Health Policy 118 (2014) 285–291
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Health Policy journal homepage: www.elsevier.com/locate/healthpol
Balancing adequacy and affordability?: Essential Health Benefits under the Affordable Care Act Simon F. Haeder ∗ Department of Political Science, University of Wisconsin-Madison, 110 North Hall, 1050 Bascom Mall, Madison, WI 53706, United States
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Article history: Received 10 April 2014 Received in revised form 21 August 2014 Accepted 25 September 2014 Keywords: Affordable Care Act Health reform Essential Health Benefits Insurance benefit packages
a b s t r a c t The Essential Health Benefits provisions under the Affordable Care Act require that eligible plans provide coverage for certain broadly defined service categories, limit consumer cost-sharing, and meet certain actuarial value requirements. Although the Department of Health and Human Services (HHS) was tasked with the regulatory development of these EHB under the ACA, the department quickly devolved this task to the states. Not surprisingly, states fully exploited the leeway provided by HHS, and state decision processes and outcomes differed widely. However, none of the states took advantage of the opportunity to restructure fundamentally their health insurance markets, and only a very limited number of states actually included sophisticated policy expertise in their decisionmaking processes. As a result, and despite a major expansion of coverage, the status quo ex ante in state insurance markets was largely perpetuated. Decisionmaking for the 2016 revisions should be transparent, included a wide variety of stakeholders and policy experts, and focus on balancing adequacy and affordability. However, the 2016 revisions provide an opportunity to address these previous shortcomings. © 2014 Elsevier Ireland Ltd. All rights reserved.
1. Introduction In the United States, the regulation of commercial health insurance has traditionally been the domain of the states (see [32]). However, the Affordable Care Act (ACA) significantly changes the American healthcare system in numerous ways and it directly affects the operation of state insurance markets through its various provisions [22]. One of the most visible areas of this most recent federal initiative is the requirement that health plans sold in insurance marketplaces must offer a variety of services, including ambulatory patient services, prescription drugs, and emergency services, termed Essential Health Benefits (EHB). Although the Department of Health and Human
∗ Tel.: +1 559 908 2704; fax: +1 608 265 2663. E-mail address: [email protected] http://dx.doi.org/10.1016/j.healthpol.2014.09.014 0168-8510/© 2014 Elsevier Ireland Ltd. All rights reserved.
Services (HHS) was tasked with the regulatory development of these EHB under the ACA, the department quickly devolved this task to the states. This assessment sheds light on the development and implementation of the EHB, a topic that has received little attention in the media and scholarly literature.1 Moreover, it also provides background on the development of insurance benefit packages in the United States and offers and outlook to the upcoming EHB revisions in 2016. From a policy perspective, the development and implementation of the EHB afforded policymakers an excellent opportunity to set healthcare priorities and to make fundamental decisions for their health insurance markets about how to balance coverage and affordability. Ideally, these
1 The scant existing literature mostly focuses on the legality of the approach taken by HHS [1] or provides background information [36,27,46].
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decisions should have been based on policy expertise, i.e. a sound understanding of opportunity costs. Not surprisingly, states fully exploited the leeway provided by HHS, and state decision processes and outcomes differed widely. However, none of the states took advantage of the opportunity to restructure fundamentally their health insurance markets, and only a very limited number of states actually included sophisticated policy expertise in their decisionmaking processes. As a result, and despite a major expansion of coverage, the status quo ex ante in state insurance markets was largely perpetuated. However, the 2016 revisions provide an opportunity to address these previous shortcomings. 2. Insurance regulation prior to the Affordable Care Act Insurance regulation in the United States is rather complex because it generally involves an intricate combination of state and federal jurisdictions. Perhaps the most visible case of health insurance regulation can be found in the form of insurance mandates, i.e. the minimum insurance benefit packages that insurance plans have to provide.2 These mandates are often considered as an easy, relatively uncontroversial instrument for extending insurance coverage because they avoid the pitfalls of direct provision of public goods such as deadweight losses [19,44]. Specifically, mandates avoid incurring costs due to the marginal excess tax burden (METB) that would be the result from direct governmental provision [4]. Other common rationales in support of the establishment of mandates include imperfect information of consumers, information asymmetries, adverse selection, preventative cost savings, and suboptimal selection of coverage (see [21,19]). From a legislative perspective, mandates are attractive because they do not affect state budgets directly but instead externalize costs [44]. However, opponents of mandates prominently cite moral hazards as their most common concern [21,39]. As mentioned previously, states have been the primary regulators of commercial health insurance in the United States [32]. With regard to insurance mandates, the State of Pennsylvania was the first to require minimum benefits in the form of coverage for osteopaths and dentists in 1949 [35]. Since then, the number of mandates has increased dramatically; particularly in the 1980s and 1990s, states added mandates at a rapid rate [30,29]. More recently, in the period just prior to the enactment of the ACA, i.e. between 2004 and 2010, the number of mandates grew from about 1800 to a total exceeding 2100 across the states [5,6].3 In addition to the states, and despite the self-imposed restrictions of the McCarran–Ferguson Act of 1945, the
2 Insurance mandates are generally separated into three major categories: provider, benefit, and coverage mandates [21]. Provider mandates require that insurance plans include coverage for certain types of providers such as dental hygienists or chiropractors. A minimum level of service, e.g. in terms of cost or days for certain services, is stipulated by benefit mandates. Finally, requirements regarding certain classes of individuals, e.g. dependent or foster care children, are addressed by coverage mandates. See [21] for additional information. 3 Ranging from a low of 13 for Idaho to a high of 69 for Rhode Island.
