The U.S. Department of Health and Human Services (HHS) has issued two sets of proposed regulations issued under the Affordable Care Act (ACA) that will affect the design, availability, and cost of health insurance plans, primarily in the individual and small group markets. Most significantly, HHS has published proposed regulations defining the "essential health benefits" that must be included in insurance plans in these markets. These regulations address cost-sharing limits and the valuation of coverage. The second set of regulations addresses specific insurance market reforms. All of this guidance generally takes effect in 2014.
Essential Health Benefits (EHB). The ACA defines "essential health benefits" by specifying 10 categories of benefits that must be covered by all health insurance plans offered through an Exchange. These categories are:
- Ambulatory patient services
- Emergency services
- Maternity and newborn care
- Mental health and substance abuse disorder services
- 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
The new regulations extend the rules to all non-grandfathered plans offered in the individual and small group (generally less than 100 employees) markets and define the expenses that must be covered within the 10 categories. In line with proposals that have been published previously, the regulations establish a list of permissible benchmark plans.
Each state is required to designate an EHB benchmark plan from that list to serve as the standard for benefits in those categories. If the state does not select a benchmark plan, the benchmark plan will be determined in accordance with default rules established by HHS. The regulations include an appendix that identifies a proposed benchmark plan for each state.
If the chosen plan does not cover all of the required EHB categories, the state will be required to supplement the benefits in accordance with specified rules to establish a benchmark for coverage in that category. Plans may substitute benefits within a category for those established in the benchmark plan provided the substitution is at least actuarially equivalent.
The regulations address a number of more specific issues with respect to EHB. For example:
- In an attempt to balance access with affordability, the proposed regulations require plans to cover at least one prescription drug in each category or class in a specified list (most likely to be categories and classes identified by U.S. Pharmacopeia). Plans must also cover at least the same number of drugs in each category and class as the EHB-benchmark plan.
- A state may require an Exchange plan to cover benefits in addition to the EHB, but the cost of any of these additional benefits mandated after December 31, 2011, must be defrayed by the state. HHS intends to publish a list of state-required benefits for Exchanges to use as a reference tool.
- Any issuer that offers coverage on the Exchange must offer the same EHB package in policies offered on the individual or small group market outside the Exchange.
Health plans in the individual and small group markets will be well advised to recall that the ACA uses the term "essential health benefits" in its prohibition of annual and lifetime dollar limits, as well as in its rules governing which health plans will be available in those markets (particularly through an Exchange).
Cost-Sharing Limits. The regulations provide that the annual limit on cost-sharing (which includes all deductibles, copayments, co-insurance and similar employee charges applicable to EHB) will be set at the annual high deductible health plan limit for out-of-pocket expenses. For 2013, this limit will be $6,250 for self-only coverage and $12,500 for other tiers of coverage. Deductibles will be subject to a separate limit that, in 2014, will be $2,000 for self-only coverage and $4,000 for other tiers.
Adjustments to the deductible limits may apply in certain circumstances. The limits on deductibles and cost-sharing will increase by the average percentage increase in health insurance premiums. For network-based plans, cost-sharing amounts for out-of-network providers (with whom the plan does not have a contractual relationship) will not generally count toward the annual limit on cost-sharing.
Actuarial Value (AV) of Coverage for Metal Level Plans. The regulations adopt a standard methodology for determining the level of coverage under a health plan: bronze (which covers 60 percent of the AV of expenses), silver (70 percent), gold (80 percent), or platinum (90 percent). The proposed rules allow for small variations in these levels.
To provide a cost-efficient means for making the AV calculations, HHS has developed an AV calculator linked to its website. This calculator measures a health plan's generosity by determining the percentage of expected health care costs that the health plan will cover, based substantially on cost-sharing information that an employer provides about its plan, and various assumptions that are programmed into the calculator. For a high-deductible health plan, the AV calculator will include employer contributions to a health savings account (HSA) or health reimbursement account (HRA).
The regulations recognize that the AV calculator will not apply to every plan design and that there may be circumstances where an actuary will be needed to make appropriate adjustments to a calculation.
Minimum Value (MV) Calculations. To satisfy the employer mandate, group health plans maintained by employers with at least 50 full-time employees must cover at least 60 percent of the total allowed cost of health care. As a result, many employer-sponsored group health plans will need to calculate the value of the coverage that they provide. For this purpose, HHS and the IRS will make a minimum value calculator available.
The MV calculator will be similar to the AV calculator, but its assumptions will be based on a standard population of participants typical of self-funded employer plans rather than those in the individual and small group markets. Consistent with earlier guidance, employers may use the MV calculator or an alternative, specifically certain safe harbor checklists and (particularly for plans not suited to the MV calculator or checklists) actuarial certification.
Other Matters. The new guidance addresses a number of other subjects relating to health insurance offered in the individual and small group markets, including:
- The use of a stand-alone dental plan to meet the requirement to provide pediatric dental coverage
- The establishment of a process for reviewing and approving other accreditation entities
- Various insurance requirements relating to the fairness in premiums and rate increases, the guaranteed availability and renewability of coverage, risk pools, catastrophic coverage, and student health insurance (this guidance collectively comprises one of the two new sets of proposed regulations)
Beginning in 2014, the rules will substantially affect health insurance products purchased by individuals and small employers. The compliance burden starts earlier, but falls mostly on the insurers themselves and on state regulators, particularly regulators implementing an Exchange.
The new requirements will have a meaningful, but smaller effect on the health insurance purchased by large employers. Employers with self-funded plans will need to follow the rules on MV calculations for purposes of complying with the employer mandate. Otherwise, the direct effect of the new rules on self-funded plans is relatively minimal.