Significant steps are being taken to implement the Affordable Care Act (ACA) even as the challenges to its constitutionality make their way through the federal courts.  For example, the Institute of Medicine recently released its much-anticipated report to the Secretary of Health and Human Services on the principles and methods that should guide the design of health insurance policies offered to individuals and small employer groups under the ACA.

By way of refresher, here’s what the ACA does in its first five sections.  In Title I, it waves the magic wand of government and declares currently uninsurable people to be insurable (which only works if that pesky mandate to buy insurance gets enforced).  In Title II, it expands coverage further by giving a stack of $100 bills to people (most of them healthy and already insurable) who simply can’t afford to buy health insurance without employer subsidies or Medicaid.  In Title III, it attempts to bring rationality into the pricing and utilization of medical services by using new delivery models, payment incentives, and electronic health records to replace the ballpoint pens that American physicians use each year to write orders and prescriptions for roughly $2 trillion in fragmented, overpriced, often ineffective care. 

In Title IV, the ACA tries to wean us off unhealthy habits like eating too many French fries and help us be more physically active by identifying and funding programs to boost disease prevention and improve community health.  Uniquely among federal legislative efforts, it tries to make significant progress simultaneously in all three of these domains: health insurance, health care delivery, and public health.  And it does so in part by investing in people, meaning Title V’s commitment to an expanded and reconfigured workforce of diverse health care professionals and other skilled employees.

The IOM should be proud of its committee’s work.  Much like last year’s IOM report on the future of nursing, this monograph makes an important contribution to the implementation of health reform.  At 314 pages, Essential Health Benefits: Balancing Coverage and Costs wouldn’t strike most people as light reading, and the details are indeed daunting to absorb.  But connecting them is a compelling narrative that confronts many of the most difficult problems in health policy and reaches conclusions that are both courageous and compassionate.

Cost and Social Values

The new report takes very seriously its assignment of proposing a “policy framework” for establishing and updating the package of Essential Health Benefits that the ACA charges HHS with developing.  To that end, it devotes substantial effort to laying out the factual context and relevant analytic perspectives for the issues it considers, focusing on economics, ethics, evidence-based medical practice, and population health.

Such a deliberate approach ignores the tortuous history of health insurance coverage and associated regulation, but disregarding the “path-dependence” of our current situation is probably a good thing.  Health reform demands more than incremental change, and too much deference to habit and tradition isn’t going to move things along.  In the health care system contemplated by the ACA, moreover, the structure of covered benefits doesn’t do as much heavy lifting in health policy terms as one might expect.  The way in which health care delivery is organized and the approaches taken to paying for it, for example, are likely to prove more important.  Still, benefit design is a valuable tool for framing issues, molding public and provider expectations, and enabling market responses to consumer needs.

Most importantly, the IOM report does not shy away from cost.  It describes its mission as balancing comprehensiveness against affordability, and openly acknowledges ambiguities and contradictions in the statutory language of the ACA that may reduce the ability of either professional expertise or market competition to resolve the trade-offs required to operationalize any definition of essential health benefits.  Accordingly, the report emphasizes transparency, specificity, and public deliberation regarding “social values” as the essential underpinnings of successful benefits design.

The one naïve aspect of the report is the IOM committee’s failure to discuss just as forcefully the interest-group politics that often drive decisions about coverage.  In recent decades, politics more than policy has determined which categories of covered products and services exist, what specific benefits are mandated, and what modifications through private contracting are prohibited.  The report ignores this history, notably by recommending the establishment of a National Benefits Advisory Committee that is composed of “diverse stakeholders” yet remains “free from political influences.”  If there is a way to separate stakeholders from politics, I sure don’t know about it.

Making the Affordable Care Act Work Better

Exactly how does the IOM report’s approach to Essential Health Benefits advance the cause of health reform?  To answer that, let’s return to the magic wand, the $100 bill, the ballpoint pen, the French fries, and the people.

