Last week, right before the Thanksgiving holiday, the Obama Administration released its proposed rule establishing the new, minimum standards for health insurance benefits.  For the roughly 29 million Americans who face financial hardship because their health insurance doesn’t cover their needs, this is welcome news. It’s also undoubtedly welcome news to employers and insurance company executives, who need to know the rules of the road before they can design and develop plans that comply with the sweeping insurance reforms set to go into effect in 2014.

Establishing the essential health benefits (EHB) package is just part of a series of proposed rules. The Administration also released new standards for the 2014 market rules (i.e., guaranteed issue, modified community rating, and the prohibition on pre-existing condition exclusions), wellness programs, and rate review. And we’ll likely see more rules coming soon on multi-state plans and exchanges, as well as information about how the federally facilitated exchanges will operate.

While my family debated football and the merits of white meat over dark, I spent some time reading over the new guidance on EHBs. The Administration essentially formalized its bulletin from December 2011, allowing states to choose a benefit package benchmark that reflects local needs and meets the statutory requirement of being equal in scope to a “typical” employer plan. A few policy decisions and questions stood out:

State Benefit Mandates

One of the more controversial provisions of the Affordable Care Act is the requirement that states pick up any additional premium costs associated with benefit mandates that are not included in the EHB. HHS provided some good news for benefit mandate proponents, who have worried that consumers might lose access to important benefit protections in states where a benchmark with less coverage is chosen:

• State benefit mandates enacted on or before December 31, 2011 may be considered EHB, so the state would not be required to pay for any additional costs associated with them. However, those mandates would apply only to the markets originally determined under the state law. In other words, if a pre-2012 state law applies a mandate only to the individual market, it would not become a requirement in the small group market simply because it will now be considered part of the EHB.
• HHS interprets the Affordable Care Act to affect only those benefit mandates specific to the care, treatment and services that an insurer must offer to its enrollees. If a state has rules regarding provider types, cost-sharing, or reimbursement methods, HHS would not consider those benefit mandates, and states would not be required to defray any additional costs associated with them.

HHS also laid out the enforcement scheme for states to pay any additional premium costs. Exchanges will be required to identify which additional state-required benefits are in excess of the EHB. HHS also proposes that insurers should be responsible for determining the cost, if any, of additional benefits. HHS is asking for comment on whether states should make payments based on the statewide average costs of a benefit, or on each insurer’s actual cost.

State Benchmark Selections

HHS lists states benchmark selections in an appendix to the rule. For states that did not select a benchmark, HHS provides the default selection. However, states can make a selection or change their current selection up to December 26, 2012, the end of the comment period for the EHB rule. As outlined in the December bulletin, the state’s benchmark would be in effect for 2014 and 2015, after which time HHS will revisit its policy on EHBs. HHS has addressed a number of outstanding policy questions, and raised some of its own:

• Treatment of Multi-State Plans. HHS is proposing that multi-state plans will NOT be subject to a state’s benchmark plan, but instead must meet a standard set by the U.S. Office of Personnel Management (OPM). This could raise concerns about a level playing field among plans within a state, but we don’t yet know what rules OPM will have them follow.
• Defining habilitative care. Coverage of habilitated services is required under the Affordable Care Act. However, this benefit is frequently not covered in employer sponsored plans and insurers may define it differently. As a result, HHS is proposing that states may define habilitative services, if the benefit is not included in their benchmark plan. If the state does not define habilitative services, then the insurers may define it.
• Discriminatory benefit design. The Affordable Care Act prohibits insurers from using benefit design to discriminate against high-need enrollees. However, there are no set metrics for determining whether a benefit plan is discriminatory. HHS proposes that states review plans for outlier provisions, such as unusual cost-sharing or limits on benefits, that would suggest possible discrimination.
• Parity. HHS confirms its previous guidance that plans, in order to meet the EHB requirements, must provide mental health and substance abuse services in a manner that complies with federal mental health parity law.
• Substitution. HHS is proposing that insurers be able to substitute benefits within benefit categories, but not between benefit categories. The proposed substitution policy does not apply to prescription drugs. Insurers must supply an actuarial certification, attesting that any substituted benefit is actuarially equivalent to the original benefit in the EHB benchmark plan. HHS also clarifies that states have the authority to restrict substitution or prohibit it entirely.
• Prescription drugs. HHS has broadened its approach to prescription drugs, originally outlined in the December 2011 bulletin. Instead of requiring insurers to cover at least one drug in each category and class, HHS is now proposing that plans must cover at least the greater of: one drug in every category and class or the same number of drugs in each category and class of the EHB-benchmark plan. Thus, if the EHB benchmark plan covers more than one drug in a category or class, then all plans must offer at least that number.

Cost-sharing

The proposed rule also provides details on the Affordable Care Acts cost-sharing limits. The proposed rule ties the annual limit on cost-sharing to the out-of-pocket limit for high-deductible health plans provided under tax law. For the year 2013, the limits would be $6,250 for self-only coverage and $12,500 for family coverage. However, HHS is offering insurers a waiver from the limits on deductibles, if it can’t reasonably meet a Bronze level of coverage without raising the deductible.

Actuarial value

The law requires non-grandfathered individual and small group insurers to meet set levels of coverage, often called the “precious metal” tiers of Bronze, Silver, Gold, and Platinum. HHS has provided an actuarial value calculator for insurers to determine a plan’s precious metal level. HHS is proposing a fair amount of flexibility for insurers in this part of the proposed rule. In addition to allowing insurers to have a “de minimis” deviation from the prescribed levels of +/- 2%, HHS will also allow insurers with innovative benefit designs, such as tiered networks, to use actuarial certifications to attest to their compliance.

For another great summary of the EHB rule, check out Professor Tim Jost’s blog on Health Affairs’ website. There will be lots more to come from the federal government and the states as we gear up for 2014. Keep an eye on CHIRblog for the latest developments.