federal government has also increased its regulatory involvement.4 The three most prominent forays into the regulation of health insurance by the U.S. Congress include the Employee Retirement Income Security Act (ERISA) of 1974, the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985, and the Health Insurance Portability and Accountability Act (HIPAA) of 1996. While diverse in their subject matter, they impose a variety of restrictions and mandates with regard to continuation of coverage, portability, and renewability. Most recently, the Affordable Care Act of 2010 adds to the national list of mandatory coverage mandates [14]. The combination of state and federal regulations of health insurance has led to markedly different benefit packages – and processes to determine these packages – across the four major types of health insurance in the U.S.: Medicare, Medicaid, commercial insurance, and self-insurance. With regard to Medicare, the benefits are fully determined by federal statutes. Similarly, companies choosing to self-insure under ERISA are also subject only to federal jurisdiction. In both cases, specific benefit packages are developed through regulatory policymaking by HHS under the Administrative Procedures Act (APA), allowing for (limited) public and expert involvement.5 On the other hand, individual states generally take preeminence with regard to the regulation of commercial insurance, confined only by the limited restrictions of the aforementioned statutes. The development of benefit packages by the states is driven by legislative policymakers and implemented by state regulatory entities like the departments of insurance [37]. A significant overlap in jurisdiction occurs for the Medicaid program. While states are required to provide certain benefits (as laid out by Title XIX of the Social Security Act and implemented through HHS regulations), they are offered significant leeway with regard to so-called optional benefits [45]. Benefit packages are specified by states in their state Medicaid plans, subject to HHS approval. Processes for altering Medicaid benefits, so-called state Medicaid plan amendments, differ widely across the states; however, in most states the process is regulatory and does not require legislative approval [38,41].6 In the U.S., the most proactive, albeit quite limited, effort to develop and implement healthcare priorities can be found in the Oregon Health Plan [28,42]. However, the process of determining specific benefit packages in the United States generally appears rather ad hoc and driven by immediate political considerations. Moreover, in this process, only a very limited number of states require any kind of analysis with regard to medical effectiveness or financial impact [33,35]. Hence, the situation differs markedly from other developed nations like New Zealand, Israel, the
4 The McCarran–Ferguson Act generally exempts the regulation of insurance from federal interference. It was passed by Congress in response to United States v. South-Eastern Underwriters Association in which the Supreme Court rules that the federal government could regulate insurance based on the Commerce Clause. 5 For more information on rulemaking under the APA see [31]. 6 Note that states may also alter their Medicaid programs through socalled waivers, in which the federal government may permit states to abdicate certain normally required benefits [45].
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United Kingdom and the Netherlands, which have specifically worked to establish and implement frameworks to set healthcare priorities [10,25,13,26]. Particularly Nordic countries like Sweden and Norway have developed, and to a more limited degree applied, underlying principles to guide healthcare decisionmaking [10]. In addition, recent reforms in Germany, another federalist country like the United States, have tasked the Federal Joint Committee (FJC), with the support of the Institute for Quality and Efficiency, to define benefit packages through a deliberative process, infused with expertise and public participation [8,7,43]. While the focus of the FJC is largely on medical effectiveness, it also, to a more limited degree, takes account of cost effectiveness [3,8]. 3. The Affordable Care Act and Essential Health Benefits The EHB provisions of the Affordable Care Act (ACA) directly infer with the states’ regulation of commercial insurance plans by requiring that eligible plans provide coverage for certain very broadly defined service categories, limit consumer cost-sharing, and meet certain actuarial value requirements termed Bronze, Silver, Gold, and Platinum. In combination, these requirements aim toward a comprehensive benefits package at an affordable price to millions of Americans. Moreover, marketplaces are supposed to facilitate the comparison and purchasing of plans by consumers. Depending on their income level, consumers obtaining coverage under the ACA will do so supported by varying degrees of government subsidies [23]. Specifically, the EHB must include the following [18,3]: • • • • • • • • •
ambulatory patient services emergency services hospitalization maternity and newborn care mental health and substance use disorder services 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
The EHB apply to the non-grandfathered plans7 in individual and small group markets inside and outside insurance marketplaces as well as to all Medicaid plans that are part of the ACA expansion. They are expected to cover about 12 million individuals in 2014 [17]. All types of products in these markets including health maintenance organizations (HMOs), preferred provider organization (PPOs), point-of-service health plans (POSs) or high-deductible health reimbursement arrangements (HRAs) or health savings accounts (HSAs) are subject to the EHB. Federal mental health parity requirements apply
to the EHB, as well. Moreover, the ACA prohibits any annual or lifetime dollar limits on the EHB; this prohibition also applies to plans offered outside the individual and small group market. Deductibles for the small group market are set at $2000 for individuals and $4000 for families, indexed for inflation. Out-of-pocket maximums are limited to those for health-savings-account-qualified highdeductible health plans. Grandfathered, self-insured, or large group market health plans, i.e. those that cover more than 50 FTE employees, are not required to offer these EHB. However, if states decide to invite large employers into the marketplaces starting in 2017, the EHB would apply to all large firms inside and outside the marketplaces. The EHB exception also applies to traditional Medicaid benchmark and benchmark-equivalent plans, i.e. those plans offered prior to the ACA expansion. 4. Deferring to the states: implementation decisions by the federal government8 Given the extent of the task, the ACA delegated much of the practical development of the EHB package to the HHS. The HHS, already taxed with other extensive regulatory requirements under the ACA and concerned about the long-time frame for developing federal regulations, took a two-pronged approach [36,1]. First, it asked the Institute of Medicine (IOM) with the development of general guidelines for defining the EHB. The IOM expressed grave concerns about the extent of certain state mandates and specifically advised the HHS to balance coverage and affordability [16,36]. Second, the HHS eventually devolved the development of the EHB to the states and issued only broad regulatory guidelines, leaving states with significant leeway in the development of the EHB [46]. This devolutionary approach has drawn criticism from patient advocates and insurers, who sought a uniform national package, but was praised by many state officials [36]. States had a choice of selecting one of the following plans as their benchmark [11]: • any of the three largest small group insurance products • any of the three largest state employee health plans • any of the three largest Federal Employees Health Benefits Program (FEHBP) plans • the largest insured commercial non-Medicaid HMO9 States unwilling or unable to reach agreement on plan selection automatically defaults to the largest small group plan. Any of these plans is to be supplemented if it does not fulfill the minimum EHB requirements listed above. Interestingly, in case a state defaults, it also has to rely wholly on the HHS to make decisions about these supplements. If a state selects a benchmark plan that does not require certain benefits otherwise mandated to individual and small group policies in the marketplace, states are required to
8 7
Grandfathered plans are those offered prior to the passage of the ACA. These plans are generally exempt from ACA coverage requirements. See [2] for details.
