The U.S. Department of Health and Human Services (HHS) issued on November 20, 2012, its much-anticipated proposed rule (EHB Proposed Rule) defining the Essential Health Benefits Package, comprised of essential health benefits (EHB), cost-sharing limitations and actuarial value requirements. The EHB Proposed Rule stays fairly close to the bulletins HHS previously released, despite receipt of extensive public comments. Thus, while the public has until December 26, 2012, to submit comments, this proposed rule seems to offer some additional certainty regarding the overall direction and approach as to the scope of EHB.
This summary contains the following sections:
- Determining the EHB
- Cost-Sharing Limitations, Including Annual Deductibles
- Actuarial Value Requirements
- State Medicaid EHB Requirements
- Considerations for the Life Sciences Industry
- Considerations for the Health Insurance Issuers
- Issues for Which HHS Seeks Comment
Beginning in 2014, all non-grandfathered health insurance coverage in the individual and small group markets, all qualified health plans offered on Exchanges (QHPs), Medicaid benchmark and benchmark-equivalent plans, and so-called state Basic Health Programs authorized under Section 1331 of the Affordable Care Act (ACA) will be required to offer the so-called EHB Package that includes a minimum set of benefits—the EHB—and reflects certain cost-sharing limitations and actuarial value requirements (often referred to as the “metallic levels” of coverage).
Section 1302 of the ACA provides that the EHB should be equal to the scope of health care benefits provided under a typical employer plan and must include coverage for items and services in at least 10 specific categories:
- Ambulatory patient services
- Emergency services
- 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
- Pediatric services (including oral and vision care)
Selection of Base-Benchmark Plan
Consistent with the approach first detailed in its December 2011 Essential Health Benefits Bulletin (EHB Bulletin), HHS now formally proposes that the EHB will be defined in each state by reference to a benchmark plan, referred to as a “base-benchmark plan.” Once the base-benchmark plan undergoes any necessary adjustments to ensure coverage of the 10 EHB categories and subject to the prohibitions on discrimination (as discussed in greater detail below), the resulting plan will be known as the EHB-benchmark plan.
Each state will select a base-benchmark plan from among the following four options:
- 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 Benefits Program (FEHBP) plan options by enrollment
- The largest insured commercial non-Medicaid HMO operating in the state
Where a state does not affirmatively select a base-benchmark plan, the first option above will be the default. Multi-state plans will meet benchmark standards established by the Office of Personnel Management.
Each state’s base-benchmark plan selection will be applicable for at least the 2014 and 2015 benefit years, after which HHS may modify the process for determining EHB.
EHB-Benchmark Plan Standards
If a state’s base-benchmark plan covers the 10 statutory categories of EHB, the plan would be the EHB-benchmark plan, assuming it satisfies the non-discrimination analysis described below. In instances where a state base-benchmark plan does not cover all EHB categories, the EHB Proposed Rule includes a process by which the base-benchmark plan must be supplemented by adding the missing category or categories—in their entirety—from another base-benchmark plan option. A state will be prohibited, however, from selecting from among the benefits in a category covered by one (or more) of these base-benchmark plan options.
HHS proposes special rules for supplementing a base-benchmark plan with pediatric and habilitative services benefits because these benefits often are not covered by employer-sponsored plan benefits and other coverages reviewed by HHS in its research:
- Pediatric Benefits: Where the missing category or categories of EHB include pediatric oral care and/or pediatric vision services (defined as services for individuals under age 19), HHS proposes the Federal Employees Dental and Vision Insurance Program dental or vision plan with the largest enrollment, as applicable, as the first option to supplement the base-benchmark plan. The second option is to supplement with benefits available under the state’s CHIP program, if applicable.
- Habilitative Benefits: HHS proposes a special transition policy under which states would have the option to determine the services included in the habilitative services category. If a state does not determine the services included in this category, a health insurance issuer must either cover habilitative services that are similar in scope, amount and duration to rehabilitative services, or determine which habilitative services to cover and report this coverage to HHS.
EHB-benchmark plans will have to include mental health and substance use disorder services in a manner that complies with the Mental Health Parity and Addiction Equity Act of 2008. Preventive services (and first-dollar coverage requirements) required by Section 2713 of the Public Health Service Act, as established by the ACA, also must be covered. Non-pediatric dental and vision services, cosmetic orthodontia and long-term/custodial nursing home care benefits may not be included as EHB, however.
Treatment of State-Mandated Benefits for Qualified Health Plans
The ACA permits a state to require QHPs to offer benefits in addition to the EHB, provided that the state defrays the cost of these additional benefits. If state-mandated benefits are considered EHB, however, the state is not financially responsible for their costs. Under the EHB Proposed Rule, HHS proposes that state-required benefits enacted on or before December 31, 2011, (even if effective after that date) will not be considered “in addition” to EHB and therefore will not be the financial obligation of the state. If states adopt new services mandates after that date, then issuer will need to determine the cost of these benefits and the state must then pay either the enrollee or the health insurer the cost of the service. Some states may view this process as cumbersome, and this process and/or the state obligation to fund these additional benefits may discourage states from adding new mandated benefits for QHPs.
