Costs will influence essential benefits

November 1, 2011

The Obama administration has moved one step closer to defining the healthcare services insurers will have to offer in exchanges.

WASHINGTON-The Obama administration has moved one step closer to defining the healthcare services insurers will have to offer in exchanges. An Institute of Medicine (IOM) expert panel weighed in last month.

IOM suggested criteria and decision methods the Department of Health and Human Services (HHS) should adopt for specific coverage requirements, and now it's up to HHS Secretary Kathleen Sebelius to fill in the ultimate details.

The key recommendation from the IOM committee is for HHS to pay attention to costs in determining which benefits are most essential. Health plans marketed to individuals and small businesses through exchanges should resemble policies now provided for small businesses, and not the more generous plans that large companies subsidize for employees, the panel advised.

The challenge is to find balance between comprehensiveness and affordability, explained IOM panel chairman John Ball, former executive vice president of the American Society for Clinical Pathology, at a briefing to unveil the report. Too costly benefit requirements will boost government outlays and subsidies to individuals and make it impossible for a reformed healthcare system to achieve its broader goal of expanding coverage to millions of uninsured Americans.

The definition of essential health benefits (EHBs) for exchange plans will have a broad impact on coverage decisions for private insurance by establishing a de facto coverage floor. Thus the IOM's emphasis on restraining costs prompted applause from insurers and employers. Benefits that reflect plans offered by typical small employers represent "an important step toward maintaining affordability," said Karen Ignagni, president of America's Health Insurance Plans (AHIP) at the briefing.

But patient advocates complain that the IOM proposal will lead to bare-bones coverage that will be inadequate for millions of individuals with chronic conditions and serious health problems. "Typical" employer plans often do not cover substance abuse, mental health and rehabilitation services or individual care for autistic children, for example.

The IOM panel mapped out a process for HHS to set a cost target for an EHB package and then define which benefits that could cover. Initial plan value would be based on the average premium paid by small employers, adjusted to be equivalent to the cost of a "silver" or midlevel plan offered through exchanges in 2014. HHS will have to ensure that 10 categories of basic care are included in the essential benefits package, as required by the Patient Protection and Affordable Care Act (PPACA).

While the premium target will be used to design the EHB standards, the actual cost of a plan to individuals and small employers will be determined by broader plan design elements, such as copays, deductibles and care management features.

According to the panel, HHS will have to make tradeoffs in coverage decisions, and such decisions should be based on scientific evidence of effectiveness, combined with value judgments about relative importance. HHS should be fairly specific in citing standard benefit inclusions and exclusions, comparable to the details provided in the private and public insurance market. The chairman objected to charges that the proposal smacks of rationing: combining the standard small business plan with the 10 basic services should lead to a comprehensive package.