The Patient Protection and Affordable Care Act ("ACA") requires non-grandfathered insured health plans sold in the individual and small group markets, and plans that will be sold through the Health Insurance Exchanges ("Exchanges"), to provide "Essential Health Benefits" ("EHB"), beginning January 1, 2014.

On February 20, 2013, the Department of Health and Human Services ("HHS") issued final rules clarifying and elaborating on what constitutes EHB, and explaining the actuarial value requirements imposed by the ACA on plans offering EHB. The final rules also set a timeline for qualified health plans ("QHPs") to be accredited in the Exchanges, and a process for recognition of additional accrediting entities for purposes of certifying QHPs.

The final rules must be implemented for plan or policy years beginning on or after January 1, 2014. The final rules have few surprises from the proposed rules issued by HHS in November 2012.

Essential Health Benefits: In General  

Section 1302(b) of the ACA set forth ten categories of benefits which would be considered EHB and directed the Secretary of Health and Human Services to further define the items and services to be covered within each category. On December 16, 2011, the Center for Consumer Information and Insurance Oversight issued the Essential Health Benefits Bulletin, and in it indicated that it intended to propose that EHB would be defined by a benchmark plan selected by each state. Under the proposed rules that were published on November 26, 2012, and the final rules, each state is permitted to select a single EHB-benchmark plan. That plan then becomes the standardized set of EHB that must be met by QHPs offered through an Exchange and by health insurance issuers offering health insurance coverage in the individual or small group market. (See our November 2012 Special Alert for an analysis of the proposed rules.)

Employer self-insured group health plans, health insurance coverage offered in the large group market, and grandfathered health plans are not required to cover EHB. However, an employer with a self-insured plan is not permitted to have any annual or lifetime limits on EHB for plan years beginning on and after January 1, 2014. Employers with self-insured plans will need to determine which benefits constitute EHB and ensure that any annual or lifetime limits are removed. This could be challenging for employers with employees in multiple states.

Essential Health Benefits: State Selection of a Benchmark Plan

There are four options from which a state may select its single EHB-benchmark plan:  

  • A small group market health plan — defined as the largest health plan by enrollment in any of the three largest small group insurance products by enrollment in the state’s small group market
  • A state employee health benefit plan — defined as any of the largest three employee health benefit plan options by enrollment offered and generally available to state employees  
  • Any of the largest three national Federal Employees Health Benefits Program ("FEHBP") plan options by aggregate enrollment that is offered to all health-benefits-eligible federal employees
  • The coverage plan with the largest insured commercial non-Medicaid enrollment offered by a health maintenance organization operating in the state  

If a state does not make a selection from the above four options, a default base-benchmark plan will apply. The default plan is defined as the largest plan by enrollment in the largest product by enrollment in the state’s small group market. A multi-state plan must meet benchmark standards set by the U.S. Office of Personnel Management.

The EHB-benchmark plan selected by a state must provide coverage of at least the following ten categories of benefits:

  • Ambulatory patient services  
  • Emergency services
  • Hospitalization  
  • 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

If an EHB-benchmark plan does not provide the required coverage for all ten categories of benefits, the state must supplement the plan with the addition of the missing category of benefits offered under any other benchmark plan option. An EHB-benchmark plan that does not offer pediatric oral services and/or pediatric vision services must be supplemented by the addition of such services from the state or federal plan options specified in the final rules. If a state does not select a benchmark plan, and the default benchmark plan that applies lacks any category of essential health benefits, the default benchmark plan will be supplemented by HHS according to specific rules.

An EHB-benchmark plan may not include discriminatory benefit designs. It must also provide an appropriate balance among the ten EHB categories to ensure that benefits are not unduly weighted toward any category.

Requirements of Plans Providing Essential Health Benefits

A plan providing EHB must provide benefits that are "substantially equal" to the EHB-benchmark plan, including covered benefits, limitations on coverage (including coverage of benefit amount, duration and scope) and prescription drug benefits. The plan also must not exclude an enrollee from coverage in an EHB category (with the exception of coverage for pediatric services). A plan providing EHB must also provide coverage of mental health and substance use disorder services, preventive health services and habilitative services, in the manner described by the final rules.