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For a detailed overview of the developments at the federal level see
[1]. 9 It should be noted that the ACA defines largest in terms of consumer enrollment.
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defray the additional costs incurred by the federal government. The HHS has indicated that states are bound by their EHB decisions until 2016, when it intends to re-evaluate its approach to the EHB regulation [11]. 5. Implementation by the states: wide variation, little concern for costs and affordability States had to report their decisions regarding the selection of a benchmark plan for EHB to the HHS by October 2012. The approaches used to select the benchmark plan were diverse, including selection by the state department of insurance, the governor, or the legislature [18]. In terms of process, as shown in Table 1, about 60 percent of states formed a work group (30 states and D.C.), conducted an analysis of existing benefit mandates (31 and D.C.), or assessed benchmark plan options (33 and D.C.). States also showed much diversity in terms of public input and participation with a slight majority (27 and D.C.) holding a public comment period. Twenty-three states and the District of Columbia partook in all four activities. At the same time, 15 states did not conduct any of these activities, and all but two of these states defaulted to the small group plan. Generally, these are the same states that refused to develop a state-based marketplace and to expand Medicaid. In terms of outcomes, 41 states and the District of Columbia selected a small group plan as their benchmark; 22 states resorted to this decision by default. Not surprising, of these 22 states, 13 did not conduct any of the activities mentioned above. In addition, six states selected a commercial HMO plan, and three selected a state employee plan as their benchmark. Thirty-seven of the 51 plans are offered by a Blue Cross or Blue Shield organization. Guarding regulatory sovereignty may have played a major role in the selections, as no state selected a Federal Employees Health Benefits Program plan as their benchmark plan. This decision is particularly interesting because federal employee health plans are not subject to any state-mandated benefits, but instead are wholly subject to decisionmaking by the federal government. The extent of benefits mandates included in the selected plans equally differs widely and depends on states’ previous regulatory decisionmaking. Hence, for example, nineteen states do not cover autism treatments and 28 do not cover any infertility treatments [15]. Importantly, only state mandates enacted prior to December 31, 2011 may be included in the EHB package and any mandate enacted after this date is not covered by federal subsidies. An extensive review by the author of state government websites, including state insurance departments, newspaper articles, reports, and various appropriate online fora10 indicates the dearth of sophisticated policy analyses that were utilized by state governments in the development of the EHB. Only a very small number of states like New York and North Carolina seem to have had access to adequate cost estimates, usually developed by consulting firms like
10 These include the Kaiser Family Foundation’s statehealthfacts.org, statereforum.org, and the National Conference of State Legislatures, for example.
Deloitte and Milliman, let alone appropriate cost-benefit analyses, in their decision process. Not surprising, particularly the states that failed to conduct any activities did particularly poorly in this regard. Without a sound understanding of the opportunity costs involved in developing EHB packages, balancing coverage and affordability degenerates into mere guesswork. While the ACA has done much to alleviate concerns about affordability for a large number of Americans, premiums may still be out of reach for many. Moreover, upcoming regulatory and judicial decisions could significantly restrict subsidies [23]. Equally important is the effect of these decisions on government budgets, which will inevitably be forced to provide these subsidies. In addition, the failure to expand Medicaid by many states further aggravates the situation of many uninsured Americans. 6. Looking ahead to 2016 The HHS has stated that it intends to review its approach to the EHB package for 2016 [11]. While the previous approach allowed for local values and preferences to shape decisionmaking, it may also be cause for concern, as benefit packages vary significantly across the country. As a result, consumers may be unaware of what services are covered, particularly after a move across state lines. Over the long run, there may be adverse selection effects, as healthier consumers and companies, particularly in highly clustered areas like New England, may relocate to states with fewer requirements. The resulting upward price spiral may exacerbate affordability concerns and encourage consumers to renege on their insurance coverage. Insurers may seek out statutory and regulatory loopholes to counteract these selection effects. Currently, this appears to be case for highly expensive treatments like those for hepatitis and HIV/AIDS [12]. Insurers may also abandon certain insurance markets, thus reducing consumer choice. Finally, states may lack capacity and statutory powers to adequately enforce federal ACA standards [18]. Ultimately, divergent EHB decisions by states hence hold the potential to negatively affect consumers, whose access to healthcare may depend on their states of residence. Over time, this may exacerbate existing difference across states with regard to healthcare access and health status. Overall, both consumers and insurance companies, which are currently required to develop state-specific insurance products, would hence benefit from a national, more transparent approach. However, while the ACA, and hence the regulatory authority of the HHS, may preempt state law, it will be very hard, if not impossible, politically for the federal government to preempt state regulatory decisions, as consumers and state officials will be loath to accept further federal interference. Moreover, the federal government has shown much deference to the states in the implementation of the ACA, for example with regard to the implementation of insurance marketplaces or the Medicaid expansion,11 and
