April 2, 2013
By Julia Loyd and Shawn Gilman*
On February 25, the U.S. Department of Health & Human Services (HHS) published a final rule regarding standards for essential health benefits (EHBs) and actuarial values (AVs). Beginning in 2014, the final rule's requirements are applicable to all non-grandfathered health insurance coverage in the individual and small group markets. The final rule largely adopts the proposals set forth in the EHB proposed rule published on November 26, 2012, including the requirement that such issuers cover items and services in 10 benefit categories, as originally identified in the Patient Protection and Affordable Care Act (ACA). Additionally, the final rule sets forth a timeline for qualified health plans (QHPs) to be accredited in affordable insurance exchanges (Exchanges), as well as an application process for recognizing additional accrediting entities for certifying QHPs. This summary seeks to provide readers with an overview of the main aspects of the final rule.
Applicability—Requirements for the Group and Individual Health Insurance Markets
Effective for plan or policy years beginning on or after January 1, 2014, health insurance issuers offering non-grandfathered coverage in the individual or small group markets, both inside and outside of Exchanges, are required to include the following 10 categories of benefits, as initially set forth in the ACA: (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. All self-insured plans and insured large group plans are not subject to the EHB requirements.
Standards for Exchanges
Under the final rule, states retain the ability to require QHPs in the Exchanges to offer benefits beyond the EHBs. Exchanges will be charged with making the determination as to whether a state-required benefit is additional to the EHBs. States that do require additional benefits must defray the additional costs of such benefits. QHP issuers in the applicable states will quantify the costs of such additional benefits according to determinations made by a member of the American Academy of Actuaries in accordance with generally accepted actuarial principles and methodologies and report such costs to the applicable Exchanges.
Exchanges will also be tasked with establishing a period after certification of a QHP during which unaccredited QHP issuers must become accredited by one of the designated accreditation bodies. Additionally, in the final rule, HHS sets forth a process through which QHP issuers must obtain accreditation within the first three years of QHP certification for participation in federally facilitated Exchanges. Specifically, in the initial certification year, QHP issuers without existing commercial, Medicaid, or Exchange health plan accreditation must at a minimum begin applying for accreditation. Next, during their second and third years, QHP issuers must be commercially accredited or Medicaid health plan-accredited in the same state in which they are offering Exchange coverage. Finally, for the fourth year and every subsequent certification year thereafter, QHP issuers must be accredited for their QHP plans.
Health Insurance Issuer Standards
EHB Benchmark Plans
Under the final rule, each state may identify one EHB benchmark plan for purposes of basing the benefits required to be offered by the affected issuers, selected from among the following four types of health plans: (1) the largest plan by enrollment in any of the three largest small-group insurance products in the state's small-group market; (2) any of the largest three state employee health benefit plans; (3) any of the largest three national Federal Employees Health Benefits Program (FEHBP) plan options; or (4) the largest insured commercial non-Medicaid plan offered by a health maintenance organization operating in the state. For states that choose not to make such a selection, the default base-benchmark plan will be the largest plan by enrollment in the largest product in the state's small-group market. Under the final rule, Puerto Rico will follow the same approach as the states, whereas the base-benchmark plan for other territories will be the largest FEHBP plan. Additionally, the final rule includes an appendix which identifies the EHB benchmark plan for each of the 50 states, the District of Columbia, and the territories.
EHB benchmark plans must provide coverage for all of the 10 required categories listed above, and if they do not, then they must be supplemented according to a process set forth by HHS (with particular emphasis on coverage for habilitation services and pediatric oral and vision services). Furthermore, EHB benchmark plans may not include discriminatory benefit designs, and EHB categories must be balanced to ensure that benefits do not unduly skew towards any particular category.
Requirements for Providing EHBs
In general, plans must provide benefits that are substantially equal to the EHB benchmark plan and that include all the preventive health services described in Section 2713 of the Public Health Service Act. Benefit substitution is allowed if plans offering EHBs meet certain conditions.
Moreover, the final rule solidifies the requirement introduced in the proposed rule that plans must comply with the parity standards applicable to mental health and substance-use disorder benefits found in the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) in both the individual and small-group markets in order to meet the requirement to cover EHBs. As compliance with parity standards is necessary to satisfy the EHB requirements, states would not have to defray any associated costs to ensure compliance, because any such benefits would be viewed as EHBs. Further emphasizing the importance of mental health coverage was the simultaneous release of an HHS Office of the Assistant Secretary for Planning and Evaluation (ASPE) Issue Brief (Brief), addressing how the ACA and the final rule expand on the requirements of the MHPAEA. Most notably, the Brief highlights that the EHB final rule applies to small-group plans which were not previously within the purview of the MHPAEA.
