State Flexibility on EHBs Could Encourage Exchange Development

Featured Health Business Daily Story, Jan. 30, 2012

State Flexibility on EHBs Could Encourage Exchange Development

Reprinted from INSIDE HEALTH INSURANCE EXCHANGES, a hard-hitting monthly newsletter with news and strategic insights on the development and operation of state exchanges.

By Steve Davis, Managing Editor – January 2012 – Volume 2 Issue 1

Recent clarity about how essential health benefits (EHBs) are likely to be defined could provide a small push to procrastinating states when it comes to building an insurance exchange.

Rather than develop a national EHB standard, which was largely expected, a 13-page “bulletin” issued by CMS’s Center for Consumer Information and Insurance Oversight on Dec. 16 proposed that states use an existing health plan to define the benefits that must be included in individual and small-group plans beginning in 2014.

“I think most states were anticipating that the feds would be fairly prescriptive about what the essential benefit package would be,” says Rhode Island Lt. Gov. Elizabeth Roberts (D). She says state officials are still reviewing the bulletin, which might allow states to offer less comprehensive coverage than is now required by state law. Massachusetts, for example, created a low-cost coverage option aimed at young adults, she notes.

Ceding a significant degree of plan-design flexibility to the states was an important decision, says Jordan Battani, principal researcher in the Emerging Practices Group at Computer Sciences Corp. (CSC).

“It will be interesting to see if it is the beginning of a trend. 2012 will be a year in which HHS has many opportunities to allow state-by-state variation and/or to ensure standardization by creating federal-level mandates for the products and pricing available through the exchanges.”

Some states might have decided against launching an exchange if HHS had required all qualified health plans to include “a very broad, very deep level of essential benefits. But it doesn’t look like that’s going to happen,” says Bryce Williams, CEO of Extend Health, which operates the nation’s largest private Medicare exchange. “Giving that control to the states gets HHS out of what could have become a political problem as consumer groups pushed HHS to deem certain coverage as essential.”

But some states still might not take action. “As we have seen with the exchanges, some states are more reluctant than others to adopt” reform-law provisions, says Adam Solander, an attorney in the health care practice at Epstein Becker & Green. “I expect that some states will not take action and the default benchmark plan (i.e., the largest plan in the state’s small-group market) will be adopted. However, at the end of the day states will have to choose a plan that balances costs and richness of benefit structure.”

The bulletin calls on states to select an existing and popular plan to set the “benchmark” for items and services to include in the essential benefits package. For 2014 and 2015, states could choose among four benchmark plans: (1) one of the three largest small-group plans in the state; (2) one of the three largest state employee health plans; (3) one of the three largest federal employee health plan options; or (4) the largest HMO offered in the state’s commercial market. HHS said it would assess the benchmark for 2016 and beyond based on evaluation and feedback.

In addition, the reform law outlines 10 broad categories — including emergency services, maternity and prescription drugs — that need to be incorporated into plan design. If states choose a benchmark plan that doesn’t include all of those 10 categories, they will likely be able to borrow from other benchmark plans to “backfill” the overall benefit, explains Chip Kerby, an employee benefits attorney who owns the Washington, D.C.-based law firm Liberté Group. The final benchmark plan could be a composite of more than one plan design.

Allowing states to determine a benchmark based on their most popular plans will help minimize pushback, Kerby says. “At the end of the day this could be a fairly easy decision for states,” he says, adding that the next step will be for some cost evaluations to be developed.

The reform law requires states to cover the cost of mandated benefits that fall outside of what HHS deems “essential” if it uses a state plan as the benchmark. But the bulletin suggests that states will be allowed to define any or all existing state mandates as essential.

Requiring all plans in a state to use a common benchmark also could make it easier for state insurance exchanges to certify qualified health plans, says Mac McCarthy, president of McCarthy Actuarial Consulting, LLC.

With input from health plan operators, state legislatures will need to pore over enrollment and cost data to help determine which benchmark plan will be used to define its EHB.

Find the guidance at

Kevin Wrege, Esq.

Founder & President

Pulse Issues & Advocacy LLC

Office: 202-625-1787

Mobile: 202-253-4929

4410 Massachusetts Ave., NW, #150

Washington, DC 20016


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