The bare essentials

For all its complexities, the Institute of Medicine's report to HHS on essential health benefits last week is based on a simple premise: Find what works already and improve on it over time.

Now a task that's by no means simple falls to HHS, which will develop the proposed and final rules that outline what an essential health benefits package must include and exclude for the sake of making the plans affordable. Those choices are certain to draw new battle lines among providers, insurers, the Obama administration and lawmakers.

The IOM's nearly 300-page report, Essential Health Benefits: Balancing Coverage and Cost, is a response to HHS' request for the IOM's recommendations about the process the HHS secretary should use to define and update the essential health benefits package. Outlined in last year's Patient Protection and Affordable Care Act, these benefits must be offered to individuals and small groups in state-based exchanges and the existing market. The law requires that plans cover at least 10 general categories of health services and be similar to those currently provided by a typical employer. The IOM estimated that more than 68 million people will obtain insurance that must meet the requirements.

Julie Allen, government relations director at Drinker, Biddle & Reath in Washington, said she expects a proposed rule by the end of this year, and that it won't be overly prescriptive because of the balancing act required. But whatever HHS puts forth will draw a “tremendous amount of reaction,” she said, and there has been talk that a final rule might be pushed back until after the 2012 elections because of the political implications attached to it.

For example, if the rule is very robust, it could make plans too expensive and not meet the law's goal of coverage and access for all. But if it's too bare-boned, she said, then the package could be viewed as depriving millions of people of the coverage they need. The administration is at risk of criticism either way. “The problem is state exchanges are supposed to be verified and approved in January 2013 and up and running in 2014,” Allen said. “Your window starts to shrink,” she added. “Some say they aren't going forward until they understand the rules—and this is a big one.”

Committee members who worked on the report combined perspectives from four areas—economics, ethics, evidence-based practice and population health—to create what the IOM called an “overarching framework” for HHS. The group then used that as a foundation to develop criteria that could help guide HHS in its decisions as it sought to achieve two aims: to provide coverage for a range of Americans, and to ensure the affordability of that coverage.

Christopher Koller, Rhode Island's health insurance commissioner and a committee member, said members focused on how to build benefits that are based on research and evidence of what already works. This concept is perhaps best seen in the committee's first of five recommendations, which suggests the HHS secretary should establish (by May 2012) an initial health benefits package that is guided by a national average premium target. To do this, HHS should determine what the national average premium of typical small employer plans would be in 2014 and ensure that the essential health benefits package's scope doesn't exceed this amount.

“We considered a number of different ways to characterize cost,” said Elizabeth McGlynn, a committee member and an editor of the report who serves as director for Kaiser Permanente's Center for Effectiveness & Safety Research. “We landed on premiums because we thought that was most understandable to a wide range of people,” she said, adding that a premium “balances a number of considerations.”

The next recommendation calls for the HHS secretary to establish by January 2013 a framework for obtaining and analyzing data necessary for both monitoring the implementation of the essential health benefits package and updating it. That framework should account for changes related to providers, such as payment rates, contracting mechanisms and financial incentives; changes related to patients and consumers, such as demographics, health status and access problems; and changes related to health plans, including characteristics of plans, cost-sharing practices, and patterns of enrollment and disenrollment.

Meanwhile, the committee sought flexibility for states in its third recommendation. That suggestion said states administering their own exchanges that wish to adopt a variant of the federal package should be allowed to do so—but only if the state-specific criteria are “actuarially equivalent” to the national package and it's supported by a process that has included meaningful public input.

HHS Secretary Kathleen Sebelius acknowledged the agency's commitment to public engagement in the issue when the report was released last week. Sebelius said in a statement that she's heard from states, insurers, patients, providers and employers about essential health benefits and that she looked forward to reviewing the IOM's recommendations.

“But before we put forward a proposal, it is critical that we hear from the American people,” Sebelius said in her statement. “To accomplish this goal, HHS will initiate a series of listening sessions where Americans from across the country will have the chance to share their thoughts on these issues.”

The report suggested that HHS update the package every year (starting in 2016) so it's more evidence-based, and also that the secretary explicitly incorporate costs into those updates. The last component was both ambitious and vague, saying the secretary should collaborate with others to “develop a strategy for controlling rates of growth in healthcare spending across all sectors” in line with the rate of growth in the economy.

Sen. Mike Enzi (R-Wyo.), ranking member on the Senate Health, Education, Labor and Pensions Committee, said an essential health benefits package will only exacerbate rising healthcare costs.

“Small businesses can't sustain these increases, especially when combined with the increases that will inevitably result from the more expensive essential health benefits packages mandated by the new law,” Enzi said in a news release last week. “Too many small businesses are already running the numbers and deciding they can't afford to make payroll and pay for healthcare. The number of small businesses offering coverage decreased 11% this year, and rigid benefit packages will make this even worse.”

The report's final recommendation calls for the HHS secretary to establish a National Benefits Advisory Council that HHS would staff, but that would be appointed through a non-partisan process, such as through the comptroller general of the United States. That council would advise the secretary on a research plan and data requirements to update the essential health benefits package and also make annual recommendations.

Xiaoyi Huang, assistant vice president for policy at the National Association of Public Hospitals and Health Systems, said the NAPH would like to see essential benefits also include “critical enabling services”—such as language services, transportation and case-management services for patients—in order for medical care to be effective, whereas the IOM report recommended the secretary focus only on medical benefits.

“To truly embrace what the ACA is trying to do—transform the care delivery system and improve population health—we need to start thinking of the patient as a whole person,” Huang said in an e-mail. “And for that to happen, we need to ensure that critical enabling services are available to them. And while NAPH members provide these services, often uncompensated, as part of their mission, we need to find a more sustainable way of financing these services so that we don't put our already resource-strapped safety net hospitals in further jeopardy.”

America's Health Insurance Plans also weighed in on the report last week, as AHIP President and CEO Karen Ignagni said in a statement that the recommendation to reflect the scope of benefits and design under a typical small employer is an “important step toward maintaining affordability.” She also noted that the essential benefits regulation should allow for ample time for health insurance plans to implement essential health benefits packages by January 2014.

Lauren Haley, a partner with McDermott, Will & Emery in Washington, said the recommendation for a final rule by May 2012 is ambitious, given that the agency will still have to digest the report and conduct research on small employer plans.

“If this is going to go live when it's slated to go live, plans need time to figure this all out,” Haley said. “The startup is not an easy task.”