One criticism of the Affordable Care Act is that it imposes a costly, one-size-fits-all standard, drastically increasing premiums by requiring everyone to buy health insurance that covers the same mandated benefits. This is not so.
It’s true that the health reform law imposes some requirements — “essential health benefits” — on what individual market and small business plans offer. But the statute left a lot of discretion to federal regulators, who, in turn, passed much of it on to states, each of which interpreted the requirements differently. And, because most plans already covered these so-called essential health benefits, the additional cost of the regulation is small.
The mistaken notion that the Affordable Care Act imposes a nationally uniform set of required benefits comes, perhaps, from language in the statute itself. It lists 10 broad areas of essential health benefits plans must cover, including hospital, outpatient and emergency services, along with related laboratory services; maternity, newborn and pediatric care; prescription drugs; rehabilitative and habilitative services and devices;mental health and substance abuse treatment; and wellness and chronic disease management.
Though that’s a fairly comprehensive list, including areas of care one would typically expect of a health insurance plan, it’s not specific. What does it mean, for instance, to cover “prescription drugs”? Must all drugs be covered? If not, which ones?
How regulators addressed these questions is what gave rise to state variation.
The law delegates authority to the secretary of Health and Human Services to flesh out which benefits plans must cover. As my colleague Nicholas Bagley wrote with his co-author, Helen Levy, this presented the secretary with a dilemma. Defining essential health benefits narrowly would lead to lower-cost plans but would also leave more care uncovered, rendering that care unaffordable for some patients. A broader definition would increase premiums, potentially making health insurance too costly for some people the health law was designed to help.
The secretary resolved this by leaning on the benefits standards already established in each state as of 2011. To fill in coverage requirements details, the secretary permitted each state to select an existing plan within its borders, from a number of options, to serve as a benefits “benchmark.” Whatever was covered in the benchmark plan would set a benefits floor. Health plans could cover additional benefits, but not fewer.
According to the Leonard Davis Institute of Health Economics at the University of Pennsylvania, which analyzed information from the Centers for Medicare & Medicaid Services, 45 states and the District of Columbia ended up with a small-group plan as their benchmark, two chose a state employee plan, and three chose the largest H.M.O. For the most part, the selected benchmark plans provided coverage in the 10 areas of essential health benefits required by the federal law, but to different degrees. And where they did not, each state was permitted to fill in with its own, additional standards.
Independent reports from The Commonwealth Fund and the Leonard Davis Institute give examples of the considerable state-to-state variation in required benefits offered to individuals and by small employers, those with 100 or fewer workers.
For example, the Leonard Davis Institute found that five states do not require coverage of chiropractic services, and half of those that do permit a range of limits on number of visits per year; only five states requireacupuncture coverage; only 19 states require infertility treatment coverage; plans in 26 states must cover autism spectrum disorder; 31 must do so for temporomandibular joint (T.M.J.) disorders, which can cause jaw joint painand dysfunction; 23 states require bariatric surgery coverage; and 12 require coverage for nutrition counseling and three for weight loss programs.
These new requirements didn’t add a great deal of cost. Nearly all small-group plans already offered the benefits in the benchmark plan, as did most individual-market plans.
Analyses by the Congressional Budget Office and the Department of Health and Human Services both showed that benefits required by the health care law have almost no effect on premiums for small-group plans. For individual-market plans, the C.B.O. and several actuarial firms suggested that required benefits increase premiums by as little as about 3 percent, though some estimates are as high as 9 percent.
Critics have some fair points. The Affordable Care Act imposes a number of requirements on new plans, like limits on out-of-pocket costs, that do add substantially to premiums. But those requirements do not affect what benefits are covered.
Essential health benefits regulations also play a cost-limiting role. Though the federal government pays premium subsidies to low-income enrollees in exchange plans, any additional subsidy cost resulting from standards states impose beyond those in selected benchmark plans must be borne by states. This forces the states to think carefully about new benefits mandates, since they can’t pass their subsidy costs on to the federal government.
The secretary of Health and Human Services must revisit the essential health benefits periodically. Another debate about what they are and how much discretion should be left to states is not far off.