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Implementing Health Reform: The Essential Health Benefits Final Rule
The march toward 2014 continues. On February 20, 2013, the Department of Health and Human Services issued a final regulation  covering the essential health benefits, actuarial value, and accreditation requirements of the Affordable Care Act. (See a fact sheet on the rule here .)
The ACA requires non-grandfathered health plans in the individual and small group market to cover ten categories of essential health benefits (EHBs). The EHB requirement is intended both to ensure that consumers in these markets have adequate coverage and to improve competition among health plans by standardizing coverage choices. Most of the EHBs are services already covered by most health plans, such as hospitalization or pharmaceuticals, but some, such as habilitative services or pediatric oral and dental care, are not commonly covered and thus represent a coverage expansion. The EHB requirement will also improve mental health coverage in the individual and small group market, as noted in a separate issue brief  released with the final rule.
Also on the 20th, HHS published its calculators  for determining the actuarial value (AV) of individual and small group plans and for determining whether large employer health plans meet the minimum value requirement of the employer responsibility provision, as well as the final EHB base-benchmark plans for each of the states. (The state base-benchmark plans are also listed in an appendix to the final rule). The actuarial value calculator, published in final form, will be used to determine the metal level of non-grandfathered health plans in the individual or small group market, ranging from 60 percent actuarial value — the percent of the value of covered benefits paid for by the plan — for bronze to 90 percent actuarial value for platinum.
The minimum value calculator, published for comment, will be used to determine whether a large employer plan provides 60 percent actuarial value. If a large employer health plan fails to meet this requirement, employees who are otherwise eligible for premium tax credits may receive them through the exchange, and if employees do so, the employer will owe a penalty. The state EHB base-benchmark plans provide the standard to which all non-grandfathered plans in the individual and small group market will be compared to ensure that they meet the EHB requirement. Twenty-six states identified base-benchmark plans themselves, in most instances the largest plan of one of the three largest small group products in the state. The remaining states were assigned the default base-benchmark plan by HHS. The benchmark plan process is described further below.
On February 20, 2013, HHS also issued a series of frequently asked questions  on state plan management regulation. This FAQ clarifies that HHS is willing to rely on state regulatory determinations for certifying qualified health plans based on a memorandum of understanding, even if the state has not submitted a partnership exchange blueprint. It also provides that exchange establishment grants can be used to fund these activities. This FAQ provides yet further evidence that HHS is willing to work with the state regulators in any way they are willing to work with HHS in implementing the ACA.
Finally, along with the final regulation, HHS, in conjunction with the Departments of Labor and Treasury, published a set of frequently asked questions  related to limitations on cost sharing and coverage of preventive services under the ACA. This FAQ provides a transitional rule covering only 2014 for application of the ACA’s out-of-pocket maximum rule for group heath plans that use different service providers to cover different health benefits (for example, major medical and pharmacy), where the different benefit plans have separate out-of-pocket maximums. The transitional rule provides that for 2014, as long as the major medical coverage (including mental health and substance abuse coverage) out-of-pocket maximum does not exceed the limit permitted by the ACA, and no other coverage independently exceeds that limit, the group coverage will be in compliance.
Minimal Change From Proposed Rule
The most remarkable characteristic of the final regulation is how little of the proposed regulation it changes. Although HHS received 5,798 public comments — including 600 total unique letters — responding to the proposed EHB rule, the final rule makes virtually no changes of significance in the proposed rule. This is undoubtedly due to the fact that HHS had published bulletins on both the EHB and on actuarial value, met with stakeholders to discuss its approach, and received approximately 11,000 comments before it even published the proposed rule.
Commentators on the proposed rule complained that the 30-day period for commenting (which ended the day after Christmas), was too short, but HHS notes that it had been receiving comments for a much longer period of time. HHS apparently believed it had hit the right balance between cost and coverage in the proposed rule, and decided to stick by it.
The ACA requires non-grandfathered health plans in the individual and small group market (inside or outside of the exchange) to cover the “essential health benefits package” beginning in 2014. The EHB package includes not just the ten categories of EHBs, but also limitations on cost sharing as well as the actuarial value requirements (that is, requirements that plans fit within one of the four metal tiers or be catastrophic plans).
