Defining essential benefits: How much is too much?

Drafting government definitions of what insurers must cover raises emotionally charged issues surrounding patient need, medical necessity and cost control.

By Geri Aston — Posted April 4, 2011

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Of all the balancing acts the federal government will need to perform under the health system reform law, one of the most consequential may be deciding how to define the essential benefits that must be offered by all plans in state health insurance exchanges.

The Institute of Medicine panel tasked with making recommendations to the Dept. of Health and Human Services regarding the benefits package launched the public side of its effort at a January hearing, and already the potential tradeoffs have become very clear.

"The big issue that came out is the more generous you make the benefits, the more expensive it will be, and if it's more expensive, perhaps access to insurance will be less," said John Ball, MD, chair of the IOM committee. "Part of what we're looking at is how do you bring appropriate balance to generosity and affordability."

HHS' final decisions based on this advice will affect options for tens of millions of people who would obtain their individual or small-group coverage through private plans in the state exchanges. The exchanges are set to launch in January 2014. The Congressional Budget Office estimates that 13.8 million people will obtain insurance on the exchanges in 2014 and that enrollment will grow to 29.2 million by 2018.

Two of the most contentious topics under debate are the scope of essential benefits and insurers' application of medical necessity criteria when making coverage decisions.

On the benefits question, the law mandates that the scope of the essential package be equivalent to that of a typical employer plan, as determined by HHS. The law also lays out 10 broad categories of services the package must cover.

"It's important to recognize that this list, by itself, is a fundamental change in the nature of insurance coverage in America," said Jonathan Gruber, PhD, an economics professor at the Massachusetts Institute of Technology and a board member of the state's health reform agency. "Never before have we mandated such a comprehensive set of insurance benefits be included in insurance coverage."

But the law gives HHS flexibility when structuring the package, Gruber said. For example, what is a typical employer plan? Large companies generally offer more benefits than small businesses. "Do you keep [essential benefits] comparable to small-group, mediocre plans or a large-group, much more generous plan?" he asked.

HHS must decide how specific each benefit in the 10 categories should be and whether insurers can impose limits on them. For example, the law mandates prescription drug coverage in the essential package, but Gruber questioned whether that means plans will be allowed to require step therapy, which means older, less expensive drugs must be tried before newer, most costly ones.

Competing wish lists

Some medical associations recommended that the benefits package be very detailed. The American Academy of Pediatrics, for instance, testified that HHS should model children's essential benefits after Medicaid's Early Periodic Screening, Diagnosis and Treatment services and the Bright Futures guidelines for children's health.

"From an equity standpoint, mandating qualified health plans sold in the exchanges adhere to EPSDT would minimize state variation in benefits that children receive throughout the U.S.," said Andrew Racine, MD, PhD, a New York pediatrician speaking on behalf of the AAP.

The American Society of Plastic Surgery recommended that the package include reconstructive surgery in line with the American Medical Association's definition -- surgery performed on abnormal structures of the body caused by defects, trauma, infection, tumors or disease.

About 120,000 babies are born with birth defects annually, and 40,000 will need reconstructive surgery, said Robert X. Murphy Jr., MD, ASPS vice president of health policy and advocacy. "Although surgeons are able to correct many deformities, an increasing number of insurance companies have chosen to deny access by labeling these procedures as cosmetic and not functional in nature."

On the other end of the debate, the employer community is urging HHS not to go into great detail when establishing essential benefits.

"For every health product on the market, someone considers it a need and wants insurance to cover it," said Jerry Malooley, director of benefit programs and health policy for the Indiana Personnel Dept., on behalf of the U.S. Chamber of Commerce. "A key consideration is when does one person's or group's need to have some new or traditionally noncovered procedure paid for by insurance outweigh the majority's need to keep premiums affordable?"

Getting the answer wrong could be costly. Although the law sets income-related limits on out-of-pocket expenses and caps on small-business deductibles in the exchanges, it leaves a lot of wiggle room on cost sharing and does not restrict premiums, Dr. Gruber said. Americans are required to obtain insurance or face financial penalties starting in 2014. However, if a person's projected share of the insurance cost exceeds 8% of his or her household income, that person is exempt from the individual mandate.

"What that means is, as a benefit package gets more generous, the cost will begin to exceed 8% of income and more people will be allowed to escape from the mandate," Dr. Gruber said. "It's going to lead to fewer insured."

So to avoid pricing consumers out of coverage, HHS should not be overly prescriptive in defining benefits, employer groups argued. "It would be a mistake to curtail flexibility for the consumer and employers by requiring all plans to cover a soup-to-nuts benefit package when many employers and consumers prefer a more bare-bones plan and the moderate price it affords," Malooley said.