Notably, HHS proposes to interpret this provision in a manner that imposes state-required benefits on QHP markets in the same way they apply to the state (non-Exchange) insurance markets. Thus, if a state’s base-benchmark plan includes state-required benefits enacted prior to December 31, 2011, then those benefits would be considered part of the EHB-benchmark plan (and the state would not be required to defray the costs of such benefits). If the state selects a benchmark that does not include state-required benefits (because the benchmark plan is not subject to those requirements), HHS proposes that any state-required benefits enacted prior to December 31, 2011, will still be considered EHB (and the state would have no financial responsibility), but only with respect to the market segment(s) to which the state coverage mandate applies. Accordingly, a state-mandated benefit applicable only to individual health insurance coverage would be part of the EHB for QHPs offered in the individual market, but not the small group market.
HHS clarifies that state-required benefits are limited to requirements related to the care, treatment and services that a state requires issuers to offer. State-required benefits do not include requirements relating to benefit design, such as provider types, cost-sharing or reimbursement methods.
Substitution of “Substantially Equivalent” Benefits
Consistent with the EHB Bulletin, HHS proposes that health insurance issuers be permitted to substitute benefits that are “actuarially equivalent” to the benefits being replaced. Although HHS, in the EHB Bulletin, considered whether to permit benefit substitution across benefit categories, the EHB Proposed Rule will limit substitutions to within benefit categories only, which limits issuers’ flexibility in benefit design. Additionally, the benefit substitution policy will not apply to prescription drugs benefits, which are subject to their own requirements, addressed below.
Under the EHB Proposed Rule, issuers will be required to submit an actuarial certification that any substituted benefit(s) are actuarially equivalent to the benefit(s) in the EHB-benchmark plan. Actuarial equivalence for purposes of this benefit substitution policy will be determined based on the value of the service without regard to cost-sharing.
States will retain the discretion to adopt a stricter standard for benefit substitution or prohibit substitution entirely.
Special Rule for Prescription Drug Benefits
Prescription drug coverage is one of the few topics for which the EHB Proposed Rule differs from the EHB Bulletin, in which HHS had proposed to require plans to cover at least one drug in each category and class in which the benchmark plan covered at least one drug. Under the EHB Proposed Rule, health insurance coverage will be required to cover “at least the greater of: (i) one drug in every United States Pharmacopeia (USP) category and class; or (ii) the same number of prescription drugs in each category and class as the EHB-benchmark plan.”
The EHB Proposed Rule raises a number of questions, including how the requirement to cover “at least the greater of” the two options will be implemented. In guidance released with the EHB Proposed Rule, HHS states that “where the benchmark plan does not include coverage in a [USP] category and class, pursuant to proposed section 156.120, one drug would have to be offered in that USP category and class.” This interpretation seems to treat the two options as cumulative, requiring health insurance coverage to cover the same number of prescription drugs in each category and class as the EHB-benchmark plan and to supplement with at least one drug in any USP category and class that is not covered by the EHB-benchmark plan.
Prohibition on Discrimination
The EHB Proposed Rule includes regulations to incorporate the ACA requirement that EHB address concerns relating to discrimination and the needs of diverse segments of the population. States would monitor for and identify discriminatory benefit designs. Additionally, HHS proposes that with the exception of pediatric services, an enrollee may not be excluded from an entire EHB category of benefits.
HHS clarifies, however, that the prohibition on discrimination would not preclude the use of utilization management techniques. Rather, such techniques may only be implemented in a manner that does not discriminate on the basis of age, expected length of life, present or predicted disability, degree of medical dependency, quality of life or other health conditions.
The EHB Proposed Rule addresses two cost-sharing requirements imposed by ACA § 1302:
- Annual cost-sharing limitations for EHB individual and small group health insurance coverage, including QHPs
- Annual deductible limits for small group health insurance coverage and QHPs
Annual Cost-Sharing Limitations
The dollar amounts are linked to the statutory requirements for enrollee out-of-pocket limits for high-deductible health plans (in 2013, approximately $6,250 for self-only and $12,500 for other-than-self-only coverage). Once the cost-sharing limitation is reached, an enrollee is not financially responsible for additional cost-sharing for EHB for the remainder of the year. The practical effect of the distinction between self-only and other-than-self-only coverage will be that the annual limitation for other-than-self-only coverage will be double that of self-only coverage. In subsequent years, these amounts are proposed to increase by the premium adjustment percentage set by HHS, but only by multiples of $50.