Substitution of Benefits

The final rules permit an insurer of a plan offering EHB to substitute benefits (unless prohibited by the state) within an essential health benefit category (other than prescription drug benefits), that are actuarially equivalent to the benefit being replaced. Proof of actuarial equivalence must be provided.

Prescription Drug Benefits

A plan providing EHB must cover at least the greater of:

  • one drug in every United States Pharmacopeia ("USP") category and class, or
  • the same number of prescription drugs in each category and class as the EHB-benchmark plan.  

The plan must submit its drug list to the Exchange, the state or the U.S. Office of Personnel Management. A plan providing EHB must also have procedures in place that allow an enrollee to request and gain access to clinically appropriate drugs not covered by the plan.

Emergency Department Services

Emergency department services must be provided without any requirement for prior authorization of services and without any limitation on coverage with respect to services provided by out-of-network providers that is more restrictive than services provided by in-network providers. For out-of-network services, the requirements or limitations on cost-sharing must be limited as described in the final rules.

Required Exclusions from EHB

A plan providing EHB may not include routine non-pediatric dental services, routine non-pediatric eye exam services, long-term custodial nursing home care benefits, or non-medically necessary orthodontia as EHB.

Non-Discrimination

The final rules do not prevent an issuer from appropriately utilizing reasonable medical management techniques. However, an issuer does not provide EHB if its benefit design, or the implementation of its benefit design, discriminates based on an individual’s age, expected length of life, present or predicted disability, degree of medical dependency, quality of life or other health conditions. An issuer may also not discriminate on the basis of race, color, national origin, disability, age, sex, gender identity or sexual orientation.

Limits on Cost-Sharing

For a plan year beginning in calendar year 2014, cost-sharing may not exceed the annual maximums that apply with respect to Health Savings Accounts under Internal Revenue Code section 223(c)(2)(A)(ii) for self-only coverage and other than self-only coverage, as applicable. The dollar limitation on cost-sharing will be adjusted for plan years beginning on or after January 1, 2015, according to adjustments published by HHS in the annual HHS notice of benefits and payment parameters.

Limits on Deductibles Applicable to Plans in the Small Group Market

For a plan year beginning in calendar year 2014, the annual deductible for a health plan in the small group market may not exceed $2,000 for self-only coverage, and $4,000 for coverage other than self-only. For a plan year beginning on or after January 1, 2015, the annual limitation on deductibles will be adjusted according to the premium adjustment percentage published by HHS in the annual HHS notice of benefits and payment parameters. A health plan’s annual deductible may only exceed the stated limit if the plan may not reasonably reach the actuarial value ("AV") of a given level of coverage (i.e. bronze, silver, gold, platinum) without exceeding the annual deductible limit.

Out-of-Network Providers

In the case of a plan using a network of providers, cost-sharing paid by, or on behalf of, an enrollee for out-of-network benefits does not count towards the annual limit on cost-sharing or the annual limit on deductibles.

Rounding of Cost Increases

All increases in annual dollar limits on cost-sharing and deductibles that do not result in a multiple of $50 are rounded to the next lowest multiple of $50 dollars.

Preventive Services

The final rules clarify that the ACA rules that prohibit cost-sharing (i.e., deductibles, copayments, coinsurance or other cost-sharing requirements) with respect to preventive services apply to plans providing EHB.

Stand-Alone Pediatric Dental Plans

A stand-alone dental plan covering the pediatric dental EHB is required to demonstrate that it has a reasonable annual limitation on cost-sharing as determined by the Exchange. This annual limit is calculated without regard to EHBs provided by the QHP and without regard to out-of-network services. A stand-alone dental plan offering the pediatric EHB must also calculate the AV of the plan. It may offer the benefit at a low level of coverage with an AV of 70%, or a high level of coverage with an AV of 85%. Such stand-alone dental plan may vary from the applicable percentage by +/- 2%. The level of coverage must be certified by an actuary.