11 Notably, this deference has gone well beyond the forced limitations on federal power due to the infamous 2011 Supreme Court ruling in National
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Table 1 State Essential Health Benefits: process and outcomes. State Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming
Analysis of existing mandates
Assessed options
Held public comment period
Benchmark plan type
BCBS selected
Yes
Yes
Yes
Yes Yes
Yes Yes Yes Yes Yes Yes Yes
Yes Yes Yes Yes Yes Yes Yes
Yes
Yes Yes Yes Yes Yes Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes Yes Yes
Yes
Yes Yes
Yes Yes
Yes Yes Yes Yes Yes
Yes Yes Yes Yes Yes Yes
Yes Yes Yes Yes
Default Default State employee Small group Small group Small group HMO Small group Small group Default Default Small group Default Small group Default Default Small group Small group Default Default State employee Small group HMO HMO Small group Default Default Default Small group Small group HMO Small group Small group Default HMO Default Default Small group Default Small group Default Small group Default Default State employee HMO Small group Small group Default Default Default
Formed EHB workgroup
Yes Yes Yes Yes Yes
Yes Yes Yes Yes Yes
Yes Yes Yes
Yes Yes Yes
Yes Yes Yes
Yes Yes
Yes Yes Yes Yes
Yes Yes Yes Yes
Yes Yes Yes Yes
Yes Yes
Yes Yes Yes Yes Yes Yes Yes Yes
Yes
Yes Yes Yes
Yes Yes Yes
Yes
Yes Yes Yes Yes Yes Yes
Yes Yes Yes Yes Yes Yes
Yes Yes Yes Yes Yes Yes
Yes
Yes
Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Yes Yes Yes Yes Yes Yes
Yes Yes Yes
Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Based on data from the Kaiser Family Foundation’s statehealthfacts.org and statereforum.org.
partisan bickering makes agreement on the federal level even more challenging [23]. Greater federal involvement appears even less likely in case a Republican regains the White House in 2016. A potential reduction in covered benefits to reduce federal subsidy payments seems an even less likely scenario. Devolving the EHB decision to
Federation of Independent Business v. Sebelius. A major example includes the willingness to grant states significant leeway in utilizing private coverage extensions as pioneered by the State of Arkansas or the continuation of various waiver programs [24]. Other examples for state insurance marketplaces can be found in [23].
states hence virtually guaranteed that significant variation in benefits will continue to persist across states, and that much of the state regulatory environment prior to the enactment of the ACA persisted. Nonetheless, the 2016 re-evaluation by the HHS may open a window of opportunity for revisions to the EHB at the state level. As mentioned previously, state EHB are binding until 2016. Even without major changes to the HHS methodology, states will get an opportunity to review and update their previous decisions. Democratic states naturally have an incentive to take up this opportunity, to ensure the future viability of the ACA. However, even Republicans, who have long expressed concerns about the
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cost of insurance (see [40]), should take advantage of the potential for revisions. Mainstays of previous Republican reform proposals have been the ability to sell insurance products across state lines [20], permission to sell plans not subject to state mandates [9], and health care compacts that allow states to deregulate insurance [34]. The 2016 revisions provide Republicans with an opportunity to implement many of these previous suggestions. Moreover, states with expanded Medicaid programs have an added incentive to review state mandates that infringe on their budgets. During the 2016 review process, states should follow the example of other developed nations and strive for an explicit framework to set healthcare priorities. At the same time, they should pay particular attention on balancing adequacy and affordability for their citizens, as well as for government budgets. Both tasks require the extensive utilization of policy expertise. A lack of expertise in the decisionmaking process, particularly when neither the costs not the value added by mandates are adequately assessed, may exacerbate the potential detrimental effects described above, i.e. it could lead to excessively high premiums, putting insurance out-of-reach for many consumers, and thus strong adverse selection effects in states with excessive mandates. The end results may again be higher rates of uninsurance and reduced consumer choice, leading to relocating decisions by consumers and companies, while insurers may seek to protect their profits by artificially restricting access. For scholars, it is important to further awareness of opportunity costs among policymakers and the broader public, as tradeoffs are inherent in public spending decisions: covering in vitro fertilization reduces the resources available to pay for autism treatments. More generally, money spent on health insurance premiums cannot be spent on other priorities like education. A sophisticated discussion about these tradeoffs is only possible based on sound policy and cost-benefit analyses, but should also account, to a degree, for local values and preferences. Given the complexity of the regulatory environment, and the mixed effects of various benefits on premiums, little time should be lost; deliberations that take advantage of the expertise of public health and policy scholars should be initiated promptly and expeditiously. These discussion should be intra- as well as extra-governmental. Workgroups, representing a diverse set of stakeholders, and connecting experts, decision makers, and consumers, are crucial in this regard, and some states have utilized this approach successfully for their initial EHB decisions. Ultimately, a framework should emerge out of this process that offers principles and priorities for healthcare decisions. At the very least, state legislatures should initiate a proactive discourse on the EHB and not passively fall back on the default decision.