These limits would apply to expenditures for EHB, such as deductibles, co-insurance and co-payments, but would exclude costs such as premiums and balance billed amounts for non-network providers furnishing EHB. Additionally, there is a statement in the EHB Proposed Rule preamble—but not in the proposed regulatory text—that cost-sharing for emergency services furnished by out-of-network providers is to be counted towards the annual cost-sharing limitation. The EHB Proposed Rule does not address whether the cost-sharing limitation would differentiate between benefits that are EHB and those than an issuer may elect to cover in addition to EHB.
Annual Deductible Limits
The EHB Proposed Rule sets forth the limitation on annual deductibles: $2,000 for self-only coverage, and $4,000 for other-than-self-only coverage in 2014. These amounts also would be increased annually by the premium adjustment percentage set by HHS, but only by multiples of $50. Reflecting the statutory requirement that these annual deductibles “not affect the actuarial value” of any coverage, HHS proposes to allow health insurance issuers to exceed the annual deductible limit if the coverage may not “reasonably” reach the required actuarial value without exceeding the deductible limit.
Special Rule for Network Plans
Notably, the EHB Proposed Rule would apply the cost-sharing and annual deductible limitations for network benefit plans only for services furnished by participating providers. Cost-sharing for benefits furnished by out-of-network providers would not count towards these annual limitations. HHS states that this policy would allow issuers “greater flexibility to design innovative plan benefit structures.”
Scope of Cost-Sharing Limitations
HHS, in the preamble to the EHB Proposed Rule, references the applicability of the annual cost-sharing limitation and annual deductible limitation to group health plans pursuant to Public Health Service Act § 2707(b) (as created by ACA § 1201). A potential ambiguity appears to exist, however, particularly with regard to self-funded group health plans, which may be resolved through further rulemaking by HHS (in conjunction with the U.S. Department of the Treasury and the U.S. Department of Labor) and as a result of comments on this discussion.
The third component of the EHB Package is the requirement that the health insurance coverage meet one of four levels of coverage. These pre-determined actuarial values (AV)—the so-called “metallic” levels—measure the issuer’s financial responsibility for covered services relative to the total allowed costs of benefits for a “standard population” as determined by HHS. Bronze-level plans reflect an issuer’s responsibility for approximately 60 percent of value of benefits provided, 70 percent for silver-level plans, 80 percent for gold-level and 90 percent for platinum level. The EHB Proposed Rule includes the 2 percent +/- de minimus variation set forth in HHS’s EHB Bulletin.
Mandatory Use of the HHS AV Calculator
A new development is HHS’s proposal that issuers be required to use HHS’s AV calculator to evaluate the AV of a benefit plan. An exception to this mandate would be provided for benefit designs that are not compatible with the AV calculator, in which case the issuer would be required to submit an actuarial certification of compliance with the applicable requirements.
The HHS calculator was developed using a set of claims data that was “weighted to reflect the standard population projected to enroll in the individual and small group markets for the identified year of enrollment” and reflects only in-network utilization. HHS selected the standard population from which claims were derived, but a state can submit to HHS a data set for approval for the AV calculator in that state to use as the standard population effective with the 2015 benefit year.
HHS contends that use of the AV calculator helps both plan issuers and consumers. For issuers, HHS believes the calculator will allow plans to devise a compliant plan without the burden of making assumptions when determining AV and without having to pay for AV calculation or associated analysis. For consumers, HHS states that the AV calculator results in health plans using a consistent methodology to calculate the AV of a plan, so plans with the same cost-sharing design have the same AV. This in turn means consumers are better able to compare plans. Given allowable variation in AV and the ability of issuers to substitute EHB, consumers likely will only be able to compare plans at very high levels.
Minimum Value of Employer Contributions
Employer-sponsored group health plans meet the minimum value (MV) contribution requirement if the group health plan contributes no less than 60 percent of the total allowed costs of benefits. The EHB Proposed Rule provides for this determination to be made using one of the following three mechanisms:
- An MV calculator to be made available by HHS and the Internal Revenue Service (a group health plan may adjust the MV calculator result based on value determined by an actuary if the plan offers an EHB beyond the parameters of the MV calculator)
- Any safe harbor established by HHS and the Internal Revenue Service
- Certification by an actuary if the other methods are not appropriate
The EHB Proposed Rule also requires MV determinations to be based on a standard population derived from data from self-insured group health plans.
In conjunction with the release of the EHB Proposed Rule, the Center for Medicaid and CHIP Services within the Centers for Medicare & Medicaid Services (CMS) released a State Medicaid Director Letter describing the approach CMS intends to take for EHB in Medicaid, which will be addressed in future rulemaking.
