HHS Proposes Framework for Meeting Essential Health Benefits Requirement Under Affordable Care Act

On December 16, 2011, the Department of Health and Human Services’ Center for Consumer Information and Insurance Oversight (CCIIO) released an essential health benefits bulletin (pdf) that describes a proposed regulatory approach that the HHS will use to define essential health benefits (EHB) under the Affordable Care Act. The health care reform law requires that, beginning in 2014, health plans offered in the individual and small group markets, including those to be offered in the future health insurance exchanges, provide a package of benefits and services considered “essential.” While the Act does not specify the EHBs that must be covered by each plan, it does state that as of January 1, 2014, non-grandfathered plans in the individual and small group market and those in the exchanges must provide coverage of benefits or services in the following 10 categories: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care. In addition, the Act mandates that the scope of EHBs must be equal to the scope of benefits provided under a “typical” employer plan.

Generally, the bulletin explains that the HHS will propose that EHBs 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 four benchmark plan types for 2014-2015 would include:

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 federal employee health benefit plan (FEHBP) options by enrollment; or
4. the largest insured commercial non-Medicaid Health Maintenance Organization (HMO) operating in the state.

States would opt for one of the above benchmarks to represent the standard EHBs for qualified health plans offered in the individual and small group markets in their state, as well as those offered in the state’s insurance exchange. If the state does not select any of the four benchmarks, the HHS will consider the default benchmark to be the small group plan with the largest enrollment in the state. The agency intends to stipulate that health plans offer benefits that are “substantially equal” to the benchmark plan selected by the state and modified as necessary to include benefits for all 10 coverage categories.

According to the HHS, “a major advantage of the benchmark approach is that it 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.”

The HHS intends to update the benchmarks over time. HHS states that it intends to assess the benchmark process for the year 2016 and beyond based on evaluation and feedback.

The guidance discusses an approach to define the services and items covered by a health plan only. It does not address such cost-sharing factors as deductibles, copayments, or coinsurance, which the HHS indicated will be the subject of future guidance. Future cost-sharing rules will be used to determine the actuarial value of the health plans.

The definition of essential health benefits has implications for health plans in the large group market as well. The Affordable Care Act prohibits plans from imposing lifetime and annual limits on the dollar amount of essential health benefits. Prior to 2014, plans can impose annual limits only if the limit exceeds a specified threshold.

The agency is soliciting public comment on the approach suggested to determine the EHBs of a typical plan. Comments must be received by January 31, 2012, and may be sent to: EssentialHealthBenefits@cms.hhs.gov.

In addition to the bulletin, the HHS has issued a fact sheet on this proposed strategy, as well as a summary of individual market coverage as it relates to essential health benefits and information for comparing benefits in small group products with state and federal employee plans.

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