Essential Benefits: The Balancing Act

In the flurry to study and understand all the parts and pieces of the federal health reform law, it is easy to lose sight of the original goals.  Three of the basic objectives are to improve coverage for the uninsured, to improve the quality of health care services, and to contain rapidly increasing health care costs.  To reach these goals, the law calls for development of a standard health benefit plan to make it easier for consumers to compare and shop for insurance.  These so-called “essential health benefits” must be included in most small-group and individual health insurance plans beginning in 2014.

As always, the challenge is in the details, in this case defining a standard set of essential health benefits that is both comprehensive and affordable.

The U.S. Department of Health and Human Services (HHS) asked the Institute of Medicine (IOM), an independent, nonprofit organization, for guidance on the criteria and methods to decide which benefits are most important . The committee faced a choice of requiring plans to be comprehensive – at the risk of discouraging participation due to cost - or recommending that plans should first and foremost be affordable.

Last week, it issued guidelines that recommended a focus on affordability.

Basically the committee considered two approaches to developing the services to be included. The first is to select a “market basket” of recommended services and then determine the premium. The second is to set the premium and then determine which services could be provided at that price point. The committee acknowledged that an emphasis on affordability will require difficult tradeoffs to select the most effective and important services.

Since one of the major goals of health reform is to improve access to insurance for individuals and workers in small firms, the IOM proposed that the target premium should be based on the national average premium for a typical small employer plan. In addition, it recommended that the essential  health benefits package be updated regularly so that, over time, evidence-based health services could be added.  This is a cautious approach: it starts with a typical small employer plan and allows for future expansion when community feedback and evidence indicate new benefits should be added.  The requirement that added services must meet evidence standards also guides plans to become more quality-oriented and may contain costs over time.

A recommendation that encourages state innovation may be of particular interest to Colorado. The IOM committee suggested that states with their own exchanges should be able to modify the benefit package as long as the plans meet the actuarial requirements of the federal law.

The recommendations by the IOM are one step in the process to defining the essential health benefits.  The committee asked the Secretary of HHS to make the final determination by May 2012  so that employers, insurance companies and state exchanges will have time to plan accordingly.  The Secretary will make the final determination on what essential health benefits will look like in 2014. But the challenge of balancing affordability with comprehensiveness will be with us for a while longer.

Allison Summerton is a legislative liaison and research analyst at CHI.