This is the 28th in a series of WorkCite articles concerning the Patient Protection and Affordable Care Act and its companion statute, the Health Care and Education Reconciliation Act of 2010 (referred to collectively as the Act). This article discusses recent proposed regulations (the Regulations) under the Act issued by the Department of Health and Human Services (HHS) that would specify how to determine the “essential health benefits” (EHB) that must be provided by certain health plans, as well as the methods to determine the value of plans that offer those benefits.
The Regulations offer guidance under two elements of the Act: the determination of both EHB and the actuarial value (AV) of health plans. The Regulations would apply directly to insurers of health policies for individuals and to insurers of group health plans sponsored by small employers (defined in the Act as employers who employed an average of at least one but not more than 100 employees on business days during the preceding calendar year and who employs at least one employee on the first day of the plan year). However, the Regulations would also affect larger employers sponsoring insured group health plans, as well as employers providing self-funded group health plans.
Impact of Regulations on Employers and Plan Sponsors
The Act prohibits health plans from imposing lifetime and annual dollar limits on EHB. Lifetime limits on the dollar value of EHB are prohibited for plan years beginning on or after Sept. 23, 2010. This applies to all health plans and policies (including both insured and self-insured health plans regardless of grandfathered status). Annual limits on the dollar value of EHB are currently being phased out and will be entirely prohibited for all group health plans (including both insured and self-insured health plans, regardless of grandfathered status) and non-grandfathered individual policies for plan years beginning on or after Jan. 1, 2014.
The preamble accompanying the interim final regulations issued by HHS in 2010 that implement the lifetime and annual dollar amount limits states that, as to enforcement of the prohibition on lifetime and annual dollar limits, good-faith efforts to comply with a reasonable interpretation of the term “essential health benefits” would be taken into consideration for plan years beginning before final regulations defining the term are issued.
Thus, how EHB is to be determined is important even for employers whose health plans are not required to provide EHB.
Statutory Categories of Essential Health Benefits
The Act authorizes HHS to define EHB and sets forth parameters for doing so. The Act provides that EHB must be equal in scope to benefits offered by a “typical employer plan” and at a minimum must include items and services within each of the following 10 categories:
- Ambulatory patient services
- Emergency services
- 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
- Pediatric services, including oral and vision care
Approach to Essential Health Benefits under the Regulations
In the Regulations, HHS proposes to set the standard for what constitutes EHB on a state-by-state basis. EHB would be based on a state-specific benchmark plan by providing states the opportunity to select such a plan from among several options and requiring all plans that cover EHB to offer benefits that are substantially equal to the benefits offered by the benchmark plan. In addition, the Regulations provide that, at least as to non-grandfathered insured plans seeking to be made available on the exchanges, states could require such plans to cover additional benefits beyond the 10 statutory EHB categories.
The proposed options that are available for states to select as a benchmark plan include:
- The largest plan by enrollment in any of the three largest products in the state’s small group market
- Any of the largest three state employee health benefit plans options by enrollment
- Any of the largest three national Federal Employees Health Benefits Program plan options by enrollment
- The largest insured commercial non-Medicaid health maintenance organization in the state
The Regulations would provide that if a state does not make a selection, HHS would select as the default benchmark the largest small group product in the state.
Supplementing for Missing Essential Health Benefits Categories
If the state-selected benchmark plan or the default selection were missing any of the 10 statutory EHB categories of benefits, the Regulations would require the applicable state or HHS to supplement the state-specific benchmark plan in that category or the default selection, as the case may be, by adding that particular category in its entirety from another benchmark plan option.
HHS has proposed a more flexible approach for determining the items and services that are to be offered to satisfy the habilitiative services category. The Regulations would offer states the opportunity to define “habilitative services” if they are not included in the state-specific benchmark plan, thereby permitting states to determine the services they choose to provide under the habilitative services category.
