Health Insurance Report™ helps you track and analyze legal, legislative, and regulatory developments affecting the health-insurance industry throughout implementation of the Affordable Care Act...
By Sara Hansard
Benefits that must be covered by all individual and small group plans starting in 2014 under the health care reform law should be based on what small businesses typically offer, according to a study issued Oct. 7 by the Institute of Medicine.
The report, Essential Health Benefits: Balancing Coverage and Cost, was requested by the Department of Health and Human Services to help HHS determine how to set and update the “essential health benefits” that individual plans, small business plans, and all plans offered through the health insurance exchanges must cover under the Patient Protection and Affordable Care Act.
The 297-page report by the Institute of Medicine, a part of the National Academy of Sciences, was aimed at balancing the comprehensiveness of benefits with their cost, John Ball, chairman of IOM's Committee on Defining and Revising an Essential Health Benefits Package for Qualified Health Plans, said at a briefing.
By 2016, the essential health benefits package is expected to apply to insurance held by an estimated 68 million people, said Ball, former executive vice president of the American Society for Clinical Pathology. “If that package of benefits is too narrow, health insurance might be inadequate to ensure access. If it is too expansive, insurance might become too expensive,” he said. “Appropriate balance will reduce the number of uninsured and ensure the sustainability of the program over the long-term,” he said.
The Department of Health and Human Services is expected to issue a proposal on what benefits must be covered by the package by the end of the year. Sherry Glied, HHS assistant secretary for planning and evaluation, said at the briefing that HHS “will soon initiate a series of conversations where Americans from across the country will have the opportunity to share their thoughts on these issues.”
HHS is expected to issue a proposal on what must be covered by the essential benefits package by the end of the year.
While applying initially to individual and small group plans offered both inside and outside of the state-based health insurance exchanges, the essential health benefits also could apply to some large group plans. In 2017, states have the option of allowing large employers to participate in the exchange. The benefits also will apply to some Medicaid expansion programs.
In the two hearings held by the IOM report committee as well as in 350 comments filed with it, medical providers and consumers urged the broadest possible coverage and discreet definitions of services that must be covered, Ball said. At the same time, businesses, states and health insurers argued that benefits should be affordable and the guidelines should allow for flexibility.
Under PPACA, the essential health benefit package is to be based on a “typical” employer plan, and health insurers argued that the benchmark should be small business plans, which are generally less expensive than large group plans.
Karen Ignagni, president and chief executive officer of America's Health Insurance Plans, which represents 1,300 health insurers covering 200 million people, issued a statement praising the IOM report. She said IOM is urging policymakers to strike a balance between affordability of coverage and the comprehensiveness of health coverage. “This balance is critical to ensuring that individuals, working families and small employers can afford health insurance,” she said.
The IOM report stressed four principles that it recommended HHS follow in determining benefits:
Fulfilling a PPACA requirement that the essential health benefits package cover 10 categories of health care services “may require adding additional services to a typical standard plan for small employers,” Ball said. He pointed to pediatric, oral and vision care, habilitation services, and mental health and substance abuse disorder services that are among the 10 categories that the benefits package must cover.
The initial package should be developed “within a national average premium target based on what small employers would have paid in 2014,” he said. Over time the package can be improved and made “sustainable,” he said. Premiums would differ across the country, as they do now, he added.
Since PPACA specified categories that are not commonly included in small employer plans, “it is possible that the estimated cost of the resulting package will be greater than the national average premium,” Ball said.
But the report incorporates the principle of value-based insurance design to provide financial incentives for people to use effective services.
Benefits covered by large and small businesses are similar, but there are significant differences in benefit designs that result in small businesses paying less for health insurance, Ball said.
Benefit designs can affect premiums more than coverage of specific services, Ball said. Higher deductibles and other cost-sharing requirements, narrower networks of providers, more restrictive visit limits, different reimbursement rates for different networks of providers, prior authorization or primary care referral requirements, disease management programs, and medical necessity reviews can affect premiums by as much as 35 percent, while coverage of a single expensive service may account for only 1 to 2 percent of premium costs, he said.
The preliminary list of benefits is likely to be a combination of broad categories and individual types of services commonly offered by small employers, Ball said. Services should be eligible as long as they are judged to be medically necessary, he said.
IOM's report recommended that HHS consider the potential for costs to escalate over time due to technological advances or other medical price increases as benefits are updated. “The idea we had was really to fix the starting point with national average premium that's paid by small employers today,” said committee member Elizabeth McGlynn, director of the Kaiser Permanente Center for Effectiveness and Safety Research in Pasadena, Calif.
“Going forward, the update is really more about what does it take to buy that same package next year,” she said. The recommendations are aimed at making sure that the essential benefits package were not at a disadvantage compared to other premium increases, she said.
One of the issues the committee had to grapple with was whether states' mandates that go beyond what is required by PPACA should be considered essential benefits, Ball said. Under PPACA, states must cover the cost of any required benefits that are not required by the federal law.
Flexibility should be given to states that operate their own exchanges, Ball said. Variations should be consistent with PPACA, abide by the committee's selection criteria, and have a package that is equivalent to the federal essential health benefits package, he said. HHS will operate exchanges in those states that do not set up their own exchange.
A National Benefits Advisory Council should be established to make recommendations on updated benefit requirements and advise on conflict-of-interest procedures, Ball said.
“We could not look at the exchange population in isolation.”
—Rhode Island Insurance Commissioner Christopher Koller
The report also stressed that underlying health care cost increases must be addressed. “We could not look at the exchange population in isolation,” said committee member Christopher Koller, health insurance commissioner of Rhode Island. Commercial health insurers say “their premiums could be less if they weren't paying provider rates to subsidize other populations or other payers,” Koller said.
The Pharmaceutical Care Management Association, which represents pharmacy benefit plans, applauded the report for recommending regulations that ensure “affordable, flexible benefits in the exchanges,” as well as for calling for a “long-overdue debate between employers and some powerful special interests that benefit from costly new mandates.”
Congressional Republicans noted that the mandated benefits are likely to raise insurance premiums. IOM “couldn't be more clear that the benefit mandates in the health law can only lead to higher costs for families and small businesses,” Senate Finance Committee Ranking Member Orrin Hatch (R-Utah) said in a release.
“It is simple math that as more mandated benefits are included, the higher the costs will be,” said Senate Health, Education, Labor, and Pensions Committee Ranking Member Mike Enzi (R-Wyo.) in a statement. Americans should have the option to pick lower cost plans with less benefits, he said.
By Sara Hansard
Essential Health Benefits: Balancing Coverage and Cost is at http://www.iom.edu/Reports/2011/Essential-Health-Benefits-Balancing-Coverage-and-Cost.aspx.
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