB and their mandates during a 2014-2015 “transition period”. This transition period will allow states to determine which of their mandates fall within the EHB so that they know the additional mandates whose costs would have to be “defrayed” by the state if they are offered as part of qualified health plans sold through a state Exchange. The Bulletin indicates that this approach is consistent with the Medicaid and CHIP approaches to the creation of state “benchmark” plans, which recognizes that “issuers make a “holistic decision in constructing a package of benefits and adopt packages they believe balance consumers needs for comprehensiveness and affordability.”

Individual issuer variation from benefit mandates. The Bulletin expressly indicates that “issuers could adopt the scope of services and limits of the state benchmark or vary it within the parameters described” in the Bulletin.

Covering all 10 EHB categories. The Bulletin states that issuers must cover all 10 EHB benefit categories, so that if a category is missing, a state will be expected to supplement it. The Bulletin indicates that “we are considering policy options for how a state supplements its benchmark benefits if the selected benchmark is missing a category of benefits.” The Bulletin indicates that states will be expected to use other benchmarks to define missing categories. The Bulletin also notes that “in a state with a default benchmark with missing categories, the benchmark plan would be supplemented using the largest plan in the benchmark type” (e.g., small group, state employee plan, or FEHBP) offering the category.

Defining pediatric oral and vision and habilitative care. Because benchmarks typically do not offer these two coverage categories, the Bulletin states that “we are continuing to consider options for supplementing missing categories” in states that do not choose the approach specified by CCIIO.

  • For habilitation services, CCIIO indicates that it is considering two possible supplementation approaches. Under the first approach, a state benchmark plan would be required to offer parity between habilitation and rehabilitation services (e.g., OT, PT, and speech therapy) with coverage determined in relation to the concept of “keeping” or “maintaining” function. The Bulletin suggests use of the NAIC definition of habilitation, published in the August 22 Federal Register (76 Fed. Reg. 52,475), which defines habilitation as “health care services that help a person keep, learn, or improve skills and functioning for daily living. Examples include therapy for a child who isn’t walking or talking at the expected age. These services may include physical and occupational therapy, speech language pathology and other services for people with disabilities in a variety of inpatient and/or outpatient settings.”[5] Under the second approach (termed “transitional” in the Bulletin) health plans would be permitted to define the term and would report their definitions to the Secretary.
  • In the case of pediatric oral and vision care, the Bulletin suggests that the agency is considering using either a state CHIP program or the FEHBP to guide benefit definition. However, the Bulletin also indicates that here too, the agency is considering an alternative “transition” policy under which the plans themselves would define the scope of the benefits and report their results to HHS.

Parity. The Bulletin indicates that MHPAEA will apply to all benchmarks.

Benefit design flexibility. The Bulletin makes clear that actuarial equivalence will be permitted. That is, consistent with the CHIP and Medicaid benchmark policy, plans will be able to offer benefits that are “substantially equal” to the benchmarks, provided that all 10 categories are represented. The Bulletin indicates that it is considering whether to limit substitution to each specific category or to allow broader plan substitution across all categories (for example, offering more limited habilitation services but broader preventive services). The Bulletin also indicates that Medicare Part D’s benefit design flexibility standard will apply as a measure of permissible flexibility to substitute benefits.

Benefit updates. The Bulletin invites comments on best approaches to updating benefits and on approaches to gathering information and making an assessment of “whether enrollees have difficulties with access for reasons of coverage or cost, changes in medical evidence or scientific advancement, market changes not reflected in the benchmarks, and the affordability of coverage as it relates to EHB.”

Key Issues

The agency will consider comments regarding its intended approach. Key issues are as follows:

Medicaid benchmarks, EHBs and EPSDT. The Bulletin notes that the approach it is using parallels the Medicaid and CHIP benchmark approaches. However, in the case of the Medicaid benchmark, the benchmark must include all EPSDT benefits for children. The Bulletin does not explain how the essential health benefit provisions with their benchmark flexibility (a hallmark of separately administered CHIP programs) will be adjusted to reflect Medicaid’s EPSDT requirements across all 10 EHB categories.

State benefit mandates. The Bulletin suggests that states will have the discretion to determine alignment between the EHB categories and their mandates. How will the proposed rule address, if at all, a state’s decision to exclude a particular mandate from an EHB category under its benchmark if the state mandate otherwise falls within the benefit category? For example, ABA for children with autism is potentially a behavioral health benefit or a habilitative benefit. Will a state be permitted to exclude such treatments from its benchmark if state law mandates ABA as a requirement in some but not all health plan markets functioning in the state?

Habilitation and pediatric vision and oral care. The bulletin indicates that it is considering two options in each case, the first, a standard, and the second, a “transitional” grant of discretion to plans with reporting requirements. How long would the transitional period be? Will the proposed rule place any limits on this transitional discretion, particularly in light of the Bulletin’s approval of plan substitution discretion as well? At what point might HHS consider either habilitation or pediatric oral and vision care not covered within the meaning of the law?

Plan discretion to substitute within and across EHB categories. HHS indicates that it is considering permitting plans to substitute within and across EHB categories at their discretion. If this approach is adopted, what limits might be placed on this discretion?

Assessments. The Bulletin discusses the agency’s obligations to assess access issues that may arise depending on the definition of EHB coverage. Given the variability in coverage that HHS proposes to permit, what will this assessment process look like?

[1] PPACA §1302(b)(1).
[2] PPACA §1302(b)(2).
[3] PPACA §1302(b)(4)(A)-(G).
[4] Essential Health Benefits: Balancing Coverage and Cost (Accessed online, December 19, 2011).
[5] 76 Fed. Reg. 52529 (August 22).
PPACA §1302(b)(1).
PPACA §1302(b)(2).
PPACA §1302(b)(4)(A)-(G).
Essential Health Benefits: Balancing Coverage and Cost (Accessed online, December 19, 2011).
76 Fed. Reg. 52529 (August 22).

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