Additional Essential Health Benefits Information
HHS has indicated that it will make available the state-selected benchmark plans, as well as the default benchmark plan for each state that does not select a benchmark plan; more information on the benchmark plans can be found here on the website of the Center for Consumer Information and Insurance Oversight (CCIIO).
Determining Actuarial Value
A plan’s actuarial value (AV) is calculated as the percentage of total average costs for covered benefits that a plan will cover. The Act requires all non-grandfathered plans in the individual and small group markets to meet certain actuarial values; each AV corresponds to a specified level. Thus, 60 percent (where a plan covers 60 percent and the individual covered is responsible for 40 percent of the costs of covered benefits) is a “bronze” plan, a plan with an AV of 70 percent is a “silver” plan, a plan with an AV of 80 percent is a “gold” plan, and a plan with an AV of 90 percent is a “platinum” plan. The Regulations state that a plan would be considered to meet a specified level if the AV is within two percentage points of the standard. Additionally, insurers in the small group market can exceed annual deductible limits to achieve a particular level. By assigning specific levels to plans, the Regulations aim to provide individual consumers with a comparison tool for deciding among plan options.
To standardize how AV is calculated, HHS is providing an online “AV calculator” to assist issuers in determining a health plan’s AV, using a national, standard population. In 2015, HHS will begin to accept state-specific data if individual states submit such data for the calculator. While high deductible health plans and health savings arrangements are currently compatible with the AV calculator, the guidance includes proposed standards and other considerations for plans that have design features that are not readily compatible with the AV calculator. The calculator can also be found here on the CCIIO website, posted under Plan Management, Regulations, Nov. 26, 2012.
Employer-Sponsored Plans Providing Minimum Value
Under the Act, beginning in 2014, eligible individuals who purchase coverage under a qualified health plan (QHP) through an affordable insurance exchange may receive a premium tax credit unless they are eligible for other minimum essential coverage, including coverage under an employer-sponsored plan that is affordable to the employee and provides minimum value (MV). The Act provides that a plan fails to provide MV if the plan’s share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs. Certain employers may be liable for a penalty if any full-time employee receives a premium tax credit.
The Regulations would specify that for employer-sponsored plans, a plan provides MV where the plan covers 60 percent of the costs, as a percentage of total average costs for covered benefits. The determination of MV for employer-sponsored self-insured plans and insured large groups health plans would be based on a standard population based upon large, self-funded group health plans. Similar to the calculation of AV for individual insured plans and small group health plans, MV would include employer contributions to a health savings account and health reimbursement arrangement and there will be an “MV calculator” made available by HHS and IRS. For employer-sponsored group health plans, all benefits that are EHB would be taken into account in determining MV, and for any plan that offers EHB outside the parameters of the MV calculator, the plan could have an actuary determine the value of the benefit and adjust the MV calculator.
Whether an employer-sponsored group health plan provides MV would be determined one of three ways:
- Using the MV calculator
- Using a checklist and comparing the benefits offered under the plan to a standard in the marketplace
- Having the MV determined by an actuary where the above two methods cannot be used
Accreditation of Plans in Health Insurance Exchanges
The Regulations would also provide a timeline for health plans that seek to be accredited under the federal and state health insurance exchanges. HHS would accept existing accreditation from the National Committee for Quality Assurance (NCQA) and from the Utilization Review Accreditation Commission (URAC) through the 2017 coverage year (2016 accreditation). The following timeline is proposed under the Regulations for QHPs that do not have existing accreditation:
- For the first year of certification (2013), the QHP would have to have an accreditation review performed by a recognized accrediting entity.
- For the second and third years of certification (2014 and 2015), the QHP would have to be accredited by an accrediting agency based on QHP policies and procedures applicable to the related exchange.
- By the fourth year (2016), the QHP would have to be fully accredited.
The Regulations would provide that NCQA and URAC would be ongoing accrediting agencies, and that going forward, any additional accrediting entities would be evaluated using the same criteria used to recognize NCQA and URAC.