The Department of Health and Human Services (HHS) has published final regulations directing health insurance issuers that offer non-grandfathered health insurance coverage in the individual or small-group markets(1) to ensure that the coverage includes an essential health benefit (EHB) package. Large group health plans, both insured and self-insured, are not required to comply with this requirement. However, because all group health plans, including grandfathered plans and self-insured plans, have no annual limits on EHBs for plan years beginning on and after January 1 2014, it is important for all employers sponsoring group health plans to know what benefits are considered essential.(2)
There are three components to an EHB package:
- It must offer coverage for EHBs;
- There must be an annual limit on cost-sharing consistent with the final regulations; and
- Coverage must include one of four plan designs, referred to as bronze, silver, gold or platinum plans.(3)
These plans differ in the percentage of the anticipated health benefits that they will pay.
EHB packages must be offered in the individual and small-group markets, whether the insurance coverage is available inside or outside a state exchange, a federally facilitated exchange or a state partnership exchange. The EHB package requirements for the small-group market apply for plan years beginning on or after January 1 2014, and for the individual market for policy years beginning on or after this date. Each of these three components is summarised below.
- ambulatory patient services;
- emergency services;
- maternity and newborn care;
- mental health and substance-use disorder services, including behavioural health treatment;
- prescription drugs;
- rehabilitative and habilitative services and devices;
- laboratory services;
- preventive and wellness services, and chronic disease management; and
- paediatric services, including oral and vision care.
The scope of EHBs is to be equal to the scope of benefits provided under a 'typical' employer plan, although the act fails to define what such a plan might be.
HHS previously announced that EHBs are to be defined by a benchmark plan selected by each state reflecting both the scope of services and any limits offered by a typical employer plan in that state. For 2014 and 2015, the regulations allow a state to choose between four benchmark plan types.(4) If a state does not designate a benchmark plan, HHS will select as a default the largest plan by enrollment in the largest product in the state's small-group market. HHS decided to focus on the small-group market after reviewing information gathered from large and small employer plans and plans offered to public employees. The regulations do not address which state's benchmark plan applies when an employer in a small-group market has operations in more than one state.
The amount that an insurer may require individuals in the individual or small-group market to pay in the form of cost-sharing is limited to the maximum annual deduction allowed for contributions to a health-savings account (for 2013, $6,250 for self-only coverage and $12,500 for family coverage). These cost-sharing limits do not apply to premiums, non-covered services and balance billing charged by an out-of-network provider.
Bronze, silver, gold and platinum levels
The act requires health insurance plans offered on an exchange or in the individual or small-group market to satisfy certain specified levels of coverage. As stated above, there are four levels of coverage (ie, bronze, silver, gold and platinum plans). By establishing four standard levels of actuarial value, the federal government expects that consumers will be able to compare plans with different cost-sharing designs and better understand their relative values. The coverage level for each type of plan is based on the actuarial value of the expected healthcare costs the plan will cover. This is calculated by computing the ratio of the total expected payments by the plan for EHBs (taking into all cost-sharing) for individuals in a standard population over the total costs of EHBs that individuals in a standard population are expected to incur.(5)
For example, a bronze plan with an actuarial value of 60% would be expected to pay, on average, 60% of the medical expenses for EHBs expected to be incurred by individuals in a standard population; individuals would be expected to pay, on average, the remaining 40% of such expected expenses in the form of deductibles and other cost-sharing.(6) Annual employer contributions to health-savings accounts and health-reimbursement accounts that are integral to a group health plan are also taken into account. The regulations permit a variance in the percentages of actuarial value of two percentage points either way.
An issuer must use a calculator developed by HHS to determine whether the level of coverage it offers is bronze, silver, gold or platinum. The calculator was developed using claims that were data-weighted to reflect the standard population projected to exist in the individual and small group market; the data will be updated and the calculation adjusted for each enrollment year. However, if the design of the plan or policy does not permit the calculator to provide an accurate summary of its value, the insurer may submit an actuarial certification that the methodology for valuing the benefits available under the plan falls within the parameters of the calculator's actuarial valuation.
Next steps for employers
Employers should review their group health plans to determine if there are any annual limits on benefits. If so, they will have to determine whether such a benefit is essential, as no annual limits (or lifetime limits) on EHBs are permitted for plan years beginning on and after January 1 2014.
(1) The term 'small-group market' refers to health-insurance coverage offered to employers that employed, on average, no more than 100 employees in the previous year and employ at least one employee in the current year.
(2) In addition, understanding what EHBs are will likely be important in determining whether a group health plan, including a large or self-insured plan, offers the "minimum essential coverage" necessary to avoid excise taxes.
(3) In addition, catastrophic coverage is available to certain individuals younger than 30.
(4) The four benchmark plan types are:
- 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 Federal Employees Health Benefits Programme options by enrollment; or
- the largest insured commercial non-Medicaid health maintenance organisation operating in the state.
(5) "Actuarial Value and Cost-Sharing Reductions Bulletin", February 24 2012. Available at www.cciio.cms.gov/resources/files/Files2/02242012/Av-csr-bulletin.pdf.
(6) The actuarial value of a silver plan is 70%, a gold plan 80% and a platinum plan 90%.