Proposal to Allow States to Define “Essential Health Benefits”

Todd Solomon
January 24, 2012 — 2,096 views  
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The U.S. Department of Health and Human Services (“HHS”) issued a bulletin on December 16, 2011 outlining and requesting comments on its proposed regulatory approach to allow states to define the “essential health benefits” that must be covered beginning in 2014 by plans offered in the individual and small group markets within the state and the plans offered under the state’s Affordable Insurance Exchange.

Beginning in 2014, the Patient Protection and Affordable Care Act (“PPACA”) will require non-grandfathered plans in the individual and small group markets, both inside and outside of the Affordable Insurance Exchanges, to offer a comprehensive package of items and services, known as “essential health benefits.”  Notably, grandfathered plans, health insurance plans offered in the large group market, and self-insured group health plans are exempt from the essential health benefits requirements. 

PPACA requires that HHS define essential health benefits to reflect the scope of benefits offered under a “typical employer plan.”  Essential health benefits must include at least the following general statutory categories of service:  ambulatory patient services; emergency services; hospitalization; 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; and pediatric services, including oral and vision care.

The HHS approach outlined in the bulletin proposes that essential health benefits be defined by states using a benchmark approach which would give each state the flexibility to select a benchmark plan that reflects the scope of services offered by a “typical employer plan” within the state.  States would choose from one of the following benchmark health insurance plans selected by HHS as reflecting the statutory standards for essential health benefits:

  • 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 Employees Health Benefits Program (“FEHBP”) plan options by enrollment; or
  • the largest insured commercial non-Medicaid Health Maintenance Organization (“HMO”) operating in the state.

If a state chooses not to select a benchmark, HHS proposes that the default benchmark be the largest plan by enrollment in the largest product in the state’s small group market.

States would be required to select a benchmark plan in the third quarter two years prior to the coverage year.  For 2014, states would be required to select the benchmark plan in the third quarter of 2012.   The benchmark plan options would be determined based on enrollment data from the first quarter two years prior to the coverage year.  The benchmark plan options for 2014 would therefore be determined based on enrollment data for the first quarter of 2012.

If a benchmark plan selected by a state does not include all ten statutory categories of service, the benchmark plan must be supplemented using the largest plan in the benchmark type that offers the missing category of service.  If none of the benchmark options in that type offer the required category of service, the benchmark plan will be supplemented using the FEHBP plan with the largest enrollment.  For example, according to HHS, habilitative services and pediatric oral or vision services are not routinely covered by some of the benchmark options it surveyed.  If a state selected a benchmark plan using the largest small group insurance plan offered in the state and the benchmark plan did not provide for habilitative services, the benchmark plan would be supplemented using the habilitative services offered by the largest small group benchmark option with coverage for habilitative services.  If no small group benchmark option provides for habilitative services, the benchmark plan will be supplemented with the habilitative services offered under the largest FEHBP plan offering habilitative services.  HHS is also considering other options for supplementing habilitate services and pediatric oral or vision services.

Non-grandfathered individual and small group health plans will be required to offer benefits that are “substantially equal” to the benefits offered under the benchmark plan selected by the state and supplemented, if necessary, to cover all ten statutory categories of service.  The plan’s issuer will have the ability to adjust the specific services offered under the plan and/or any quantitative limits, provided the plan covers the baseline set of benefits offered under the benchmark plan and includes all ten statutory categories of service.  HHS is also considering other options for defining the limits on the issuer’s flexibility to modify the plan.

PPACA also requires states to defray the costs of any state-mandated benefits in excess of federally-mandated essential health benefits for individuals enrolled in a plan offered under the state’s Affordable Insurance Exchange.  HHS proposes a transition period for 2014 and 2015 to allow states to coordinate any state benefit mandates with federally-mandated essential health benefits.  During this transition period, small group benchmark options will likely include any state-mandated benefits since small group plans are typically regulated by state law.  States that select a benchmark plan using benchmark option that includes the state-mandated benefits will not be required to cover the costs of additional premiums due to the state mandates.  However, a state will be required to pay the additional premium costs if the if the state selects a benchmark plan using a benchmark option that does not include the state-mandated benefits (such as a FEHBP plan) and supplements the benchmark plan to include the benefits required by state law.

The proposed benchmark approach outlined by HHS in the bulletin would be applicable for 2014 and 2015.  HHS proposes to reassess the benchmark approach for 2016 and subsequent years based evaluation and feedback on the proposed process for 2014 and 2015.  Employers with comments on the proposed regulatory approach outlined in the bulletin should submit their comments to HHS by January 31, 2012.

 

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Todd A. Solomon is a partner in the Employee Benefits Practice Group of McDermott Will & Emery’s Chicago office.  He is the author of the third, fourth and fifth editions of Domestic Partner Benefits: An Employer’s Guide, and was the co-author of the book’s first and second editions.

Todd Solomon

McDermott Will & Emery

Todd A. Solomon is a partner in the law firm of McDermott Will & Emery LLP based in the Firmís Chicago office. As a member of the Employee Benefits Department, Toddís practice is concentrated primarily on designing, amending, and administering pension plans, profit sharing plans, 401(k) plans, employee stock ownership plans, 403(b) plans, and nonqualified deferred compensation arrangements. He also counsels privately and publicly-held corporations and tax-exempt entities regarding fiduciary issues under ERISA, employee benefits issues involved in corporate transactions, executive compensation matters, and the implementation of benefit programs for domestic partners of employees. A portion of his practice consists of advising clients on fiduciary and plan investment matters. Todd has experience counseling plan fiduciaries with respect to investment policies, alternative investments (e.g., hedge funds, limited partnerships, real estate), prohibited transaction issues, investment management agreements, and payment of expenses from plan assets. Todd has dealt with the Internal Revenue Service under various circumstances, including Employee Plans Compliance Resolution System (EPCRS) filings, Audit CAP negotiations, benefit plan audits and applications for determination letters. He has also represented clients in negotiations with the Department of Labor in connection with benefit plan audits and Voluntary Fiduciary Correction Program filings. Todd is the author of the First, Second, Third, Fourth and Fifth Editions of Domestic Partner Benefits - An Employer's Guide, which were published by Thompson Publishing Group, and is a frequent speaker on employee benefits issues resulting from domestic partnerships and same-sex marriages. Todd is co-chair of the Firmís Pro Bono & Community Service Committee in the Chicago office. He received the 2008 McDermott Will & Emery award for Outstanding Achievement and Commitment to Pro Bono and Service to the Community. In June 2008, Todd was named a ìPro Bono Attorney of the Monthî by Illinois Legal Aid Online. He is also a member of the Lesbian, Gay, Bisexual and Transgender Diversity Committee of McDermott Will & Emery. As a member of the LGBT Committee, Todd has been involved with evaluating the Firmís domestic partner benefits policies and working with businesses in Chicago to form strategic alliances in order to advocate for LGBT rights in the workplace. He is admitted to practice before the Illinois Bar.