The Magic Wand

Declaring those at high risk for medical loss to be insurable in private markets at only slightly above “community” rates is challenging because companies that cannot explicitly exclude or surcharge such individuals will attempt to discourage them from enrolling while trying selectively to attract healthier beneficiaries.  Avoiding risk-selection of this sort requires a savvy approach to essential benefits design, which the IOM report delivers.  For example, not including the type and duration of benefits needed by the sickest individuals would undercut the goals of universal access, while failing to ensure that benefits match the needs of subgroups of beneficiaries (such as those with particular diseases or disabilities) might induce discrimination in violation of other laws.

Standardization of benefits in a universal market without medical underwriting also is a way to channel competition among health insurers in a more productive direction, meaning away from risk-segregation and into efforts to provide higher-quality, more cost-effective health care.  This tenet of “managed competition” theory that was popular among health reformers in the early 1990s is not addressed explicitly by the IOM report, but seems to be an underlying premise.  For example, the committee’s preference for specified benefits of measurable quality should inform consumers and promote performance-based competition among plans.

The Hundred-Dollar Bill

The IOM report loudly proclaims the need for essential benefits to remain affordable.  Rapidly increasing the number of people insured is a recipe for disaster if health care costs continue their steep upward climb.  The individual mandate to buy coverage becomes more onerous (and less enforceable as a practical matter) as premiums rise.  Tax dollars are also at risk.  The fact that currently healthy individuals will help support currently less healthy ones is mainly a transitional cost of universalizing coverage, but the ACA also redistributes a large amount of the public’s money on a continuing basis through subsidies for workers with earnings too low to fully fund coverage and a major expansion of Medicaid eligibility.

The report’s commitment to explicitly considering cost when establishing and updating the essential benefits package allows the tracking of affordability as well as specific contents over time.  In keeping with its parsimonious approach, the IOM committee recommends setting the initial scope of benefits at a level common among smaller employers that offer health insurance, not the “Cadillac” coverage that has often been the norm in large companies with high-wage or unionized workforces.  A cost baseline tied to benefits, rather than eligibility or reimbursement rates for health care providers, also forces future Congresses to take direct account of the clinical consequences of their decisions to spend or save tax dollars (as happened in Oregon’s Medicaid program in the 1990s).

The Ballpoint Pen

It is often said that the physician’s pen is the most expensive medical technology because it brings an almost unlimited number of clinical resources to bear on each (insured) patient’s problem.  By permitting the scope of the essential benefits package to be reduced over time if necessary to maintain its affordability, the IOM committee makes clear that delivery system reform is essential to long-term sustainability of effective coverage.  This message from the IOM improves on earlier efforts to prioritize medical services within fixed budgets, such as Oregon’s Medicaid reform, which accepted existing delivery structures and associated costs as inevitable.  The IOM report recognizes that we can, and must, do better.

A small part of delivery system improvement is captured within the IOM’s approach to defining essential benefits.  The report displays a strong commitment to evidence-based practice in selecting specific benefits, updating the contents of the package over time, and rendering coverage decisions in disputed cases involving individual patients.  For example, the IOM committee chose not to incorporate benefits currently mandated by state law in the federal package because they are more the product of politics than science.

The IOM report is similarly demanding with respect to an important term of art, “medical necessity,” used in most health insurance contracts to police marginal indications for otherwise covered categories of services.  The IOM committee rejects organized medicine’s longstanding preference for defining medically necessary care by reference to “generally accepted medical practice,” the “reasonably prudent physician,” or the “judgment of the treating physician,” and instead recommends definitions that focus on objective evidence of clinical efficacy.  The report also recognizes that because modern coverage decisions are often made in advance of treatment, the process of resolving disputes can be as important as the outcome.  However, I wish the committee had placed more emphasis on assuring the quality of insurer-provider-patient communication and promoting compassionate as well as legalistic methods of resolving uncertainties over the care of serious illness.

