By Sara Rosenbaum and Katherine Jett Hayes

Background

Under the Affordable Care Act (ACA) beginning January 1, 2014,^[1] state insurance Exchanges become operational and comprehensive insurance market reforms take effect. One of the most significant market reforms is the requirement that all health insurance plans sold in the individual and small group (100 employees or fewer) markets – whether sold outside or inside state insurance Exchanges – cover “essential health benefits” (EHBs).^[2] The definition of EHBs also will apply to Medicaid “benchmark” plans, the specified coverage standard for individuals made newly eligible by the ACA’s Medicaid expansions.^[3]

A previous Implementation Brief provided a general overview of essential health benefits. This Update reviews a major report issued by the Institute of Medicine (IOM) on October 7, 2011. The purpose of the report, carried out at the request of the United States Department of Health and Human Services (HHS), is to guide the HHS Secretary in developing implementing regulations. Specifically, HHS tasked IOM 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 EHB provisions; (4) advise the Secretary regarding a periodic review process; and (5) advise the Secretary on the interaction between the EHB provisions and other parts of the ACA, including coverage of preventive services, utilization of uniform explanation of coverage documents, and other matters.^[4]

The essential benefit statute in the ACA contains several components relevant to the IOM report.

First, it directs the Secretary to define the term “essential health benefits” through a process that allows for notice and public comment.

Second, the law sets forth 10 general categories of benefits and directs the Secretary to include in her definition “at least [such] categories and the items and services within the categories”: (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 and wellness services and chronic disease management; and (J) pediatric services, including oral and vision care.

Third, the EHB statute directs the Secretary to “ensure that the scope of the essential health benefits is equal to the scope of benefits provided under a typical employer plan” and to certify through CMS’ Chief Actuary that the equivalency test is met. The term “typical employer plan” is not defined; instead the Act directs the HHS Secretary to work with the Secretary of Labor to determine “the benefits typically covered by employers, including multiemployer plans.”

Fourth, the law requires the Secretary to take certain “elements for consideration” into account in developing the definition of essential health benefits.^[5] Among other considerations, the Secretary must:

(A) ensure that coverage across the 10 benefit categories be equitably weighted so as not to “unduly” weight toward any specific EHB category;

(B) not “make coverage determinations, determine reimbursement rates, establish incentive programs, or design benefits 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”;

(D) ensure that essential health benefits are “not subject to denial to individuals against their wishes on the basis of the individuals’ age, expected length of life or of the individuals’ present or predicted disability, degree of medical dependency, or quality of life”;

(E) assure that coverage for emergency department services will be provided without prior authorization requirements, regardless of whether the provider has a contractual relationship with the plan, and in accordance with in-network cost-sharing rules;

(F) assure that stand-alone dental benefit plans are not treated as failing to qualify for inclusion as qualified health plans;

(G) “periodically review” the essential health benefits and report to Congress and the public on several matters, including access problems related to coverage and cost, an assessment of the need for modification, information on how to modify essential health benefits to meet access gaps, and information on how the essential benefit package may need to be modified to meet the actuarial certification standard.

Fifth, the EHB statute itself is silent on the relationship between the Secretary’s federal EHB definition and state benefit mandates. A separate provision of the ACA provides as follows:

“No Interference with State Regulatory Authority – Nothing in this title shall be construed to preempt any state law that does not prevent the application of the provisions of this title.”^[6]

The IOM Report

The IOM Committee report assesses the oral and written evidence considered, frames the issues, offers an interpretation of the ACA’s legislative intent, and makes a series of recommendations based on this interpretation.

Assessing the Evidence

In describing the evidence gleaned from its public workshops and examination of the evidence, the Committee identifies several “major issues”:^[7]

• “Setting a balance” between comprehensiveness and affordability;
• How to define the concept of a “typical” employer plan;
• Determining whether state mandates should be included, given the fact that the ACA “does not require the EHB to include the myriad existing benefits mandated by individual states”;^[8]
• How “specific EHB guidance should be and when state-to-state variation might be allowable” given the Committee’s view that the law is designed to bring “more uniformity to implementation across states”;
• The desirability of coverage design based on “evidence” that also creates “opportunities for innovation both in medical care and insurance design” and to assure “fair processes” for both benefit definition and the receipt of “coverage that is intended.”

