The Centers for Medicare and Medicaid Services (CMS), a federal agency within the U.S. Department of Health and Human Services (HHS), has issued a set of twenty-two frequently asked questions on essential health benefits (EHBs) under the Patient Protection and Affordable Care Act (PPACA), the federal health reform law. While group plan sponsors have been waiting for definitive guidance from federal authorities regarding precisely what EHBs are, the recent FAQs—while helpful in some respects—are not as helpful as hoped, with respect to self-insured plans particularly.
Why the Concept of EHB is Important for Employer Plans
The definition of “essential health benefits” is important for many reasons. First, health plans subject to the PPACA may not impose lifetime dollar limits on EHBs. Nor may the plans impose annual dollar limits on EHBs after 2013 (the prohibition on annual dollar limits is phased in until then).
Second, beginning in 2014, non-grandfathered plans in the individual and small group markets, including such coverage provided through health insurance exchanges established under the PPACA, must include coverage for each category of EHB. Self-funded plans, and insured plans in the large group market, will not be required to offer the EHB package. To the extent they provide coverage for any EHB, however, the plans will be subject to the restrictions on dollar limits.
The statute lists ten categories of care deemed “essential health benefits,” but HHS is tasked with determining the precise scope within each category:
- Ambulatory patient services;
- Emergency services;
- Maternity and newborn care;
- Mental health and substance abuse disorder services, including behavioral health treatment;
- Prescription drugs;
- Rehabilitative and habilitative services and devices;
- Laboratory services;
- Preventive and wellness services and chronic disease management; and
- Pediatric services, including oral and vision care.
Last December, HHS issued a bulletin that described its proposal to allow the states to define EHBs on a state-by-state basis for individual and small employer insured plans. That guidance requires each state to choose any one of four benchmark plans, and treat the benefits offered in the benchmark plan as EHBs for individual and small group contracts issued in the state. See our Alert of December 20, 2011 for details.
The four benchmark plans are:
- One of the three largest small group plans in the state, measured by enrollment;
- One of the three largest plans covering state employees, measured by enrollment;
- One of the three largest plans covering federal employees, measured by enrollment; or
- The largest HMO plan offered in the state’s commercial market, measured by enrollment.
The prior guidance left unanswered how a self-funded or large employer insured plan must determine what qualifies as an EHB.
New Guidance Leaves Us Scratching Our Heads
The good news: the new FAQs explicitly endorse non-dollar limits on EHBs, such as utilization limits. The bad news: HHS indicates that future guidance may subject large employer insured plans and self-funded plans to the same four benchmarks as individual and small employer insured plans. For example, future guidance will likely require a self-funded plan sponsor to select a benchmark plan (such as one of the three largest plans covering federal workers) and treat as an EHB any benefit that is also described in the federal employee benefit plan.
Although HHS has yet to issue formal guidance on this topic, it seems ominous that HHS has declined to spell out a separate safe harbor for large insured and self-funded plans. The FAQs seem to indicate that plans that don’t use one of the four benchmarks might be subject to HHS enforcement actions once final rules are issued. This is frightening, as the statute allows penalties, including fines up to $100 per day for noncompliance.
We expect large employer industry groups to press HHS on these issues and ask for more lenient guidance for large insured and self-funded plans. Let’s hope that HHS reconsiders these issues before it announces proposed regulations.