The AMA recommends that HHS strike a balance by using an existing model -- the Federal Employees Health Benefits Program -- as a reference when setting essential benefits. FEHBP plans cover hospital, physician, medical and surgical care, even though the program does not specify a standard benefit package, said Gerald E. Harmon, MD, a member of the AMA Council on Medical Service. Participating plans follow evidence-based guidelines for preventive care and are required to cover additional benefits, including childhood immunizations, prescription drugs and mental health services. Dr. Harmon emphasized that the definition of essential benefits must allow for a range of health plan options with a variety of benefits, cost-sharing levels and other features to ensure adequate consumer choice.

Medical necessity worries

Just because a benefit is covered does not mean that health plans pay for it in every circumstance. Health insurers argued that HHS should not limit their use of medical necessity decisions or other medical management tools when establishing essential health benefits.

"Employers, insurers and even the FEHBP use these tools to keep coverage affordable, while ensuring that consumers receive the right care at the right place at the right time," said Virginia Calega, MD, vice president of medical management and policy at Highmark Blue Cross and Blue Shield of Pennsylvania.

Dr. Calega pointed out that Medicare follows an evidence-based approach for coverage determinations and has policies to guide its administration of hundreds of categories of covered services.

Congress did not call for a definition of medical necessity in the reform law, she said, calling it unnecessary given that extensive medical and legal negotiations have produced a standard medical necessity definition agreed upon by national physician organizations and major health insurers.

But some medical societies voiced concern on this front. Nutrition, weight loss and smoking cessation counseling for pregnant women are examples of benefits often not covered by insurers who consider this care not medically necessary, said Arnold W. Cohen, MD, representing the American Congress of Obstetricians and Gynecologists. He suggested that HHS consider the AMA's medical necessity definition, which uses the prudent physician standard.

Some medical societies warned that health plans frequently rule services as not medically necessary unless they are supported by randomized, controlled studies.

"The health plan might not exactly say it, but essentially what they're saying is, 'Occupational therapy for a child with cerebral palsy -- where's the evidence?' " the AAP's Dr. Racine said. Often, especially in women's health and pediatrics, few such studies exist. In these cases, such alternatives as observational studies, professional standards of care or consensus of specialty expert opinion should suffice, he and others said.

Medical necessity language must allow medically appropriate off-label use of Food and Drug Administration-approved drugs and devices, Dr. Cohen and others said. Thomas Sellers, president and CEO of the National Coalition for Cancer Survivorship, estimated that more than half of all uses of cancer drugs are off-label. "To ensure patient access to therapies based on the best evidence, there should be no prohibition against payment for off-label uses of cancer drugs."

Next steps

The IOM committee will continue to debate the essential benefits issue through June. The panel hopes to make its recommendations to HHS Secretary Kathleen Sebelius in September, Dr. Ball said.

"We hope to say, 'These are the principles we think you ought to apply,' " he said. "We won't say what goes in it, but we'll say, 'This is the process by which you determine what goes in it.' "

After that, the ball will be in HHS' court. At least one official acknowledged the weight of that task.

"We realize our decisions will lead to a set of coverage standards for significant segments of the private and public markets across the country," HHS Assistant Secretary for Planning and Evaluation Sherry Glied said. "We recognize the need to provide meaningful coverage while ensuring an affordable premium. Above all, we strive to remember the interests of consumers and patients."

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Raw materials of essential benefits

The health system reform law requires plans in state health insurance exchanges to offer general categories of medical services and items, but it leaves it up to the Dept. of Health and Human Services to determine how much more specific the underlying essential benefits package should be. Here are the categories:

  • Ambulatory patient services
  • Emergency services
  • Hospitalization
  • Laboratory services
  • Maternity and newborn care
  • Mental health and substance use disorder services, including behavioral health treatment
  • Pediatric services, including oral and vision care
  • Prescription drugs
  • Preventive and wellness services and chronic disease management
  • Rehabilitative and habilitative services and devices

Source: Patient Protection and Affordable Care Act

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High-stakes decisions

The essential health benefits package will impact insurance options for people obtaining individual and small-group plans through state health insurance exchanges, a pool that is expected to approach 30 million enrollees within four years from launch. Here is the estimated exchange enrollment in millions of people:

Year Individual
2014 8.6 5.2 13.8
2015 13.6 3.2 16.8
2016 21.6 3.6 25.2
2017 22.9 4.6 27.5
2018 24.7 4.5 29.2
2019 24.7 4.5 29.2
2020 24.6 4.6 29.2

Source: Congressional Budget Office, Aug. 25, 2010, baseline on health insurance exchanges (link)

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