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Health Policy journal homepage: www.elsevier.com/locate/healthpol
Balancing adequacy and affordability?: Essential Health Benefits under the Affordable Care Act Simon F. Haeder ∗ Department of Political Science, University of Wisconsin-Madison, 110 North Hall, 1050 Bascom Mall, Madison, WI 53706, United States
a r t i c l e
i n f o
Article history: Received 10 April 2014 Received in revised form 21 August 2014 Accepted 25 September 2014 Keywords: Affordable Care Act Health reform Essential Health Benefits Insurance benefit packages
a b s t r a c t The Essential Health Benefits provisions under the Affordable Care Act require that eligible plans provide coverage for certain broadly defined service categories, limit consumer cost-sharing, and meet certain actuarial value requirements. Although the Department of Health and Human Services (HHS) was tasked with the regulatory development of these EHB under the ACA, the department quickly devolved this task to the states. Not surprisingly, states fully exploited the leeway provided by HHS, and state decision processes and outcomes differed widely. However, none of the states took advantage of the opportunity to restructure fundamentally their health insurance markets, and only a very limited number of states actually included sophisticated policy expertise in their decisionmaking processes. As a result, and despite a major expansion of coverage, the status quo ex ante in state insurance markets was largely perpetuated. Decisionmaking for the 2016 revisions should be transparent, included a wide variety of stakeholders and policy experts, and focus on balancing adequacy and affordability. However, the 2016 revisions provide an opportunity to address these previous shortcomings. © 2014 Elsevier Ireland Ltd. All rights reserved.
1. Introduction In the United States, the regulation of commercial health insurance has traditionally been the domain of the states (see [32]). However, the Affordable Care Act (ACA) significantly changes the American healthcare system in numerous ways and it directly affects the operation of state insurance markets through its various provisions [22]. One of the most visible areas of this most recent federal initiative is the requirement that health plans sold in insurance marketplaces must offer a variety of services, including ambulatory patient services, prescription drugs, and emergency services, termed Essential Health Benefits (EHB). Although the Department of Health and Human
∗ Tel.: +1 559 908 2704; fax: +1 608 265 2663. E-mail address: [email protected] http://dx.doi.org/10.1016/j.healthpol.2014.09.014 0168-8510/© 2014 Elsevier Ireland Ltd. All rights reserved.
Services (HHS) was tasked with the regulatory development of these EHB under the ACA, the department quickly devolved this task to the states. This assessment sheds light on the development and implementation of the EHB, a topic that has received little attention in the media and scholarly literature.1 Moreover, it also provides background on the development of insurance benefit packages in the United States and offers and outlook to the upcoming EHB revisions in 2016. From a policy perspective, the development and implementation of the EHB afforded policymakers an excellent opportunity to set healthcare priorities and to make fundamental decisions for their health insurance markets about how to balance coverage and affordability. Ideally, these
1 The scant existing literature mostly focuses on the legality of the approach taken by HHS [1] or provides background information [36,27,46].
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decisions should have been based on policy expertise, i.e. a sound understanding of opportunity costs. Not surprisingly, states fully exploited the leeway provided by HHS, and state decision processes and outcomes differed widely. However, none of the states took advantage of the opportunity to restructure fundamentally their health insurance markets, and only a very limited number of states actually included sophisticated policy expertise in their decisionmaking processes. As a result, and despite a major expansion of coverage, the status quo ex ante in state insurance markets was largely perpetuated. However, the 2016 revisions provide an opportunity to address these previous shortcomings. 2. Insurance regulation prior to the Affordable Care Act Insurance regulation in the United States is rather complex because it generally involves an intricate combination of state and federal jurisdictions. Perhaps the most visible case of health insurance regulation can be found in the form of insurance mandates, i.e. the minimum insurance benefit packages that insurance plans have to provide.2 These mandates are often considered as an easy, relatively uncontroversial instrument for extending insurance coverage because they avoid the pitfalls of direct provision of public goods such as deadweight losses [19,44]. Specifically, mandates avoid incurring costs due to the marginal excess tax burden (METB) that would be the result from direct governmental provision [4]. Other common rationales in support of the establishment of mandates include imperfect information of consumers, information asymmetries, adverse selection, preventative cost savings, and suboptimal selection of coverage (see [21,19]). From a legislative perspective, mandates are attractive because they do not affect state budgets directly but instead externalize costs [44]. However, opponents of mandates prominently cite moral hazards as their most common concern [21,39]. As mentioned previously, states have been the primary regulators of commercial health insurance in the United States [32]. With regard to insurance mandates, the State of Pennsylvania was the first to require minimum benefits in the form of coverage for osteopaths and dentists in 1949 [35]. Since then, the number of mandates has increased dramatically; particularly in the 1980s and 1990s, states added mandates at a rapid rate [30,29]. More recently, in the period just prior to the enactment of the ACA, i.e. between 2004 and 2010, the number of mandates grew from about 1800 to a total exceeding 2100 across the states [5,6].3 In addition to the states, and despite the self-imposed restrictions of the McCarran–Ferguson Act of 1945, the
2 Insurance mandates are generally separated into three major categories: provider, benefit, and coverage mandates [21]. Provider mandates require that insurance plans include coverage for certain types of providers such as dental hygienists or chiropractors. A minimum level of service, e.g. in terms of cost or days for certain services, is stipulated by benefit mandates. Finally, requirements regarding certain classes of individuals, e.g. dependent or foster care children, are addressed by coverage mandates. See [21] for additional information. 3 Ranging from a low of 13 for Idaho to a high of 69 for Rhode Island.
