CMS proposed rule opens door to skimpier health plans, higher patient costs

The CMS proposed a rule late Friday that would allow states to define the minimum essential health benefits that health insurers selling plans on the Affordable Care Act exchanges are required to offer. Health insurance experts say such a change would lead to skimpier health plans on the individual and small group insurance markets and higher out-of-pocket costs for consumers.

The CMS proposed rule would give states greater latitude in choosing which benefits insurers must cover. It would allow states to choose a benchmark plan from wider pool of existing plans, including health plans from other states. The benchmark plan defines just what essential benefits other plans must cover.

The CMS' goal with the change is to give states more flexibility that could potentially lead to more affordable health plan options in 2019. But the agency acknowledged that some consumers could get the short end of the stick in the arrangement.

"Consumers who have specific health needs may be impacted by the proposed policy," the CMS said. "In the individual and small group markets, depending on the selection made by the state in which the consumer lives, consumers with less comprehensive plans may no longer have coverage for certain services. In other states, again depending on state choices, consumers may gain coverage for some services."

The ACA requires health plans on the individual and small group markets to cover 10 minimum essential health benefits including emergency services, hospitalization, prescription drug coverage, maternity care and care for mental health and substance abuse disorders.

"What this rule does is it creates a process where states can really sort of weaken the package of the essential health benefits," said Dania Palanker, assistant research professor at Georgetown University's Center on Health Insurance Reforms.

States could also opt to build their own menu of essential health benefits from scratch, as long as the benefits aren't too generous. The 10 essential health benefits would have to be in line with that of a "typical employer plan" in the large or small group market with more than 5,000 enrollees. At the same time, the proposed rule would bar states from making their essential health benefits any more generous than they are currently.

"The floor is the worst employer plan that they can find that covers 5,000 people," Palanker said.

States could potentially choose an atypical employer plan with 5,000 enrollees that excludes coverage for transplants, inpatient mental health services or coverage for HIV or AIDS as their benchmark, and that plan would be considered typical under the proposed CMS rule, she said.

"States would have carte blanche to rewrite the essential health benefits with the only sort of real constraint being that they couldn't make it more stingy than the very stingiest plan," said Nick Bagley, a health law expert at University of Michigan.

The CMS noted that a consumer's premium tax credit could decrease if their state's choice of essential health benefits leads to lower premiums. On the other hand, consumers who don't get a premium tax credit, which is available to enrollees with incomes up to 400% of the federal poverty level, may experience lower premiums for "less comprehensive coverage," but higher out-of-pocket costs.

It's not clear whether states would opt to build their own package of essential health benefits. Doing so would be "an administrative and political headache," Bagley said.

He also doubted that allowing states to define essential health benefits is even legal. The ACA instructed the HHS secretary to establish the 10 minimum essential benefits, but the Trump administration is proposing to transfer the authority to states. That kind of change may require legislation.

"There would be a solid claim that the proposed rule goes too far in punting this critical question to the states," Bagley said.