Additionally, all group health plans must meet annual out-of-pocket limit requirements, and small group plans must comply with limits on deductibles (initially $2000 for individual and $4000 for family plans). The final rules clarify that the limit on deductibles only applies to small group plans, but that the limit on total out-of-pocket costs applies to all group plans, including self-insured plan and large group plans. (The FAQ contains a transitional rule on out-of-pocket limits discussed above).
The final rule adopts unchanged the proposed rule’s requirements that states pay either insurers or enrollees for the cost of benefits required by state benefit mandates enacted after December 31, 2011, and not included in the EHB. How this rule will be enforced against the states is not discussed.
Accreditation. The final rule also does not change the accreditation timeline proposed in November. Qualified health plans in the federally facilitated exchange must at least begin applying for accreditation during their first QHP certification year. During their second and third, they must at least have commercial or Medicaid accreditation for the state in which they issue exchange coverage. For the fourth year, the insurer must be accredited for its QHP plans. State exchanges must follow a uniform accreditation schedule, which could be the same as the federal schedule. Accreditation requirements apply to CO-OP and Medicaid managed care plans and will apply to stand-alone dental plans when and if accreditation requirements are developed for these plans.
In addition, the final rule adopts without substantive change the proposed rule provisions on recognition of accreditation entities. HHS currently recognizes the National Committee for Quality Assurance (NCQA) and URAC and has established a process for recognizing additional accreditation entities, if any apply.
Benchmark plans. Under the proposed rule, each state could, at least for 2014 and 2015, select a base-benchmark plan as the reference for defining EHB in the state. States could choose 1) the largest plan by enrollment in any of the three largest small group insurance products in the state; 2) any of the largest three state employee health benefit plans; 3) any of the largest three Federal Employees Health Benefits Program plans; or 4) the largest insured non-Medicaid HMO in the state. The proposed rule’s default plan for states that failed to make a benchmark plan selection was the largest plan in the largest product in the state’s small group market; multi-state plans were required to meet EHB requirements set by the Office of Personnel Management. The final rule accepts this arrangement, but specifies that the base-benchmark plan for the territories other than Puerto Rico will be the largest FEHBP plan.
The proposed rule also included provisions for supplementing the base-benchmark plan where it does not adequately cover any of the ten categories of EHB. Of particular concern are pediatric oral and vision and habilitation services, which are often not covered by employer-sponsored plans. States could supplement base-benchmark plan pediatric oral and vision benefits by benefits from federal employee or state CHIP plans, and could define habilitative services that must be covered. Plans could not include discriminatory benefit designs and had to ensure an appropriate balance among EHB categories. Here again, the proposed rule is adopted largely unchanged, preserving flexibility for the states in requiring supplementation of the base-benchmark plan.
Under the final rule, as under the proposed rule, non-grandfathered plans in the individual and small group market must provide benefits that are substantially equal to the state EHB-benchmark plan (the base-benchmark plan as supplemented to meet EHB requirements). They must cover preventive services and mental health services at parity with physical health services. Health plans may substitute benefits within a category (other than prescription drug benefits) as long as the substitution is actuarially equivalent.
Health plans are not required to cover any abortion services, including pharmaceuticals. (The application of this provision to contraceptives that are arguably abortifacients is currently being litigated in a number of the contraceptive cases). EHB do not include routine non-pediatric dental services or eye exams, non-medically necessary orthodontia, or long-term/custodial nursing home benefits. Once again, the final rule tracks the proposed rule, except for clarifying that states may prohibit or regulate plan benefit substitutions and that plans cannot exclude any enrollees from any EHB category except from pediatric services.
Drug coverage. The proposed rule on pharmaceutical benefits required plans to cover the greater of one drug in each USP category or class or the same number of drugs in each category and class as the EHB-benchmark plan. Significantly, plans could exceed this minimal requirement without exceeding the EHB requirement, meaning that federal premium tax credits, which can only cover EHBs, would be fully available to cover a QHP no matter how many drugs it covers. The final rule adopts the proposed rule provisions, but additionally provides that plans must provide an exception process (which will be described in future guidance) to ensure that enrollees have access to clinically appropriate drugs, regardless of a plan’s formulary.