federal government has also increased its regulatory involvement.4 The three most prominent forays into the regulation of health insurance by the U.S. Congress include the Employee Retirement Income Security Act (ERISA) of 1974, the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985, and the Health Insurance Portability and Accountability Act (HIPAA) of 1996. While diverse in their subject matter, they impose a variety of restrictions and mandates with regard to continuation of coverage, portability, and renewability. Most recently, the Affordable Care Act of 2010 adds to the national list of mandatory coverage mandates [14]. The combination of state and federal regulations of health insurance has led to markedly different benefit packages – and processes to determine these packages – across the four major types of health insurance in the U.S.: Medicare, Medicaid, commercial insurance, and self-insurance. With regard to Medicare, the benefits are fully determined by federal statutes. Similarly, companies choosing to self-insure under ERISA are also subject only to federal jurisdiction. In both cases, specific benefit packages are developed through regulatory policymaking by HHS under the Administrative Procedures Act (APA), allowing for (limited) public and expert involvement.5 On the other hand, individual states generally take preeminence with regard to the regulation of commercial insurance, confined only by the limited restrictions of the aforementioned statutes. The development of benefit packages by the states is driven by legislative policymakers and implemented by state regulatory entities like the departments of insurance [37]. A significant overlap in jurisdiction occurs for the Medicaid program. While states are required to provide certain benefits (as laid out by Title XIX of the Social Security Act and implemented through HHS regulations), they are offered significant leeway with regard to so-called optional benefits [45]. Benefit packages are specified by states in their state Medicaid plans, subject to HHS approval. Processes for altering Medicaid benefits, so-called state Medicaid plan amendments, differ widely across the states; however, in most states the process is regulatory and does not require legislative approval [38,41].6 In the U.S., the most proactive, albeit quite limited, effort to develop and implement healthcare priorities can be found in the Oregon Health Plan [28,42]. However, the process of determining specific benefit packages in the United States generally appears rather ad hoc and driven by immediate political considerations. Moreover, in this process, only a very limited number of states require any kind of analysis with regard to medical effectiveness or financial impact [33,35]. Hence, the situation differs markedly from other developed nations like New Zealand, Israel, the
4 The McCarran–Ferguson Act generally exempts the regulation of insurance from federal interference. It was passed by Congress in response to United States v. South-Eastern Underwriters Association in which the Supreme Court rules that the federal government could regulate insurance based on the Commerce Clause. 5 For more information on rulemaking under the APA see [31]. 6 Note that states may also alter their Medicaid programs through socalled waivers, in which the federal government may permit states to abdicate certain normally required benefits [45].
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United Kingdom and the Netherlands, which have specifically worked to establish and implement frameworks to set healthcare priorities [10,25,13,26]. Particularly Nordic countries like Sweden and Norway have developed, and to a more limited degree applied, underlying principles to guide healthcare decisionmaking [10]. In addition, recent reforms in Germany, another federalist country like the United States, have tasked the Federal Joint Committee (FJC), with the support of the Institute for Quality and Efficiency, to define benefit packages through a deliberative process, infused with expertise and public participation [8,7,43]. While the focus of the FJC is largely on medical effectiveness, it also, to a more limited degree, takes account of cost effectiveness [3,8]. 3. The Affordable Care Act and Essential Health Benefits The EHB provisions of the Affordable Care Act (ACA) directly infer with the states’ regulation of commercial insurance plans by requiring that eligible plans provide coverage for certain very broadly defined service categories, limit consumer cost-sharing, and meet certain actuarial value requirements termed Bronze, Silver, Gold, and Platinum. In combination, these requirements aim toward a comprehensive benefits package at an affordable price to millions of Americans. Moreover, marketplaces are supposed to facilitate the comparison and purchasing of plans by consumers. Depending on their income level, consumers obtaining coverage under the ACA will do so supported by varying degrees of government subsidies [23]. Specifically, the EHB must include the following [18,3]: • • • • • • • • •
ambulatory patient services emergency services hospitalization maternity and newborn care mental health and substance use disorder services 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
The EHB apply to the non-grandfathered plans7 in individual and small group markets inside and outside insurance marketplaces as well as to all Medicaid plans that are part of the ACA expansion. They are expected to cover about 12 million individuals in 2014 [17]. All types of products in these markets including health maintenance organizations (HMOs), preferred provider organization (PPOs), point-of-service health plans (POSs) or high-deductible health reimbursement arrangements (HRAs) or health savings accounts (HSAs) are subject to the EHB. Federal mental health parity requirements apply
to the EHB, as well. Moreover, the ACA prohibits any annual or lifetime dollar limits on the EHB; this prohibition also applies to plans offered outside the individual and small group market. Deductibles for the small group market are set at $2000 for individuals and $4000 for families, indexed for inflation. Out-of-pocket maximums are limited to those for health-savings-account-qualified highdeductible health plans. Grandfathered, self-insured, or large group market health plans, i.e. those that cover more than 50 FTE employees, are not required to offer these EHB. However, if states decide to invite large employers into the marketplaces starting in 2017, the EHB would apply to all large firms inside and outside the marketplaces. The EHB exception also applies to traditional Medicaid benchmark and benchmark-equivalent plans, i.e. those plans offered prior to the ACA expansion. 4. Deferring to the states: implementation decisions by the federal government8 Given the extent of the task, the ACA delegated much of the practical development of the EHB package to the HHS. The HHS, already taxed with other extensive regulatory requirements under the ACA and concerned about the long-time frame for developing federal regulations, took a two-pronged approach [36,1]. First, it asked the Institute of Medicine (IOM) with the development of general guidelines for defining the EHB. The IOM expressed grave concerns about the extent of certain state mandates and specifically advised the HHS to balance coverage and affordability [16,36]. Second, the HHS eventually devolved the development of the EHB to the states and issued only broad regulatory guidelines, leaving states with significant leeway in the development of the EHB [46]. This devolutionary approach has drawn criticism from patient advocates and insurers, who sought a uniform national package, but was praised by many state officials [36]. States had a choice of selecting one of the following plans as their benchmark [11]: • any of the three largest small group insurance products • any of the three largest state employee health plans • any of the three largest Federal Employees Health Benefits Program (FEHBP) plans • the largest insured commercial non-Medicaid HMO9 States unwilling or unable to reach agreement on plan selection automatically defaults to the largest small group plan. Any of these plans is to be supplemented if it does not fulfill the minimum EHB requirements listed above. Interestingly, in case a state defaults, it also has to rely wholly on the HHS to make decisions about these supplements. If a state selects a benchmark plan that does not require certain benefits otherwise mandated to individual and small group policies in the marketplace, states are required to
8 7
Grandfathered plans are those offered prior to the passage of the ACA. These plans are generally exempt from ACA coverage requirements. See [2] for details.
