In a Presidential Election Year, States Left to Pick Up the Pieces of Health Reform

By Robert Holden, Vice President

On January 25, the Department of Health and Human Services (HHS), through its Center for Consumer Information and Insurance Oversight (CCIIO), released information identifying the three largest health plans in each state, as well as the three largest national Federal Employee Health Benefit Program (FEHBP) plans to aid states as they consider how to implement health reform.

From the perspective of the states, the implementation of the Affordable Care Act (ACA) has long been a waiting game.  After its enactment in 2010, it became clear quickly that states would be doing much of the heavy lifting when it came to implementing the insurance reforms required under the act, primarily because until then health insurance regulation was almost exclusive to the states.  Nevertheless, states were dependent on federal guidance and rulemaking before they could make progress towards many of the private insurance reforms and the 2014 implementation date for health benefit exchanges.

Throughout 2011, states had anticipated that federal HHS rules would then define the specific benefits that would be covered in each of these categories so that they could address this issue in the 2012 legislative sessions.  However, after recommendations from the Institute of Medicine, HHS did not propose rules addressing specific benefits.  Instead, the agency released a December 16, 2011, bulletin advising the states to develop a “bench mark” based on employer plans in their states, which could be the basis for benefits in their respective exchanges, and which HHS would review in 2016.  This removed a potentially charged issue from discussion at the federal level until well after the 2012 election.

Now, even with information identifying their largest health plans, states must contend with a lack of federal guidance addressing one of health care reform’s most politically charged issues: what benefits will be covered under the new system?

Essential Health Benefits, the benefits that must be covered by health insurance plans offered through state health benefit exchanges, are defined broadly in the ACA to include the following categories: (1) ambulatory patient services, (2) emergency services (3) hospitalization, (4) maternity and newborn care, (5) mental health and substance use disorder services, including behavioral health treatment, (6) prescription drugs, (7) rehabilitative and habilitative services and devices, (8) laboratory services, (9) preventive and wellness services and chronic disease management, and (10) pediatric services, including oral and vision care.

While many of these categories are already covered by health plans, states have long had their own individual concepts of what constitutes an “essential” benefit.  Each session, states introduce scores of bills mandating health insurers provide coverage for specific health benefits.  These have been generally opposed by the insurance industry as increasing costs, but frequently address popular concerns, such as continued coverage of routine mammograms or coverage for the treatment of autism spectrum disorders.  The ACA acknowledged the potential for increased costs created by coverage mandates.  Because federal subsidies would keep premiums affordable for individuals utilizing the state exchanges, the act requires states to pay costs attributable for benefits required beyond the essential health benefits provided for under the ACA.

Unsurprisingly, the details of the essential health benefits had been greatly anticipated by state legislators who now, in light of the HHS bulletin, may have substantial leeway in preserving their current mandates.  At a minimum, states will be able to use health plans (subject to their state’s mandates) to create a benchmark for the new state health benefit exchange.  While there is still uncertainty as to how the state benchmarks will be judged by HHS in 2016, states have already started to determine processes to review their state mandates and how they fit into the ACA’s essential benefits.

Prior to the release of the HHS bulletin, Massachusetts and Minnesota introduced a number of bills placing a moratorium on new mandates, as well as legislation to require a comprehensive regulatory review of mandated benefits in their states.  While Massachusetts legislation proposes to authorize the Division of Health Care Finance to review the mandated benefits, and Minnesota legislation authorizing their Commissioner of Commerce to do the same, South Carolina, Rhode Island and West Virginia would look to their respective insurance commissioners.

Regardless of the review process, states will be revisiting their mandated insurance benefits this legislative session, and the issue will undoubtedly receive attention at the state insurance commissioners’ (NAIC) meeting in March.  Stakeholders, including disease treatment advocates, pharmaceutical and equipment manufacturers, as well as health care provider groups will be pressing the case that their services and products are essential to health care consumers.

Health Benefit Recommendations Offer States Reform Incentives

By Robert Holden, Vice President

The Institute of Medicine (IOM) recommendations for Essential Health Benefits, released October 6, may have injected new life into state planning for health benefit exchanges during the upcoming 2012 legislative session. The IOM’s recommendations establish a process for identifying the benefits that will become the basis for health plans available to individuals, small businesses, and eventually to larger employers through each state (and any federal) health benefit exchange. The federal rules that emerge from this process will have a profound effect on insurance regulation in the states, as they will impact all state health insurance benefit mandates currently imposed on health insurance carriers.

Since the enactment of the Affordable Care Act (ACA), state policy makers have known that they would be required to pick up the cost of any state mandates imposed on plans offered through a state health benefit exchange that exceeded the federal essential benefits. As a result, states have already introduced legislation and established commissions to review state mandated benefits in anticipation of the federal rules. With the release of the IOM recommendations, it appears that states may have much more control of which mandate benefits they will be able keep.

States Pace Their Implementation Efforts on the Availability of Federal Guidance

The race towards the ACA’s 2014 deadline to implement state health benefit exchanges has become a “chicken or egg” process between state policy makers and the HHS, as states delay implementation while waiting for federal guidance. The release of federal rules on exchange governance came this summer, after many state legislatures had already adjourned. Federal rules on benefits are still pending, even as state planning and interim activity increases for the 2012 legislative session. States are particularly dependent on the HHS rules addressing essential benefits, as the ACA statute provides only broad benefit categories, such as “Prescription Drugs,” that must be made available in health plans. The IOM recommendations did not narrow the benefit categories for states, as IOM was authorized to provide the process for determining essential benefits and not the specific benefits themselves.

Opportunities for State Policy Makers

While state activity on specific benefits is still delayed, the IOM recommendations do offer some direction to state governments, starting with small group health plans. If it proceeds as recommended, HHS will begin with the benefits offered in a current, typical, small business health plan. These benefits will then be supplemented with additional required services so that each ACA benefit category is met. HHS will also develop an ongoing review process to account for future health technology advances and new benefits.

More importantly for state policy makers, IOM recommends that states have the flexibility to create alternative benefit structures, if they establish an exchange. Additionally, in comments made during the IOM’s release of their recommendations, it became clear that the IOM believes that states should decide how benefits addressing disabled and transitional Medicaid populations are structured. These recommendations not only give state officials additional flexibility and control over benefit mandates, they may provide needed incentive to continue implementing ACA exchanges. While it remains to be seen how states still considering their plans for implementation will react, this new incentive puts even more focus on the release of federal essential benefit rules and the formal authorization of states to create alternative benefit structures for their state exchanges.