The Patient Protection and Affordable Care Act (ACA) requires that insurance plans participating in the state-based health insurance exchanges cover services and products that have been defined by the Secretary of Health and Human Services (the Secretary) as “essential health benefits” (EHB).  The Secretary asked the Institute of Medicine (IOM) to advise her on the criteria that should be used in determining whether a particular service be designated an EHB.  In its 300+ page report, released on October 6, 2011, the IOM recommended the Secretary start with the scope of benefits covered by a typical employer plan and then modify it in several regards.  First, the Secretary should ensure that the plan covers the ten categories of health services specifically enumerated in PPACA.  Second, IOM recommended that the Secretary set a “premium target” for the package and modify the package of EHBs as necessary to fall within that target.  Third, in modifying the EHB package to be cost-efficient, the IOM recommended that the Secretary consider “medical effectiveness, safety, and relative value compared with alternative options, and evaluate whether the package as a whole protects the most vulnerable individuals, promotes services that have proved effective, and addresses the medical concerns of greatest importance to the public.”

The IOM emphasized the importance of the cost of the plan because promulgating unaffordable plans, no matter how comprehensive, would thwart “the principal reason for the ACA—enabling people to purchase health insurance, and covering more of the population.”  The IOM recommended that the premium target be set at the “cost of what small employers would have paid, on average, for their current packages of benefits in 2014.”  This premium target would then be updated annually by the rate of medical inflation.

Going forward, the IOM recommends that the EHB package be revised annually to be “continuously improved and increasingly specific, with the goal that it is based on evidence of what improves health and that it promotes the appropriate use of limited resources.”  Towards this end, the IOM recommended that the Secretary establish a National Benefits Advisory Council “to advise HHS on research necessary to evaluate benefits’ effectiveness and value, changes to the premium target, and benefit administration and design issues.”  In summary then, the IOM’s recommendation is to “build on what currently exists, learn over time, and make it better.”  The IOM estimates that more than 68 million people will obtain insurance that must meet the EHB requirements.

The IOM report is available by clicking here.