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New Minimum Standards for Health Care Benefits

Starting in 2014, the federal government will mandate new minimum standards for health benefit packages in the small group and individual insurance markets. These essential health benefit (EHB) will impact plans both inside and outside the state-based health insurance exchanges scheduled to launch in 2014.

While we are still waiting for a complete proposed regulation from the Department of Health and Human Services (HHS) detailing the rules for EHB, HHS released a brief “bulletin” describing the federal government’s overall approach to EHBs on December 16, 2011. Though more details are needed, the bulletin answers an important strategic question – will the federal government impose prescriptive, uniform benefit standards on all states, or will they allow for flexibility in determining what constitutes an EHB package? The bulletin indicates that HHS is trying to promote flexibility over uniformity.

What are EHBs? Section 1302 of the Protection and Affordable Care Act (PPACA) defines 10 necessary categories that the essential health benefits package must include: ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services, habilitative services and devices, lab services, preventive and wellness, and pediatric services. The goal of EHBs is to create greater uniformity in the small group and individual market, so minimum benefit standards reflect a “typical” employer plan.

Who is affected? All plans must offer the EHB package to qualify for participation in the insurance exchanges. All non-grandfathered plans in the individual and small group market must offer the EHB, starting in 2014. “Grandfathered” status allows plans that existed before the PPACA passed to be exempt from many of the new insurance market reforms. The EHBs will also apply to newly eligible adult Medicaid beneficiaries, as PPACA raises the national minimum for Medicaid eligibility to 133% of the federal poverty level in 2014. Additionally, EHBs apply to the (at this point, mostly theoretical) Basic Health Plans.

Where are we now? As mandated by PPACA, the Department of Labor (DOL) released a survey of the current state of large employer plans in spring 2011 and the Institute of Medicine (IOM) released recommendations to help inform HHS decision-making around EHB structure in fall 2011. The IOM urged the HHS Secretary to effectively balance the two key components of EHBs: comprehensiveness and affordability. If the benefits are too basic or sparse, the new minimum standards will not help consumers gain access to adequate health plans, however, benefits that are so generous no one can afford them will be equally unhelpful.

The bulletin allows states the flexibility to define their own EHB package by “benchmarking” them to certain plans that already exist. This strategy is similar to the benefit structures in the Children’s Health Insurance Program (CHIP). States can choose from:

  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.

According to PPACA, states are responsible for the cost of any benefits beyond the federal EHB minimums. This benchmarking strategy allows states the option to include any state mandated benefits in the federal EHB package, and mitigates some of the danger that the EHBs could further strain state budgets.

What’s next? Many questions still remain about EHBs. Though this bulletin provides some clarity, there is a great deal of variation within the essential categories for EHBs from plan to plan and from state to state. PPACA also designates limits for cost-sharing and actuarial value, meaning that the cost to consumers and insurers could still vary significantly for similar EHB packages. Experts expect HHS to release EHB regulations in June 2012 at the latest, as stakeholders will need approximately 18 months to prepare for the launch of exchanges in 2014. To learn more, check out this webinar from the American Health Lawyers Association here.

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