A non-governmental advisory body has begun to define one of the most important elements of last year’s health reform law. A committee of the Institute of Medicine will develop recommendations to the Department of Health and Human Services on how to define an “essential health benefit.” The ultimate resolution of this question, which may not come for almost two years, will determine what health benefits most Americans will get starting in 2014.

The Affordable Care Act, whose tax-penalty enforced mandate to purchase insurance has garnered the lion’s share of attention, empowers the Administration to define the package of health benefits that all health plans must offer in the new state Health Benefit Exchanges.  That Congress delegated such a fundamental decision to the Health and Human Services Secretary is startling because that decision will have an enormous influence on the costs and benefits of the reform law. That this aspect of the law has received so little attention is remarkable.

Why did Congress yield to HHS the authority to determine essential health benefits under the ACA? In large part because legislators saw the task as a political mine field. Moreover, HHS is likely to in turn hand the decision off to the exchanges. However, over time HHS and Congress are likely to end up right back in the briar patch of determining essential benefits, in ways that are likely to increase health care costs.

What The Task Of Defining Essential Benefits Entails

While the ACA provides some very general guidance on what the Secretary must include in the scope of essential benefits, there is much that remains to be determined.  The decisions will influence patients and perhaps billions of dollars of revenue for health care practitioners, medical products manufacturers, and the businesses and governments that pay for care.

HHS has asked the IOM to take a first pass at considering what criteria the Secretary should use in establishing and updating essential health benefits.  As demonstrated from the stakeholder testimony that they heard at their first meeting in January, they face a daunting task. 

Most employer health plans cover a similar range of services including primary care, hospitalization, and pharmaceuticals. The ACA instructs the Secretary to model essential benefits on these plans. However, there are great differences among plans in what they cover within these broad categories.

Plans have detailed documents describing what the they will cover and what they won’t. Few people study these plan documents but their details matter. While there is much that plans commonly cover such as doctors visits and emergency care, there are many services that are covered by some and not by others. Examples include weight loss surgery, transplantation, fertility treatments, and chiropractic care.

Plans also differ in terms of how many times a member can get a treatment or medication (such as a routine physical exam or an erectile dysfunction drug) or under what conditions a medical device, such as one that treats sleep apnea, or a treatment, such as physical therapy, counseling, or hospice care, will be paid for.

The recent discussion of the drug Avastin for breast cancer is a good example of how the details of coverage matter. Today, one health plan may pay for the medicine despite the fact that the FDA is withdrawing its approval for breast cancer while another may not.

Many people are surprised to learn that, even within Medicare, some people get certain treatments and items paid for while others do not. Although Medicare is a national program, it is actually administered by regional insurance companies.  They mostly pay for the same treatments but they are allowed to vary their policies.  One Medicare beneficiary may get a new medical treatment while another, right across the state line, may not.

While the specifics of coverage policies  matter a great deal to patients, they also have an enormous impact on the medical industrial complex. For some companies, such as those that produce a single medical device, too many decisions by individual health plans not to pay for it can doom a company’s prospects. A decision that it is not an essential health benefit, that would apply to all Exchange health plans, could be catastrophic.

Similarly, providers of services from home health care to remote patient monitoring to certain outpatient therapies could have their entire business model at stake. The decades-long battle over the appropriate role of chiropractic care is evidence of the stakes. Literally billions of dollars of health care revenue are at risk in the essential health benefits discussion.

How The Process Is Likely To Play Out

Given this variation in practice, sometimes granular level of detail in coverage policies, and large financial interests, how can HHS and their IOM advisors navigate? The bottom line is they can’t. Congress handed off this task because it is not possible to succeed. In turn, HHS will likely pass the job along further.

In this case, the next to get this mission impossible will be the state-based Health Benefit Exchanges. Each state is set to establish one or more such Exchanges to police the health care market, provide information so that people can do informed comparison shopping, and administer a process of risk adjustment so a participating health plan is not unfairly punished or rewarded because those who happen to sign up are sicker or healthier than average.

To these already difficult jobs we are likely to see HHS add the implementation of essential health benefits. The Exchange administrators, who may be state officials or, more likely, a quasi-public entity set up to run the program, will have to review the details of each proposed health plan to assess whether they are providing essential benefits or cutting corners to save money or attract only healthy people. While HHS is likely to provide general guidance, it will be up to these administrators to make the tough decisions on what is in and what is out.

While some variation from plan to plan is inevitable and potentially desirable, over time, the delegation of defining benefits to states is almost guaranteed to result in controversy and variation from state to state. Advocates for patients denied treatments will join with the providers of these treatments to lobby state officials and, eventually HHS, to intervene.

In the face of this, it is certainly conceivable that HHS will have to establish some process, akin to what they now do in Medicare, to resolve difficult issues at a national level.

Of course, while Congress punted on this one, there is nothing to stop advocates from turning to them when the issues heat up. Just as happens today with Medicare, Congress may try to avoid getting involved in these medical decisions but, in the end, won’t be able to resist amending the law to specify whether certain services and products are essential health benefits.

As with any political process, over time the trend will be to cover more and not less. The consequences will be increased cost both to individuals and to the government that will, after all, be subsidizing the price of this insurance for millions of Americans.

Finally, don’t expect to see any quick action from HHS on defining essential benefits. Given the politics of health care, the Administration will not want to trigger a “death panel” like fight before the 2012 elections. The definition of essential health benefits, to the extent there will be one, is something for whomever wins that contest.