Additional State-Mandated Benefits  

The final rules provide that a state may require a QHP to offer benefits in addition to the statutorily required EHB. However, the state must make payments (either to the enrollee, or directly to the QHP issuer on behalf of the enrollee) to defray the cost of any such additional required benefits. Each QHP issuer must calculate the cost attributable to each additional required benefit and report that additional cost to the Exchange. The final rules clarify that state benefit mandates enacted on or before December 31, 2011, are not considered an addition to the EHB package.

Levels of Coverage and Calculation of Actuarial Value

Under the ACA, a plan’s AV is the percentage paid by a health plan of the total allowed costs of benefits. A plan’s AV determines whether a plan offers bronze, silver, gold, or platinum level of coverage. The levels of coverage are as follows:  

  • A bronze health plan has an AV of 60%.
  • A silver health plan has an AV of 70%.  
  • A gold health plan has an AV of 80%.
  • A platinum health plan has an AV of 90%.  

A plan may vary from the applicable percentage by +/- 2%.

An issuer must calculate the AV of a health plan using the AV Calculator developed by HHS, unless the health plan’s design is not compatible with the AV Calculator, in which case other rules apply.

For plans other than those in the individual market that are offered in conjunction with a Health Savings Account ("HSA") or an integrated Health Reimbursement Arrangement ("HRA") that may only be used for cost-sharing, annual employer contributions to HSAs and amounts newly made available under HRAs for the current year are counted towards the total anticipated medical spending of the standard population that is paid by the health plan as set forth in the final rules.

The population used to calculate a plan’s AV is determined by HHS. However, beginning in 2015, a plan’s AV may be calculated using a state-specific standard population if the state has submitted, and HHS has approved, a state-specific data set meeting the requirements of the final rules.

An insurer who offers a plan providing EHB at any of the AV metal-levels described above must also offer coverage in that metal-level as a plan in which the only enrollees are individuals under 21 years of age.

Determination of Minimum Value

An employer-sponsored plan provides minimum value ("MV") if the plan provides no less than 60% of the total allowed cost of benefits. An employer-sponsored plan provides MV if it provides any of the metal-levels of AV coverage described above (i.e. platinum, gold, silver or bronze). An employer-sponsored plan may also use the MV Calculator or a safe harbor established and made available by HHS and the Internal Revenue Service. A group health plan that provides non-standard features may also seek certification by an actuary that it provides MV. Under any of these methods of determining MV, a group health plan is permitted to take into account all benefits provided by the plan that are included in any one of the EHB-benchmark plans.

Accreditation Timeline

The final rules provide that the Exchange must establish a uniform period following certification of a QHP within which a QHP issuer that is not already accredited must become accredited. Multi-state plans are excluded from this rule, and the final rules state that accreditation of multi-state plans will be established by the U.S. Office of Personnel Management.

The final rules set forth the accreditation timeline used for federally-facilitated Exchanges, and provide for stages of accreditation. During an issuer’s first year of QHP certification (e.g., in 2013 for the 2014 coverage year), the issuer must have scheduled, or plan to schedule, a review of the issuer’s QHP policies and procedures with a recognized accrediting entity. Prior to the QHP’s second year and third year of QHP certification the QHP issuer must be accredited by a recognized accrediting entity on the policies and procedures that are applicable to its Exchange products. Existing commercial or Medicaid health plan accreditation in the same state in which the issuer is offering coverage under the QHP may be sufficient in certain circumstances for the first three years of QHP certification. Prior to the QHP issuer’s fourth year of QHP certification, and in every subsequent year, a QHP issuer must be accredited in accordance with the final rules.

Recognition of Accrediting Entity by HHS

An accrediting entity may apply to HHS for recognition by submitting a completed application in accordance with the final rules. Within 60 days of receiving a complete application, HHS will publish notice of the accrediting entity making the request, summarizing HHS’s analysis of whether the entity meets the criteria of the final rules, and providing a 30-day public comment period. Following the close of the comment period HHS will publish its final determination of whether the entity will be recognized as an accrediting entity.

HHS received about 11,000 comments before the final rules were published on February 25, 2013. Nonetheless, the final rules have very few changes from the proposed rules that were published on November 26, 2012.