Since 2006, states have had the option under Section 1937 of the Social Security Act of providing certain groups of Medicaid eligibles with an alternative benefit package (Alternative Benefit Plan), and these plans also will be the coverage provided to low-income, childless adults newly eligible for Medicaid coverage in 2014. States select from one of four benchmark products to set benefit requirements for these Alternative Benefit Plans ((i) the Standard Blue Cross/Blue Shield Preferred Provider Option offered through the FEHBP; (ii) state employee coverage that is offered and generally available to state employees; (iii) the commercial HMO with the largest insured commercial, non-Medicaid enrollment in the state; and (iv) CMS-approved coverage, which can include the Medicaid state plan benefit package). Beginning in 2014, these Alternative Benefit Plans must include benefits from the 10 statutory EHB categories (in addition to other Medicaid-required items and services) and comply with the Mental Health Parity and Addition Equity Act of 2010.
CMS intends to propose that the EHB coverage requirements set forth in the EHB Proposed Rule will generally apply to Medicaid, subject to certain modifications to reflect the unique requirements of the Medicaid program. A state will select a coverage option for the Alternative Benefit Plan from the existing four options under § 1937. If the selection is the same as the state EHB-benchmark plan, then the EHB coverage requirement for Alternative Benefit Plans will be satisfied; if the state Medicaid benchmark is not the same as the EHB benchmark plan, the state will compare the two and supplement the Alternative Benefit Plan coverage option as necessary, following the supplementation provisions set forth in the EHB Proposed Rule (as finalized).
- EHB: HHS adopted its proposal, initially set out in the EHB Bulletin, for state-determined EHB benchmark plans, which will result in differences in EHB among the states and territories. Accordingly, coverage will vary among the states as well as among the products within each state as a result of the substitution policy. States’ ability to supplement a base-benchmark plan with categories of benefits taken from other base-benchmark plan options in order to cover all 10 categories of EHB may create further variation among the coverage status of items and services and create further challenges in managing and advocating for coverage. To the extent HHS will re-evaluate the EHB methodology in years to come, life sciences industry stakeholders may find value in tracking access to services across states.
- Prescription Drug Coverage Under EHB Benchmark Plans: The expansion of the drug provision in the EHB Proposed Rule to require potentially more than a single drug per category will be welcomed by pharmaceutical and biologics companies. The lack of clarity regarding the scope of this provision requires HHS clarification, for which industry comment will be helpful.
- EHB: Although the EHB Proposed Rule permits health insurance issuers to modify benefit packages, the limitation that substitution may occur only with benefits within the same category and the actuarial equivalence requirement individually and collectively are more restrictive than some of the alternatives available to HHS. The absence of restrictions regarding utilization management techniques and other benefit parameters (e.g., quantity limits) may provide issuers with some flexibility to design benefit packages in a manner that enhances competitive differences.
- Prescription Drug Coverage: The prescription drug coverage requirements, and specifically HHS’s intention regarding the connection between the USP classes and categories of drugs and those categories and classes of drugs covered under the EHB-benchmark plan, will benefit from further clarification, although issuers nevertheless can move forward with their benefit design activities prior to the promulgation of final regulations. An obligation to cover multiple drugs in a category/class, based upon the number of drugs in a category/class covered under the EHB-benchmark plan, may limit issuers’ flexibilities in the design of their formularies.
- Habilitative Services: Issuers operating in states with EHB-benchmark plans that do not include coverage for habilitative services and for which the state does not affirmatively determine habilitative services appear to have a good deal of flexibility to define and cover these services through the transition period.
Although all aspects of the EHB Proposed Rule are open to comment, HHS specifically requested comments on a number of questions, including the following:
- Whether the default base-benchmark plan (i.e. the largest plan by enrollment in the largest product in the state’s small group market) is appropriate for U.S. territories (Puerto Rico, Guam, the Virgin Islands, American Samoa and the Northern Mariana Islands) given the smaller size and unique nature of the health insurance markets in these areas, or whether one of the other four plan types available for selection as a benchmark would be more appropriate
- The process HHS should use to update EHB over time
- Potential approaches to ensure that EHB-benchmark plans do not include discriminatory benefit designs and reflect an appropriate balance among the 10 statutory categories of EHB
- With respect to the benefit substitution policy, the tradeoff between comparability of benefits and opportunities for plan innovation and benefit choice
- The proposed approach to coverage of prescription drugs
- The evidence or factors that should be required from an issuer to determine whether a small group health plan cannot reasonably reach the actuarial value of a given coverage level without exceeding the annual deductible limit
- The methodology for the development of the AV calculator (HHS describes its methodology here.)
- Mandatory use of the HHS AV calculator
The EHB Proposed Rule is available here.
The State Medicaid Letter on EHB is available here.
McDermott will continue to review and analyze other proposed rules and guidance promulgated under the ACA. Additional information is available here.