Employers Should Eye New Reform Standards for Essential Health Benefits and Actuarial Value

New reform standards for health plan value and coverage are important for employers, first because they will determine the kind of insured coverage that small employers buy. But grandfathered and self-funded employer health plans also need to know the rules to avoid penalties under health reform.

The proposed rules, which HHS announced on Nov. 20, include standards on how states will define a core set of “essential health benefits” that exchange plans, small group plans and issuers of individual policies must cover.

The June 2010 health reform law requires that all policies sold on the individual market and to small groups (inside or outside the state exchanges): (1) cover the 10 categories of EHBs; (2) meet annual cost-sharing limits when covering EHBs; and (3) meet actuarial value limits for EHB coverage, starting with plan or policy years beginning Jan. 1, 2014.

The law does not require large or self-funded plans either to cover all 10 EHBs, or adhere to cost-sharing rules when covering EHBs. However, EHBs are important for large, self-funded employers because they bear on other reform mandates, such as lifetime limits. For example, if a self-funded plan does cover any EHBs, it may not impose limits on them.

Plan Actuarial Value

Actuarial value is defined as the percentage paid by a health plan of the total allowed costs of benefits. Total allowed benefit costs is defined as the anticipated covered medical spending for EHB coverage paid by a health plan for a standard population, computed based on the health plan’s cost sharing rules.

The actuarial level of coverage must be 60 percent for a bronze plan, 70 percent for a silver plan, 80 percent for a gold plan and 90 percent for a platinum plan.

The proposed rule includes an AV calculator for health plans. The proposed tool allows users to measure the actuarial value of health plans and compliance with actuarial value standards required by health reform. This Nov. 20 memo describes the nine steps insurers and plans will use to calculate AV.

The proposed rules allow for variations in AV of plus or minus 2 percent to be called de minimis.

They also suggest ways of calculating the AV of EHBs that are not generally represented in current policies; namely, pediatric oral and vision, and habilitative services. The lack of these two categories also makes it difficult to select state benchmark plans as models for qualified health plans on exchanges.

State Benchmark Plans

The rules propose an accreditation process for states to follow when certifying “qualified health plans.” New previously unaccredited insurers will be able to sell policies on an exchange starting Jan.1, 2014, if they are scheduled to get reviewed by a recognized accrediting agency. For their second year, insurers will have to have their plans accredited as a precondition to selling on an exchange.

The rule proposes that states select a benchmark plan from among several options, and all plans that cover EHB must offer benefits substantially equal to those offered by the benchmark plan.

A “base-benchmark” plan may be: (1) the largest plan by enrollment in any of the three largest small group insurance products in the state’s small group market; (2) any of the largest three state employee health benefit plans by enrollment; (3) any of the largest three national Federal Employees Health Benefits plans by enrollment; or (4) the largest insured commercial non-Medicaid HMO in the state. Go here for more information on how states may choose their benchmark plan. 

If a benchmark plan is missing any of the 10 statutory categories of benefits, the proposed rules would have the state or U.S. Department of Health and Human Services supplement the benchmark plan in that category. The proposed rules also include a number of standards to protect consumers against discrimination and ensure that benchmark plans offer a full array of EHB benefits and services.

If a state does not make a selection, the largest small-group product offered in the state, by enrollment, would be the benchmark. If a “base-benchmark” plan does not cover all 10 categories of EHBs required by the reform law, or failed to meet other requirements, it would have to be augmented.

The proposed rules also would:

• prohibit benefit designs that could discriminate against potential or current enrollees;
• include special standards for benefits not typically covered by individual and small-group policies, such as pediatric oral and vision, and habilitative services; and
• add standards for prescription drug coverage.

The appendix of the proposed rules include the proposed list of state-selected EHB-benchmark plans, as well as the default benchmark plan for a state that does not select a benchmark plan, for public comment. States can make an EHB-benchmark selection until the close of the comment period. Further information on the benchmark plans can be found on the CCIIO website.

The proposed rules are scheduled to be published in the Nov. 26 Federal Register, and public comments must be submitted by Dec. 26.

Background

Essential health benefits are a core set of benefits that includes the following general categories:

• Ambulatory patient services
• Emergency services
• Hospitalization
• Maternity and newborn care
• Mental health and substance abuse
• Prescription drugs
• Rehabilitative and devices
• Laboratory services
• Preventive and wellness services
• Pediatric services, including oral and vision care

The feds say their guiding principle is that the EHBs’ scope will be equal to the scope of benefits provided under a typical employer plan, on a state-by-state basis, as HHS described in this Health Benefits Bulletin on Dec. 16, 2011.