What are “essential benefits”?

March 21, 2011

The Affordable Care Act uses a number of terms that could never have been field tested by a marketing team. One that is very confusing to most people is the term “essential benefits” – a concept key to the way health insurance exchanges will work and the health benefits people will actually get under health reform.

Health insurance exchanges will offer benefit packages to individuals and small businesses that meet certain tests. Fundamentally, four packages will be offered through the exchange: bronze, silver, gold, and platinum. Another package will be offered to those under 30 – the “young invincibles” – essentially providing catastrophic care.

In the four packages, the exchanges must offer health benefits meeting a certain actuarial equivalent, i.e., the package must be priced to limit out-of-pocket costs for “essential benefits” to a target percentage. The bronze plan provides coverage for 60 percent of the cost of the essential benefits; silver 70 percent, gold 80 percent, and platinum, 90 percent. And, of course, premiums will vary according to the breadth of coverage.

Given that these percentages are tied to the concept of essential benefits, the definition of essential benefits is pretty important. The law provides some broad guidance here by listing the categories that need to be included in essential benefits. Specifically included are:

  • 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 service
  • Preventive and wellness services and chronic disease management
  • Pediatric services, including oral and vision care

The law also says the scope of benefits must be comparable to that typically offered in employer health plans; it must also meet a few additional requirements (such as non-discrimination against certain groups of individuals and balance between different benefit types). But the law steers clear of defining essential benefits in detail or proposing to replicate benefits in existing programs such as Medicare or Medicaid. Here, the framers of the ACA intentionally tried to avoid some of the controversy the Clintons got into when they included 61 pages of benefit descriptions in their health reform proposal.

The law did, however, ask the Institute of Medicine to help the Secretary of Health and Human Services (HHS) define essential benefits. The Institute of Medicine has convened a panel to help them do that by summer– timed to be close to the spring target for regulations on health insurance exchanges. The panel held one meeting in January to begin its work; a second meeting was held the first week of March.

The essential benefits provision of the law is likely to receive at least as much comment and debate as the recent discussion on the Medical Loss Ratio. The National Association of Insurance Commissioners (NAIC) was assigned to make recommendations to the Secretary of HHS on the technical definition and application of the Medical Loss Ratio. In April 2010, HHS asked for this definition to be completed by June 2010. On June 1, the NAIC said that date was not achievable. Hundreds of comments and much active lobbying later, the NAIC made its final recommendations to HHS on October 21, 2010, almost five months after the requested date (but well within the timeframe specified in the law).

The definition of essential benefits will go through the same lively process. In fact, the debate over essential benefits might be even more heated. Once people understand what essential benefits are, every consumer and provider who cares about particular services will want to be heard. For example: should such benefits cover chiropractic services, autism spectrum disorder, eating disorders, fertility services, podiatry services? The public hearings and comments will be passionate.

Jonathan Gruber has advised the IOM panel to start by being conservative: every benefit that is added makes the premiums more expensive (and therefore less affordable) and it is very hard, if not impossible, to take benefits away later.

But whether or not the panel – and ultimately, the Secretary of HHS – will be able to be conservative is a real question. Politically, it is easier to be more comprehensive when it comes to benefits than to limit the scope of coverage.

Economically, Jonathan Gruber is no doubt right. How this issue comes out come June will say a lot about how people actually experience health reform on the ground – and, how complex tradeoffs really get made.