The Department of Health and Human Services’ Center for Consumer Information and Insurance Oversight (CCIIO) has issued additional guidance (pdf) on the approach the agency plans to take in defining the essential health benefits (EHB) that non-grandfathered insured health plans in the individual and small group markets must cover under the Affordable Care Act. In December 2011, the agency issued an essential health benefits bulletin that described its proposed regulatory approach in determining which benefits will be deemed essential. Generally, as of January 1, 2014, non-grandfathered plans in the individual and small group market and those in the future insurance exchanges will be required to provide coverage of benefits or services that fall into 10 separate categories, including emergency services, prescription drugs, and maternity and newborn care.

The December bulletin explained that HHS will propose that EHB be defined by a benchmark plan selected by each state, which could be modified as needed so long as the value of coverage is not reduced. The bulletin proposed four separate plan types that could be used as a benchmark: the largest plan by enrollment in any of the three largest small group insurance products in the state’s small group market; any of the largest three state employee health benefit plans by enrollment; any of the largest three national federal employee health benefit plan (FEHBP) options by enrollment; or the largest insured commercial non-Medicaid Health Maintenance Organization (HMO) operating in the state. If the state opts not to use one of these four plan types as its benchmark, HHS intends to propose that the default benchmark plan per state “be the largest small group market product in the state’s small group market.” HHS defines a “product” as a package of benefits an issuer offers that is reported to state regulators in an insurance filing.

The new guidance bulletin is in the form of 22 Frequently Asked Questions (FAQs) that supplement the December guidance. Among other points emphasized by the new bulletin is that while self-insured group health plans, large group market health plans, and grandfathered health plans are not required to offer EHB, they still must adhere to the Affordable Care Act’s prohibition on imposing annual and lifetime dollar limits on EHB. Such plans are, however, allowed to impose non-dollar limits on such benefits, provided that they comply with other statutory requirements. Moreover, these plans are permitted to impose annual and lifetime dollar limits on covered benefits that do not fall within the definition of EHB.

The December bulletin left questions about how the EHB policy would impact self-insured plans, large group market plans and grandfathered plans. In response, the new guidance explains that, in order to determine which benefits are EHB for purposes of the lifetime and annual limit prohibition, the Departments:

consider a self-insured group health plan, a large group market health plan, or a grandfathered group health plan to have used a permissible definition of EHB under section 1302(b) of the Affordable Care Act if the definition is one that is authorized by the Secretary of HHS (including any available benchmark option, supplemented as needed to ensure coverage of all ten statutory categories). Furthermore, the Departments intend to use their enforcement discretion and work with those plans that make a good faith effort to apply an authorized definition of EHB to ensure there are no annual or lifetime dollar limits on EHB.

The guidance explains that for plans that cover employees in more than one state, “the applicable EHB benchmark for the State in which the insurance policy is issued would determine the EHB for all participants, regardless of the employee’s State of residence.”

As for selection of the benchmark plan, the guidance clarifies that a state must choose one EHB benchmark plan only that will apply to plans offered in the individual and group markets and in the insurance exchanges. If a state mandates certain health benefits but selects as its benchmark plan one that does not include such required benefits, the state would defray the cost of offering the extra benefits. Moreover, if the benchmark plan does not cover one of the 10 categories of EHB, the HHS intends to propose that the state supplement the benchmark plan by referencing another benchmark plan that does include the missing category of benefits.

If a state were to select a benchmark plan that included a dollar limit, the benefit would be incorporated into the EHB definition without the limitation. Plans would be allowed, however, to make “actuarially equivalent substitutions” to the dollar limitations within each of the 10 coverage categories. Plans would also be able to make such substitutions per category and still maintain the requisite level of benefits deemed essential. For example, the guidance explains that:

a plan could offer coverage consistent with a benchmark plan offering up to 20 covered physical therapy visits and 10 covered occupational therapy visits by replacing them with up to 10 covered physical therapy visits and up to 20 covered occupational therapy visits, assuming actuarial equivalence and the other criteria are met. The benchmark plan would provide States and issuers with a frame of reference for the EHB categories.

While a plan must offer coverage substantially equal in both scope and benefits to that provided by the benchmark plan, “any scope and duration limitations in a plan would be subject to review pursuant to statutory prohibitions on discrimination in benefit design.”

Other regulations and guidance materials offered by the CCIIO on the Affordable Care Act can be found here.

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