Policy Foundation for the EHB Package

The Committee proposes a policy foundation for defining EHBs, which consists of:

• Economic principles aimed at using insurance to “protect against the risk of unforeseen large health care expenditures,” to “promote quality and efficiency,” to curb against “market failures that result from incomplete or excessive costly insurance options,” and to promote “high value services”;
• Ethical principles including fair and transparent decisions “about the distribution of societal resources,” protecting “society’s most vulnerable,” “stewardship of limited resources,” and “shared responsibility for improving health among consumers, employers, insurers, providers and government”;
• Evidence-based practice in order to apply “the best scientific evidence to clinical decision-making,” promote “value-based decisions,” and “integrate clinical expertise, patient values, and best research evidence into patient care decision-making”; and
• Population health considerations that allow insurance to “facilitate efforts to improve population health” through “primary, secondary and tertiary prevention” and the elimination of disparities.

Resolving ACA intent

In reaching its recommendations, the Committee first considers the ACA’s “intent,”^[9] identifying what it considers to be key ambiguities in the law:

• the meaning of “essential”;
• the extent to which the 10 EHB categories in fact are covered in the “typical” employer plan and how to identify a “typical” plan;
• the boundaries for defining essential benefits and the degree of specificity the Secretary should follow in defining EHBs; and
• how state mandates should be considered and distinguishing between “medical and nonmedical” services in the context of EHBs.^[10]

The Committee then reaches the following “conclusions” as to how to resolve these ambiguities:

• The EHB package should be viewed as a basic plan “that will meet the statutory requirements of a typical employer plan and its expansion to the 10 categories before considering any other additions.” The Committee notes that it is unclear whether habilitation, wellness, and chronic disease management programs and pediatric oral and vision care are covered in typical plans and that if not, the EHB definition will have to be expanded to accommodate these additional categories.^[11]
• The law should not be interpreted as requiring automatic inclusion of all items and services falling within the 10 broad benefit categories, even in the case of items and services that do in fact fall within a typical employer plan.
• The concept of a “typical employer plan” should include not only what is covered, but what individuals must pay for their coverage.
• Items and services that fall within a covered benefit class and that are “not expressly excluded” under the terms of the plan should be covered if medically necessary for individual patients, meaning that silence on specific treatments and procedures within a covered benefit class would lead to their coverage if medically necessary. At the same time, insurers should be given broad discretion to exclude items and services that in their view serve a “primarily educational or social” function, “with oversight by state regulators and HHS to document what services are offered or excluded, particularly in the area of habilitation.”
• Differences between small and large employer plans have less to do with benefit classes or premiums and more to do with the design of coverage itself, including limits, exclusions, and higher cost-sharing.
• State benefit mandates should not “receive any special treatment in the definition of the EHB” and their inclusion essentially should be preempted (i.e., not required of insurers) unless such mandated benefits can be shown to meet the evidentiary test set out in the Committee’s final recommendations.

Committee Recommendations

• In tying the EHB package to a “typical” employer plan, the “typical” plan should be based on what is offered by small employers. But because the evidence of what is typical is limited, the scope of what is typical should be tied to the premium rather than to a specific benefit definition.
• Simply because services and items fall within the 10 EHB categories or might be offered in a typical employer plan does not mean that they are in fact “essential.”
• The Secretary should offer “as much specificity as can be developed from current best practices in plan documentation” in order to “ensure a more consistent national benefit package.”
• The process to define the EHB package should begin with a “typical employer plan based on available knowledge. The Secretary should develop a “preliminary service list” with inclusions and exclusions across the 10 categories, calculate the premium, and then adjust the final package by reconciling the preliminary premium to a small employer premium target and using a public consultative process.
• The Secretary should publish detailed guidance on what is considered specifically included or excluded, “at least comparable in current best practice in the private and public insurance market.”^[12]
• With respect to the “required elements for consideration,” limits should be “evidence based,” not arbitrary, and covered if medically necessary. Insurers should be required to attest to the non-discriminatory nature of their coverage. Emergency room coverage should be directly specified as a contract requirement. With respect to the definition of medically necessity, however, the Committee offers no definition but recommends that all medical necessity decisions should be “strongly rooted in evidence.” The Committee also recommends that “any guidance on medical necessity” should guard against “inflexibility in the application of medical necessity, clinical policies, medical management, and limits without consideration of the circumstances of an individual’s case” since such an approach is “undesirable and potentially discriminatory.”
• By January 1, 2013, the Secretary should establish a framework for obtaining an analyzing data for monitoring and updating the EHB. The framework should include changes in payment rates, contracting, financial incentives, scope of organization and practice, changes related to patients and consumers, including health status and problems with access, and changes related to characteristics of plans, cost-sharing practices, patterns of enrollment, disenrollment, network configuration, medical management programs (including medical necessity determination process), value-based insurance design, and beneficiary cost-sharing, among others.^[13] In addition, the Secretary should establish an infrastructure to timely analysis of data by federal agencies, and make the information available for public use.^[14]
• The Secretary should explicitly incorporate costs into updates to the EHB package by obtaining an actuarial estimate of the national average premium for a silver plan based on existing benefits, with changes in the EHB package held to those that can be accommodated within the actuarially estimated cost of the current package in the next plan year. A public process should inform choices about the inclusion or exclusion of benefits.^[15] To ensure affordability over time, the Secretary should develop a multi-payer cost containment strategy in collaboration with others in order to hold health care spending in line with the rate of growth in the economy.^[16]
• The Secretary should establish a National Benefits Advisory Council staffed by HHS to advise the Secretary on a research plan and data requirements, make recommendations annually regarding changes in benefits, premium targets and mechanisms to enhance the evidence base of the EHB package, and to advise the Secretary on conducting and using results of a periodic national public deliberative process.^[17]

