On November 20, 2012, the Departments of Health and Human Service, Labor and Treasury released a flood of proposed Affordable Care Act proposed rules and guidances.  My first post examined the market reform proposed rules.  This post discusses the essential health benefits, actuarial value, and accreditation rule, as well as guidance related to this rule. A subsequent post examines a proposed rule on wellness programs as well as frequently asked questions regarding the interface between Medicaid and state health insurance exchanges.

These proposed rules and guidance supplement the initial set of exchange rules released in March.  They put into proposed-rule form guidance that HHS had released earlier in 2012 with respect to the essential health benefits package and calculation of actuarial value.  The proposed rule reflects the approximately 11,000 comments HHS received on its earlier essential health benefits bulletin.  It also builds on a final rule HHS issued earlier this year addressing the collection of data elements required to support the essential health benefits standards and the recognition of accreditation entities.

There are few surprises in this proposed rule for those who have been following guidance issued to date on the issues it addresses.  In general it reduces to rule form the literal requirements of the ACA.  But it does give insurers additional flexibility on some issues, such as the coverage of habilitative services or setting deductibles for low actuarial value small-group plans. In other areas, the proposed rule gives consumers additional protections, such as access to a wider variety of prescription drugs.

The proposed rule frees states from the obligation to pay for state-mandated services not included in the essential health benefits by including all services mandated by a state on or before December 31, 2011 in the EHB (and listing them in an appendix).  Finally, it leaves some issues, such as how HHS will identify plans that discriminate illegally or lack balance in their benefit coverage, maddeningly unclear.

Requirements For Essential Health Benefits And Associated Cost-Sharing

The proposed regulation begins by defining the essential health benefits package.  The EHB package contains not only coverage of the EHB, but also requirements that health plans comply with specific cost-sharing limitations and have an actuarial value that corresponds to one of the metal tiers.  All non-grandfathered plans in the individual and small-group market, whether or not they are offered through the exchange, must comply with the EHB package requirements as of January 1, 2014.

The EHB package requirement does not apply to self-insured or large-group plans.  However, no group plan, including self-insured and large group plans, can require out-of-pocket payments that exceed the limit imposed on high-deductible health plans that are HSA compliant (for 2013, $6250 or an individual, $12,500 for a family).  Cost sharing for care received out of network in network plans does not count toward the cost sharing limits, although emergency care must be provided out of network without increased cost sharing.

Small group plans are also subject to a limit on their deductible, which cannot exceed $2000 for single coverage, $4000 for family coverage.  In response to pleas for flexibility from the insurance industry, however, the proposed rule allows higher deductibles where a small group plan cannot reasonably reach the actuarial value of a given AV metal level and comply with the deductible limits.  This would presumably only apply to bronze plans, and should be a very limited exception.  Cost-sharing limits will increase annually based on an inflation adjustment formula found in the statute and proposed rule.

All insurers offering any level of coverage under the ACA to individuals must also offer child-only coverage at the same level. Child-only coverage disappeared in many states in 2010 as the ban on preexisting conditions for children was implemented.  Insurers that offer adult and family coverage must now also offer child-only coverage.

The EHB package includes coverage of the ten listed services that comprise the EHB.  For 2014 and 2015, these ten services must be covered at least to the extent that they are covered by a state’s benchmark plan. Plans must also cover all preventive services required under the preventive services mandate.  Plans need not cover adult dental or vision services, cosmetic orthodontia, or long-term care services.

The Base Benchmark Plan

States have four options for choosing what the proposed rule refers to as a “base benchmark plan”:  The largest enrollment plan of any product in the state’s small group market; one of the state’s three largest state employee plans; one of the three largest Federal Employees Health Benefit Program options; or the state’s largest non-Medicaid HMO.  About two thirds of the states selected base benchmark plans, mostly small-group plans.  The proposed rule adopts for the remaining states the default base-benchmark plan — the largest plan by enrollment in the largest product in the state’s small group market — but states can comment on the proposed rule, identifying an alternative plan to the default if they choose to do so.

The benchmark plan for each state is described in a guidance document also released on November 20.  HHS will revisit its EHB policy for years 2016 and following.  The Office of Personnel Management is developing a separate EHB benchmark for multi-state plans.

A state’s base benchmark plan must be supplemented in any of the ten EHB categories that is not covered by the base benchmark plan.  This is most likely to be the case with respect to three categories of benefits — pediatric vision services, pediatric oral services, and habilitation services — which are currently often not covered in individual and small-group plans.  In general, the gap in the base benchmark plan can be supplemented by adding coverage of the missing category of services from another possible benchmark plan.  Pediatric oral and vision services can be supplemented by adding the coverage found in the largest federal employees’ plan or the state’s CHIP plan.  If a state fails to choose a base benchmark plan and ends up with the default plan, HHS can fill missing categories from the largest plan from the second- and third-largest small group products in the state.

Two disappointments for consumer advocates. The largest gap in many base benchmark plans may be habilitation services.  The proposed rule provides that if the benchmark plan does not cover habitation services, a plan may either provide services equal in amount, duration, and scope to the rehabilitative services it offers or simply determine the services it will cover and report the coverage to HHS.  This standard seems disappointingly weak, and is likely to receive considerable opposition from disability advocates.

Consumer advocates are also likely to be disappointed by the proposed rule’s approach to prohibiting discrimination and requiring balance in benefit packages.  The proposed rule basically repeats the statutory prohibition of discrimination on the basis of age, disability, or expected life, although it also adds medical dependency and quality of life, and by cross reference discrimination on the basis of gender identify or sexual orientation.  Enforcement of this requirement will be largely left to the states, but there is little guidance in the proposed rule as to how the nondiscrimination requirement is to be enforced.