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For a detailed overview of the developments at the federal level see
[1]. 9 It should be noted that the ACA defines largest in terms of consumer enrollment.
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defray the additional costs incurred by the federal government. The HHS has indicated that states are bound by their EHB decisions until 2016, when it intends to re-evaluate its approach to the EHB regulation [11]. 5. Implementation by the states: wide variation, little concern for costs and affordability States had to report their decisions regarding the selection of a benchmark plan for EHB to the HHS by October 2012. The approaches used to select the benchmark plan were diverse, including selection by the state department of insurance, the governor, or the legislature [18]. In terms of process, as shown in Table 1, about 60 percent of states formed a work group (30 states and D.C.), conducted an analysis of existing benefit mandates (31 and D.C.), or assessed benchmark plan options (33 and D.C.). States also showed much diversity in terms of public input and participation with a slight majority (27 and D.C.) holding a public comment period. Twenty-three states and the District of Columbia partook in all four activities. At the same time, 15 states did not conduct any of these activities, and all but two of these states defaulted to the small group plan. Generally, these are the same states that refused to develop a state-based marketplace and to expand Medicaid. In terms of outcomes, 41 states and the District of Columbia selected a small group plan as their benchmark; 22 states resorted to this decision by default. Not surprising, of these 22 states, 13 did not conduct any of the activities mentioned above. In addition, six states selected a commercial HMO plan, and three selected a state employee plan as their benchmark. Thirty-seven of the 51 plans are offered by a Blue Cross or Blue Shield organization. Guarding regulatory sovereignty may have played a major role in the selections, as no state selected a Federal Employees Health Benefits Program plan as their benchmark plan. This decision is particularly interesting because federal employee health plans are not subject to any state-mandated benefits, but instead are wholly subject to decisionmaking by the federal government. The extent of benefits mandates included in the selected plans equally differs widely and depends on states’ previous regulatory decisionmaking. Hence, for example, nineteen states do not cover autism treatments and 28 do not cover any infertility treatments [15]. Importantly, only state mandates enacted prior to December 31, 2011 may be included in the EHB package and any mandate enacted after this date is not covered by federal subsidies. An extensive review by the author of state government websites, including state insurance departments, newspaper articles, reports, and various appropriate online fora10 indicates the dearth of sophisticated policy analyses that were utilized by state governments in the development of the EHB. Only a very small number of states like New York and North Carolina seem to have had access to adequate cost estimates, usually developed by consulting firms like
10 These include the Kaiser Family Foundation’s statehealthfacts.org, statereforum.org, and the National Conference of State Legislatures, for example.
Deloitte and Milliman, let alone appropriate cost-benefit analyses, in their decision process. Not surprising, particularly the states that failed to conduct any activities did particularly poorly in this regard. Without a sound understanding of the opportunity costs involved in developing EHB packages, balancing coverage and affordability degenerates into mere guesswork. While the ACA has done much to alleviate concerns about affordability for a large number of Americans, premiums may still be out of reach for many. Moreover, upcoming regulatory and judicial decisions could significantly restrict subsidies [23]. Equally important is the effect of these decisions on government budgets, which will inevitably be forced to provide these subsidies. In addition, the failure to expand Medicaid by many states further aggravates the situation of many uninsured Americans. 6. Looking ahead to 2016 The HHS has stated that it intends to review its approach to the EHB package for 2016 [11]. While the previous approach allowed for local values and preferences to shape decisionmaking, it may also be cause for concern, as benefit packages vary significantly across the country. As a result, consumers may be unaware of what services are covered, particularly after a move across state lines. Over the long run, there may be adverse selection effects, as healthier consumers and companies, particularly in highly clustered areas like New England, may relocate to states with fewer requirements. The resulting upward price spiral may exacerbate affordability concerns and encourage consumers to renege on their insurance coverage. Insurers may seek out statutory and regulatory loopholes to counteract these selection effects. Currently, this appears to be case for highly expensive treatments like those for hepatitis and HIV/AIDS [12]. Insurers may also abandon certain insurance markets, thus reducing consumer choice. Finally, states may lack capacity and statutory powers to adequately enforce federal ACA standards [18]. Ultimately, divergent EHB decisions by states hence hold the potential to negatively affect consumers, whose access to healthcare may depend on their states of residence. Over time, this may exacerbate existing difference across states with regard to healthcare access and health status. Overall, both consumers and insurance companies, which are currently required to develop state-specific insurance products, would hence benefit from a national, more transparent approach. However, while the ACA, and hence the regulatory authority of the HHS, may preempt state law, it will be very hard, if not impossible, politically for the federal government to preempt state regulatory decisions, as consumers and state officials will be loath to accept further federal interference. Moreover, the federal government has shown much deference to the states in the implementation of the ACA, for example with regard to the implementation of insurance marketplaces or the Medicaid expansion,11 and
