Will Insurers Get Too Much Leeway to Set Benefits Under Health Reform?

All too often, Americans with private health coverage discover their policy has major holes at exactly the wrong time — when the treatment they need is not covered.

To ensure that people have access to comprehensive coverage, the health reform law (Affordable Care Act, or ACA) calls for the Department of Health and Human Services (HHS) to establish a set of “essential health benefits” that most insurers in the individual and small-group markets must cover starting in 2014.  Unfortunately, HHS’ initial proposal contains a troubling element for consumers.

As widely reported, the proposal would let each state designate one of several specified health plans — for example, one of the three largest plans in the state’s small-group market — as its benefits “benchmark.”  That plan would then set the standard for the “essential health benefits” in that state. What’s received much less attention, however, is that insurance companies could then deviate from the benchmark as long as the benefits they offer are “substantially equal” to the benchmark plan’s benefits.

In other words, insurers could provide less coverage of an item or service than the state’s benchmark as long as they provided more coverage elsewhere.  An insurer, for instance, might be able to limit occupational therapy coverage to 15 visits per year, compared to a state’s benchmark of 30, while covering more visits of physical therapy than the benchmark.  Or an insurer might impose a limit that is not part of a state’s benchmark  — such as on kidney dialysis treatments — and increase coverage elsewhere to make up for it.

Allowing insurers to significantly vary from a state’s benchmark would make it much harder for consumers to make informed choices about which health plan to purchase.  Consumers would have to wrestle with potentially significant (and hard to understand) variations in benefits, such as differences in what’s covered and to what extent.  Consumers already will have to wrestle with differences in cost-sharing charges, provider networks, and other elements that are expected to vary widely between plans, so this proposal to give insurance companies additional leeway would burden consumers even more.

In addition, some insurers would likely design their benefit packages in ways that attract healthier people (who cost less to cover) while discouraging sicker ones.

A number of stakeholders have raised similar concerns about the proposal, including the American Cancer Society Cancer Action Network, the American Academy of Actuaries, and officials in Rhode Island and New York State.

One key ACA goal is to encourage insurers to compete primarily on the price and quality of their products, not on their ability to deter enrollment by those in poorer health, as they do today.  Allowing insurers to vary from a state’s benchmark plan would impede progress toward this goal. HHS should drop this element of its proposal.