Essential Benefits drive premiums up 47%

The 2014 health reform provisions include the adoption of Essential Health Benefits as mandated by the Department of Health and Human Services (HHS) to provide more comprehensive coverage. Although designed to protect consumers, the package is expected to increase premium costs.

The recent “Cost of Comprehensive Health Benefits” report, from Today eHealth, Inc., parent company of eHealthInsurance.com, shows that average monthly premiums for individual health insurance plans it evaluates are 47% higher than average when the plans cover comprehensive benefits. However, average deductibles for the plans are 27% lower than the average for all plans. Such comprehensive benefits parallel those in the essential benefit package.

Under the Patient Protection and Affordable Care Act (PPACA) major medical health insurance plans must cover 10 essential benefit categories at an actuarial minimum value of 60%, beginning in January 2014. The full impact of the requirements will not be uniform across states, with each state enabled to select a benchmark plan. For example, a state can choose one of the three largest small-group plans. 

“Health insurers are free to design plans of their choosing, so long as they are at minimum actuarially equivalent to the benchmark plan in the 10 required areas of service that must be covered,” says Adam C. Powell, PhD, president of Payer+Provider Syndicate, a healthcare consulting firm, in Boston.

In the case in which a health plan offers benefits of equal or greater value than the benchmark, no design changes are necessary. However, when a health plan does not offer a benefit, or offers one of lower actuarial value than the benchmark, the plan must add or enhance the benefit. In the short-term, doing so only has the potential to increase premiums, he says.

Maternity care increased

Some plans will increase the benefits and premiums to meet the requirements and this will benefit some underinsured consumers, Powell says.

“For example, HHS has estimated that 62% of individual market health plans do not provide maternity coverage,” Powell says. “Men and women not in the process of bearing children might prefer such plans when shopping on the individual market, as they do not need maternity coverage. As these plans likely siphon-off a number of people not needing maternity benefits, the population insured by plans offering maternity benefits likely has a disproportionate number of pregnant mothers. By making maternity benefits a required benefit, pregnant mothers may become more evenly dispersed between health plans.”

The dispersion of members could reduce the medical costs associated with plans that had previously offered maternity benefits, and increase the medical costs associated with plans that had previously not offered maternity benefits. It’s too early to tell how prevalent adverse selection will be among plans.

Experts note that the true costs and impact of the 2014 reform provisions are impossible to predict.

“The Essential Health Benefit requirements put in place by HHS offers many new services we’re not used to or had available to us,” says CJ Evrard, co-founder of Ihealthupdates.com, and IHU consulting group, in Chicago. “Unfortunately because everything is occurring for the first time, there is no way to tell what will happen on October 1, 2013, when the exchange opens its doors for the first time, and how long it will take for all the kinks to be worked out.”