11 Notably, this deference has gone well beyond the forced limitations on federal power due to the infamous 2011 Supreme Court ruling in National
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Table 1 State Essential Health Benefits: process and outcomes. State Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming
Analysis of existing mandates
Assessed options
Held public comment period
Benchmark plan type
BCBS selected
Yes
Yes
Yes
Yes Yes
Yes Yes Yes Yes Yes Yes Yes
Yes Yes Yes Yes Yes Yes Yes
Yes
Yes Yes Yes Yes Yes Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes Yes Yes
Yes
Yes Yes
Yes Yes
Yes Yes Yes Yes Yes
Yes Yes Yes Yes Yes Yes
Yes Yes Yes Yes
Default Default State employee Small group Small group Small group HMO Small group Small group Default Default Small group Default Small group Default Default Small group Small group Default Default State employee Small group HMO HMO Small group Default Default Default Small group Small group HMO Small group Small group Default HMO Default Default Small group Default Small group Default Small group Default Default State employee HMO Small group Small group Default Default Default
Formed EHB workgroup
Yes Yes Yes Yes Yes
Yes Yes Yes Yes Yes
Yes Yes Yes
Yes Yes Yes
Yes Yes Yes
Yes Yes
Yes Yes Yes Yes
Yes Yes Yes Yes
Yes Yes Yes Yes
Yes Yes
Yes Yes Yes Yes Yes Yes Yes Yes
Yes
Yes Yes Yes
Yes Yes Yes
Yes
Yes Yes Yes Yes Yes Yes
Yes Yes Yes Yes Yes Yes
Yes Yes Yes Yes Yes Yes
Yes
Yes
Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Yes Yes Yes Yes Yes Yes
Yes Yes Yes
Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Based on data from the Kaiser Family Foundation’s statehealthfacts.org and statereforum.org.
partisan bickering makes agreement on the federal level even more challenging [23]. Greater federal involvement appears even less likely in case a Republican regains the White House in 2016. A potential reduction in covered benefits to reduce federal subsidy payments seems an even less likely scenario. Devolving the EHB decision to
Federation of Independent Business v. Sebelius. A major example includes the willingness to grant states significant leeway in utilizing private coverage extensions as pioneered by the State of Arkansas or the continuation of various waiver programs [24]. Other examples for state insurance marketplaces can be found in [23].
states hence virtually guaranteed that significant variation in benefits will continue to persist across states, and that much of the state regulatory environment prior to the enactment of the ACA persisted. Nonetheless, the 2016 re-evaluation by the HHS may open a window of opportunity for revisions to the EHB at the state level. As mentioned previously, state EHB are binding until 2016. Even without major changes to the HHS methodology, states will get an opportunity to review and update their previous decisions. Democratic states naturally have an incentive to take up this opportunity, to ensure the future viability of the ACA. However, even Republicans, who have long expressed concerns about the
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cost of insurance (see [40]), should take advantage of the potential for revisions. Mainstays of previous Republican reform proposals have been the ability to sell insurance products across state lines [20], permission to sell plans not subject to state mandates [9], and health care compacts that allow states to deregulate insurance [34]. The 2016 revisions provide Republicans with an opportunity to implement many of these previous suggestions. Moreover, states with expanded Medicaid programs have an added incentive to review state mandates that infringe on their budgets. During the 2016 review process, states should follow the example of other developed nations and strive for an explicit framework to set healthcare priorities. At the same time, they should pay particular attention on balancing adequacy and affordability for their citizens, as well as for government budgets. Both tasks require the extensive utilization of policy expertise. A lack of expertise in the decisionmaking process, particularly when neither the costs not the value added by mandates are adequately assessed, may exacerbate the potential detrimental effects described above, i.e. it could lead to excessively high premiums, putting insurance out-of-reach for many consumers, and thus strong adverse selection effects in states with excessive mandates. The end results may again be higher rates of uninsurance and reduced consumer choice, leading to relocating decisions by consumers and companies, while insurers may seek to protect their profits by artificially restricting access. For scholars, it is important to further awareness of opportunity costs among policymakers and the broader public, as tradeoffs are inherent in public spending decisions: covering in vitro fertilization reduces the resources available to pay for autism treatments. More generally, money spent on health insurance premiums cannot be spent on other priorities like education. A sophisticated discussion about these tradeoffs is only possible based on sound policy and cost-benefit analyses, but should also account, to a degree, for local values and preferences. Given the complexity of the regulatory environment, and the mixed effects of various benefits on premiums, little time should be lost; deliberations that take advantage of the expertise of public health and policy scholars should be initiated promptly and expeditiously. These discussion should be intra- as well as extra-governmental. Workgroups, representing a diverse set of stakeholders, and connecting experts, decision makers, and consumers, are crucial in this regard, and some states have utilized this approach successfully for their initial EHB decisions. Ultimately, a framework should emerge out of this process that offers principles and priorities for healthcare decisions. At the very least, state legislatures should initiate a proactive discourse on the EHB and not passively fall back on the default decision.
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