Essential Benefits - Balancing Flexibility and Affordability

On Tuesday, January 24, BenefitMall’s CEO Bernard DiFiore participated in a panel discussion during a general session of the National Association of Health Underwriters Annual Capitol Conference focusing on several pivotal issues associated with how best to define and implement the “essential benefits” requirement pursuant to the Patient Protection and Affordable Care Act (PPACA).  This Legislative Alert addresses several of those key issues.

Keeping Health Insurance Affordable
Many can agree, “Affordability is crucial.  Rising health care costs are the most significant barrier to obtaining and providing health care coverage.” Although PPACA is designed to provide health care to all, individuals both within and outside the health care community worry about the Act’s impacts on the costs of health care.

Defining Essential Benefits
The question of essential benefits is one that remains largely up in the air, primarily because PPACA doesn’t give an exact definition of what constitutes an essential benefit. An added source of confusion stems from the fact that states are given the ability to set the benchmark as to what services to include in the essential health benefits package. The Department of Health and Human Services (HHS) has not provided a more specific definition, even in a fifteen page document designed to provide more information to the public.

Essential health benefits are included in section 1302(b) of PPACA, and must be implemented by non-grandfathered plans in individual and small group markets both in- and out-of-state health insurance exchanges beginning in 2014.

States will be given the opportunity to select one of the following types of plans:

• 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.

HHS Secretary Kathleen Sebelius stated in a press release that allowing states to select a plan, “would give states the flexibility to select a plan that would be equal in scope to the services covered by a typical employer plan in their state.”

Although states are given some flexibility, the essential health benefits package must include items and services from the following ten categories:

• ambulatory patient services
• emergency services
• hospitalization
• maternity and newborn care
• mental health and substance abuse disorder services including behavioral health treatment
• prescription drugs
• rehabilitative and habilitative services and devices
• lab services
• preventive and wellness services and chronic disease management
• pediatric services including oral and vision care. 

Requiring health care plans to include essential benefits under each of these categories has led some to argue that the cost of health insurance premiums will increase drastically and some existing insurance markets may be disrupted. 

Given the difference among states, and even within a state, one might expect a huge variety of services offered among a plethora of different plans. BenefitMall has reviewed plans sold in various markets and found that this is not necessarily the case. As Mr. DiFiore pointed out, the difference between markets lies primarily in the design details of each broad benefit category. As examples, Mr. DiFiore elaborates that prescription drugs may often only provide for generics, and rehabilitation is consistently offered but does not include habilitative or service devices. 

Assessing Consumer Expectations
So what does this mean for the consumer?  When examining the cost differences among the most popular plans in three large markets (e.g., California, Florida and Texas), BenefitMall data shows large discrepancies in almost every area of costs associated with health insurance plans. In particular, the data shows that in some areas, consumers are willing to pay higher premiums for an increased number of benefits and services. In fact, consumers most often choose deductibles that exceed the maximum that is $2,000 as outlined by PPACA’s definition of qualified health plans.  The question of what benefit consumers are most likely to be willing to pay for also varies, as there is no clear preference as to a particular benefit. 

Balancing a National Standard with State Flexibility
This means that states may find it increasingly difficult to lay out essential benefits for their citizens and creating a national standard will be further complicated. The call for a national standard has been echoed by many, including the Institute of Medicine (IOM). In a report titled “Essential Health Benefits: Balancing Coverage and Cost,” the IOM recommended establishing essential benefit packages guided by a national premium target and developing a process for updating benefits that accounts for new evidence about effective interventions and changes in provider and consumer benefits.

The flexibility afforded to states in determining what services to include as essential benefits is viewed by some as a convenient method to allow HHS to avoid making difficult decisions in implementing PPACA.  Ron Pollack, the Executive Director of Families USA, argues “…flexibility must yield to reliable, comprehensive coverage of benefits for consumers…It is essential that HHS provide strong oversight and enforcement of Essential Health Benefits standards as they are implemented in the states.” Judy Waxman, vice president at the National Women’s Law Center, echoes this sentiment, “The disappointing part is that we still had hoped there would be some federal standard on what is medical necessity and how do you determine actuarial value.”

Finding a Solution
The cost of health care has been the topic of debate for months, and as Mr. DiFiore points out, there’s no apparent end in sight. Surveys have shown that 77% of consumers blamed insurance companies for high costs, and 70% believe insurers overcharge for products and services. What can be done to change this thought process while continuing to deliver high quality care? 

Mr. DiFiore proposes that states narrowly define essential benefits within an exchange but also encourage multiple expanded benefit plans outside an exchange to provide consumers with the ability to purchase exactly what they want or need. By encouraging this plan of action, industry professionals must continue to educate customers as to the costs of health care and remain dedicated to an open dialogue of how best to achieve cost containment.

Click here to read more about the essential benefit issue.

Please visit www.benefitmall.com to view past Legislative Alerts. Or, you may visit www.HealthcareExchange.com for blog posts, polls, surveys and numerous resources.

The views expressed in this Legislative Alert do not necessarily reflect the official policy, position, or opinions of BenefitMall. This update is provided for informational purposes. Please consult with a licensed accountant or attorney regarding any legal and tax matters discussed herein.