Individual and small group plans subject to the EHB requirement do not need to exactly duplicate the coverage of the benchmark plan.  They may offer services certified to be actuarially equivalent by a member of the American Academy of Actuaries based on an analysis performed in accordance with generally accepted actuarial principles and methodologies using a standardized population.  Actuarial equivalence substitutions are only permitted within and not among service categories.  States also have the discretion to prohibit substitution.

Pharmaceutical Coverage

The proposed rule has special provisions for pharmaceutical coverage.  Plans must offer the greater of one drug in every United States Pharmacopeia (USP) category or class or the number of drugs in each category and class as the EHB-benchmark plans.  Plans need not cover the same drugs as are covered by the benchmark plan as long as they cover the minimum number of drugs.  Listed drugs must be chemically distinct. Plans can use medical management tools for drug coverage.

Consumer advocates had hoped for more generous coverage, for example coverage like that found in Medicare prescription drug plans, but this standard makes it likely that consumers will have a choice of drugs in many categories and classes.  Significantly, plans do not need to cover drugs that cause abortions.

The ACA requires states to pay for the cost of any services that the state requires a qualified health plan to cover in excess of the EHB.  Most states mandate insurance coverage of a variety of services.  While most of these services would presumably be covered by the state’s base benchmark plan, HHS is not eager to confront the states on state mandates and proposes that all state service mandates that were enacted prior to December 31, 2011 be treated as EHB.  (Other state mandates, for example provider or cost-sharing mandates, are not covered by the requirement that states must bear the cost of mandates.)  If states choose to adopt new service mandates after that date, insurers will be responsible for determining the cost of non-EHB benefits required by the state and the state must pay either an enrollee or a health plan the cost of the service.  Presumably, few states will do this.

Medicaid Essential Health Benefits

HHS also released on November 20 a letter to state Medicaid directors providing guidance on the EHBs that must be covered by Medicaid plans.  Since 2005, states have been able to provide certain categories of Medicaid recipients with benchmark or benchmark equivalent coverage, choosing one of four options for the benchmark (the FEHBP standard Blue Cross-Blue Shield PPO plan; a state employee plan; the largest commercial HMO; or coverage approved by HHS).  This benchmark or benchmark-equivalent coverage is referred to as alternative benefit coverage.

The ACA requires states to provide alternative benefit coverage to the ACA Medicaid expansion population.  The ACA adds a new requirement that alternative benefit coverage must cover all ten required EHB services and cover mental health services.  If the benchmark coverage chosen by a state does not cover all ten services, the state must supplement the plan using the same approach used for supplementation of deficient EHB plans in the commercial market.

HHS intends to publish separate rules for Medicaid coverage of habilitative services.  EHB supplementation for pediatric services will not be necessary because Medicaid must already cover early and periodic screening, diagnostic, and treatment services for children in alternative coverage. States must publish their plans for alternative benefit coverage for public comment before submitting them to HHS.

Accrediting Qualified Health Plans

A notice accompanying the rule recognizes the National Council on Quality Assurance (NCQA) and URAC as entities authorized to accredit QHPs.    The proposed rule includes a timeline for plans to achieve accreditation.  During the first year a plan is certified as a QHP it must at least schedule an accreditation review.  During the second and third year of certification a QHP issuer must at least be accredited for its commercial or Medicaid health plans. Beginning in the fourth year of QHP certification and in every subsequent year, a QHP issuer must be accredited for its QHP.

Actuarial Value

Each health plan issued in the individual and small group market must have an actuarial value that fits into one of the four metal tiers:  bronze, 60 percent; silver 70 percent; gold, 80 percent; or platinum, 90 percent.  A de minimis variation of plus or minus 2 percent is permitted from these levels.  Actuarial value is defined as “the percentage paid by a health plan of the total allowed costs of benefits” for a standardized population and is a measure both of the value of services covered by the plan and of the cost-sharing that a plan member must cover.

HHS also published on November 20 its AV calculator and an explanation of its AV calculator methodology.  The AV calculator only considers in-network utilization, based on a judgment that out-of-network care is only a small part of total utilization.

Actuarial value will be calculated based on the provision of the EHB to a standard population.  Issuers of nonstandard plans that do not fit with the AV calculator can either 1) adjust the plan benefit design for calculation purposes to fit the calculator or 2) calculate plan provisions that correspond to the parameters of the calculator and then adjust AV for nonstandard plan provisions.  In either event, the approach must be certified by a member of the AAA.  Employer contributions to health savings accounts and health reimbursement arrangements can be counted toward medical spending to the extent they are expected to be spent in a benefit year.

The question of employer contributions to HRAs used to pay insurance premiums is not addressed by the proposed rule.  States can use their own state-specific standard population for calculating actuarial value if the standard population meets certain requirements.

Minimum-Value Requirements For Employer Plans

The rule also addresses the calculation of minimum value for employer plans.  Large employer and self-insured plans are not required to provide the EHB, but if they fail to provide minimum value (60 percent actuarial value), employees can go to the exchange and receive premium tax credits, and large employers will have to pay a penalty if this occurs.  HHS and the IRS will provide a minimum value calculator based on a standard self-insured employer plan population.  Alternatively, employers will be able to use an array of design-based safe harbors that will be published by HHS and the IRS as a checklist or can provide the certification of an actuary that their plan meets the minimum value standards.  Only benefits included in an EHB benchmark can be counted toward minimum value, which may exclude the value of wellness programs.

Finally, the propose rule addresses cost-sharing in stand-alone dental plans.  Consumers can purchase a stand-alone dental plan to cover the EHB pediatric dental plan requirement.  Stand alone dental plans will not use the AV calculator, but rather must be certified by an actuary to provide high or low actuarial value (85 percent plus or minus 2 percent actuarial value or 75 percent plus or minus 2 percent, respectively).