Nondiscrimination. The proposed regulation implemented ACA requirements requiring balance and attention to the needs of diverse populations and prohibiting discrimination based on age, expected length of life, present or predicted disability, degree of medical dependency, quality of life, or other health conditions in the EHB definition process. The regulation also prohibited discrimination on the basis of race, color, national origin, sex, gender identity, or sexual orientation. Discrimination was prohibited not only in benefit standards but also in benefit implementation, including marketing practices, benefit design, coverage decisions, reimbursement rates, or incentive programs.
The proposed regulation, however, did not specify how these general non-discrimination requirements are to be enforced, and the final regulation does nothing to add further clarity. Moreover, the final regulation adds a provision stating that “nothing in this section shall be construed to prevent an issuer from appropriately utilizing reasonable medical management technique,” eliminates a cross-reference to a separate provision prohibiting discriminatory benefit design, and eliminates a proposed rule provision prohibiting discriminatory cost-sharing requirements. Consumers are concerned that these changes, intended to leave insurers discretion in medical management, may also leave the door open to discriminatory practices.
The final rule adopts unchanged the proposed rule as to cost sharing, except for the elimination of the prohibition on discriminatory cost sharing. The maximum deductible limit for small group plans can be increased where necessary to meet actuarial value requirements for low actuarial value plans (subject to further guidance). Maximum deductibles cannot be increased for employer FSA contributions, however. Network plans need not include cost sharing for out-of-network providers toward out-of-pocket limits (although they must comply with network adequacy requirements that will, it is hoped, minimize the need for out-of-network care).
The Actuarial And Minimum Value Calculators
As noted above, with this rule HHS is finalizing its actuarial value calculator. Plans with parameters that do not fit the AV calculator (such as plans with multiple coinsurance rates or multi-tier networks) may adjust their plan benefit design to fit the calculator (for calculation purposes only) or use the calculator where it fits and calculate appropriate adjustments where it does not, in either event with certification by a member of the American Academy of Actuaries. Employer contributions to integrated HSA and HRA accounts can be considered to the extent they are spent on medical costs.
Beginning in 2015, states can use state-specific data sets for AV calculations if approved by HHS. Only in-network utilization is considered in calculating actuarial value. HHS is also finalizing its proposal that insurers be allowed to deviate plus or minus 2 percentage points from metal-level actuarial requirements.
The final rule also proposes a minimum value calculator that will be used, as described above, for determining whether an employer plan meets the 60 percent minimum value requirement. Large employer plans cannot use the AV calculator, since it is based on the EHB, which do not apply to large employers. Employers will also be able to meet the requirement by conforming to safe harbors (as yet unavailable) or through certification of non-standard features by an actuary. Most employer plans exceed the 60 percent requirement, so minimum value is not expected to be a frequent issue. The final regulation clarifies that employer contributions to integrated HRAs and HSAs can be counted toward minimum value.
Stand-Alone Dental Plans
The final regulation includes a number of provisions respecting stand-alone dental plans. These plans (which cover the pediatric oral care requirements) are not subject to the AV calculator, but rather must be certified as either high plans (with an AV of 85 percent plus or minus 2 percent) or low plans (with an AV, under the final rule, of 70 percent plus or minus 2 percent.) Stand-alone dental plans may also have “reasonable” out-of-pocket limits that need not be coordinated with those of medical plans.
Finally, the final rule allows medical insurance plans outside of the exchange that are subject to the EHB requirement to exclude pediatric dental coverage where the insurer is “reasonably assured” that individuals whom it covers have obtained pediatric dental coverage through a stand-alone plan. An individual purchasing medical coverage through an exchange that offers stand-alone dental coverage can purchase a plan that does not cover pediatric dental coverage without purchasing stand-alone coverage.
This is the first final regulation to be issued after the floor of proposed regulations that followed the election. More are sure soon to follow.
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