In regards to prescription drugs, the final rule does not allow substitution within the prescription drug benefit category and requires plans to cover at least the greater of the following: (1) one drug in every U.S. Pharmacopeia category and class; or (2) the same number of prescription drugs in each category and class as the EHB benchmark plan. Furthermore, health plans that provide EHBs must allow enrollees to request and gain access to clinically appropriate drugs not covered by the plan.
Although the final rule maintains a general nondiscrimination requirement, at the same time, it adds language to clarify that nothing should be construed to prevent an issuer from appropriately utilizing reasonable medical management techniques. Similarly, with respect to cost-sharing limitations, the final rule removes an explicit provision found in the proposed rule that prohibited discriminatory cost sharing.
Actuarial Value and Minimum Value
To begin with, for purposes of determining the AVs of plans required to meet the metal levels of coverage discussed below, issuers must use HHS' AV calculator, as finalized, unless it is not compatible, in which case the final rule sets forth specific requirements that must be satisfied. In particular, for plan designs that are not compatible with the HHS AV calculator, an actuarial certification relative to an alternate methodology used to determine AV would have to be submitted by the applicable issuer. Additionally, the AV calculator may take employer contributions to health savings accounts or amounts available through health reimbursement accounts into consideration, as long as they are used for medical expenses.
HHS also codifies the metal levels of coverage in the final rule, but allows for de minimus variation of two percentage points for all non-grandfathered plans. The ACA's metal levels of coverage require that a platinum plan has an AV of 90%; a gold plan, 80%; a silver plan, 70%; and a bronze plan, 60%. By way of example, the final rule clarifies that with the de minimus variation allowance, a silver plan could have an AV between 68% and 72%.
Finally, the final rule sets forth methods for calculating minimum value (MV) in order to determine whether employer-sponsored plans satisfy this requirement. Such plans will be considered to be meeting MV if the total allowed costs of benefits provided by the employer is not less than 60%.
Stand-alone Dental Plans
The final rule contains several provisions addressing stand-alone dental plans, including how AV will be measured for such plans, as they are not otherwise subject to the AV calculator. Specifically, the final rule provides that the target AV for a "low" stand-alone dental plan is 70%, whereas such a plan with an 85% AV would be considered a "high" plan. Here again, HHS allows for minimal variation of two percentage points.
Generally, individuals obtaining health insurance coverage not offered on the Exchanges still must be offered the full 10 EHB categories, which would include pediatric dental benefits. However, in the preamble, HHS allows for an alternate method of compliance relative to pediatric dental coverage. In particular, HHS clarifies that individuals purchasing coverage outside of the Exchanges are not required to be offered pediatric dental coverage if the applicable issuers are reasonably assured that the individual has obtained pediatric dental coverage through an Exchange-certified stand-alone dental plan (which would not need to be purchased through an Exchange).
While the final rule did not significantly change the EHB requirements as initially set forth in the proposed rule last fall, it does provide a degree of certainty in regards to the HHS perspective on a couple of key issues in this space. Highlighted below are some such issues that interested stakeholders will want to review and monitor during the remainder of the implementation period and beyond.
Recognizing their traditional role in regulating insurance, HHS gives states quite a bit of flexibility throughout the final rule's requirements. Accordingly, through the roll-out of the Exchanges, this flexibility will come into fruition in how the states and their Exchanges address the EHB requirements.
Mental Health Parity
As highlighted in the ASPE Brief released concurrently with the final rule, the EHB final rule builds on the existing mental health federal parity requirements. Also, the EHB final rule applies the parity requirement to insured small-group plans which were not previously covered by the MHPAEA.
Access to Prescription Drugs
The final rule adjusted its initial language in response to commenters who raised concerns that enrollees have actual access to clinically appropriate drugs, and not just be allowed to request them.
Although the final rule maintains much of the non-discrimination elements originally proposed, it may be significant to certain stakeholders that such language was removed from the cost-sharing provisions and that allowance was made for plans to engage in "reasonable medical management."
Stand-alone Dental Plans
Not only does the final rule clarify that such plans must be certified as high or low plans in lieu of being subject to the AV calculator, but also, for issuers offering coverage outside of Exchanges, it sets forth an alternate method of compliance with the requirement to offer pediatric dental coverage as part of the requirement to offer EHBs. Outside of the Exchanges, when an issuer is reasonably assured that individuals purchasing medical coverage from it have obtained Exchange-certified pediatric dental coverage, then such an issuer would be considered compliant with the EHB requirements without also being required to offer pediatric dental coverage to those same individuals.
*We would like to thank Julia E. Loyd, Esquire, and Shawn M. Gilman, Esquire (Epstein Becker & Green PC, Washington, DC), for authoring this email alert, and Cindy Gillespie, Esquire, and Elizabeth Carpenter, Esquire (McKenna Long & Aldridge LLP, Washington, DC), for reviewing it.