A larger part of delivery system reform occurs apart from the definition of essential benefits, a fact the IOM report fortunately recognizes even if it reduces somewhat the policy significance of the committee’s efforts.  Examples include new payment methodologies and integrated models for making primary care accessible and making acute and chronic care less expensive.  Measures like these may lead to gains in productive efficiency among health care providers and may result in prices of medical inputs that approximate their true costs.  A side-benefit of stressing these potential system improvements is that it helps defuse criticism of a restrictive benefits package as tantamount to government rationing of care.  That is indeed the power of the ballpoint pen metaphor for delivery system reform.  Making a cheap writing implement rather than an expensive diagnostic or therapeutic technology the symbol of high health care spending conveys the point that cutting-edge medical technologies are not the problem.  The problem is the random, inattentive, and ineffective way that they are often deployed.

One delivery system issue the IOM report misses is whether health insurers will remain the principal targets for federal regulation of essential health benefits.  When managed care was in its ascendancy in the 1990s, medical groups paid by insurers on a globally capitated basis often took over many of the tasks associated with managing financial risk, including making coverage decisions.  In the future, accountable care organizations, patient-centered health homes, and other new structures for delivering medical services may come to play a similar role.

The French Fries

Improving health is as important as improving health care in keeping coverage affordable over the long term.  Benefits design is a difficult venue for advancing the cause of population health.  Medical necessity decisions in particular are often focused on saving identified lives, with the preservation of resources for the needs of the rest of the insurance pool a significant but seldom articulated counter-pressure.

Coverage of preventive services is by far the easiest connection between individual and population health, and the IOM report states clearly that the essential benefits package should include a generous allotment of screening tests and other preventive measures.  The report is not as forthcoming about the cost-effectiveness threshold such interventions should exceed to merit listing among essential benefits, in part reflecting the fact that the text of the ACA constrains the forms of economic analysis that can be used to answer that question.

A harder issue is whether health insurers should be responsible for contributing to the collective health of the community.  In the 1990s, it was widely anticipated that many geographic areas would consolidate medical services under the control of one or two managed care organizations, which would then have strong incentives to invest in community health.  A similar conversation is under way today with respect to broad provider alliances such as community-wide accountable care organizations.  In honoring its commitment to affordability, however, the IOM report resists the temptation to include “nonmedical” services among essential health benefits, such as lifestyle and educational improvements that might well produce spillover health benefits within communities.  The risks of medicalizing social ills and diverting scarce resources away from health care indeed present relevant cautions, but a vigorous pursuit of community health may eventually challenge the IOM committee’s dichotomy between what is “medical” and what is not.

The People

Finally, the IOM report on essential health benefits has important implications for the health care workforce.  Workforce expansion and retooling can help ensure that services designated as essential health benefits are actually available to the much larger population that will be insured under the ACA.  But investing in human capital using workforce policy goes beyond access to promote better health through educational achievement, health-related employment, and economic growth.

Benefit design has often delimited practice opportunities for health professionals other than physicians.  On occasion, coverage for the delivery of certain services has been limited to physician provision as a safeguard against rapid increases in utilization without peer or institutional monitoring.  More often, states enacting mandated benefit laws have required coverage of care provided by politically influential groups such as podiatrists or chiropractors.  The IOM committee avoids becoming mired in the contentious politics of professional scope of practice laws.  To its great credit, however, the report emphasizes the importance of allowing professionals who are not physicians to deliver covered services as long as they can do so safely and effectively.

In sum, the IOM committee on essential health benefits has done an outstanding job translating a complex and historically determined area of health policy into a conceptual framework that can help guide implementation of the ACA.  The difficult questions raised by its report remind us that “health insurance” in the U.S. is a clinical and social enterprise as well as a market for reducing financial risk.  Because we equate insurance for health losses with entitlement to receive specific, in-kind restorative and even preventive services, quandaries involving benefit design such as those considered by the IOM are inevitable.  An alternative model, based on cash payment that can be spent as the beneficiary sees fit, is commonly applied to disability coverage but has seldom if ever been used for health insurance.  There are compelling justifications for not moving in that direction, but it is worth noting that such an approach would render much of the IOM committee’s hard work superfluous.