Key Questions

• What is a typical plan? The Committee recommends that the concept of a “typical plan” be tied to the actuarial value of small employer group products, noting that the EHB statute is aimed in great measure at the small group market and that little is known about the design of products in this market other than pricing. Will the Secretary utilize the small group market as the norm for measuring “typical” coverage, and if so, will “typical” be based in actuarial value rather than benefit design?
• Cost as part of benefit design. Will the Secretary use the cost of a premium to shape benefit design in the manner recommended by the Committee, that is, by reconciling the elements of benefit design to the standard premium in the small group market?
• EHB benefit classes that are not “typical.” The Committee notes that certain benefit classes – habilitation, pediatric oral and vision, wellness, case management services – are not in fact “typical.” Will the Secretary reduce coverage for these benefits first if she elects to utilize the Committee approach of adjusting coverage to reflect the actuarial value of a small employer benefit package?
• Preemption of state benefit laws. The Committee notes that the EHB statute is silent on the issue of state benefit mandates but does not note that the preemption test under the Act bars preemption unless a state law would directly prevent the achievement of the Act. Given the role of state regulation under the Affordable Care Act, will the Secretary interpret the EHB statute as preempting state requirements for benefits and coverage that fall within the 10 statutory benefit categories?
• Degree of specificity. Will the Secretary follow the Committee’s recommendations regarding specificity of coverage design and develop comprehensive guidance regarding benefit design that is based on insurer “best practices”?
• All or just some services? The Committee concludes that the intent of the ACA is not to include all items and services falling within the 10 benefit classes. Will the Secretary allow insurers the discretion to exclude otherwise covered items and services, and will such exclusions have to be explicit?
• Educational and social versus medical. The Committee recommends that health insurers be given the discretion to exclude otherwise covered items, treatments, and services on the ground that in the judgment of the insurer, such treatments serve a “primarily” social purpose. Will the Secretary allow such practices and if so, how will insurers be expected to reconcile such practices with the law’s non-discrimination standards for persons with disabilities, as well as the mandated inclusion of habilitation services that by definition serve both a developmental and health care function?
• Patient and consumer protections. The Committee recommends strict explicit coverage limits and exclusions but also recommends coverage of non-excluded treatments and services determined to be medically necessary. Will the Secretary place emphasis on the appeals process to resolve medical necessity denials and, if so, will the HHS, Labor, and Treasury Departments modify external appeals rules issued earlier in 2011 that limit the scope of external review, provide less information and time for consumers to appeal, and arguably place barriers to the timely appeal of denials?^[18] How will the agencies modify the appeals process to ensure that appeals also can address claims of coverage discrimination based on “age, expected length of life or of the individuals’ present or predicted disability, degree of medical dependency, or quality of life”?
• Updates to the EHB package. Will the Secretary adhere to the IOM recommendation that updates must, if they occur, have no impact on the premium, thereby requiring the elimination of items and services if new innovations in coverage are added?