By Joe Touschner

The Affordable Care Act will bring health coverage within reach for millions of uninsured people. The law, though, doesn’t answer the question of exactly what that coverage will look like–that is, what benefits it will cover. The law charges the Secretary of the Department of Health and Human Services to define an essential health benefits package that will be the basis for coverage in the individual and small group markets, including exchange plans, as well as some Medicaid beneficiaries. In all, about 68 million people are expected to be covered by plans required to offer the essential health benefits (EHB) once the ACA is fully implemented.

Defining the EHB is no easy task, so at least the ACA provided the Secretary with some help: it directed the Institute of Medicine (IOM) to recommend a method for defining and choosing the essential health benefits. Today, the IOM released its recommendations to the Secretary. As with so many health reform topics, there are a number of positive points, but also some concerning ones.

• Overall, the report recommends public, transparent processes for determining and updating the EHBs.

• The IOM recommends that HHS establish a target premium first, then tailor a benefit package that fits into that budget. Making coverage affordable is the primary goal of the Affordable Care Act, so costs must be an important consideration. But as the IOM recognizes, costs must be balanced with making sure those who gain coverage can access the benefits they need. Starting with a premium target must not be allowed to keep vital benefits off the table, especially for children.
• The recommendations urge that determinations of medical necessity be made on an individual basis, not be defined as part of the benefit package. This is a key point of flexibility that will allow patients and their health care providers to make important care decisions.
• The Affordable Care Act requires that the EHBs reflect the benefits offered in the typical employer health plan. The IOM determined that because exchanges will offer coverage in the individual and small group markets, the appropriate comparison should be plans offered by small employers. Because larger employers tend to offer more generous plans, using small employers as the comparison will limit benefits in the EHB. While this might make sense as the small group insurance market transitions from its current practices, over time more comprehensive coverage should be a goal. Fortunately, the IOM’s report does recognize that comparison small employer plans must be modified to assure that they offer the ten categories of benefits that the ACA requires to be included in the EHBs.

• The IOM’s report recommends that states that operate exchanges should be allowed to alter the EHBs to better fit state needs, but only if the state’s benefit package meets the criteria outlined by the IOM, is determined through a transparent public process, and is equivalent in value to the EHBs defined by the Secretary. If these protections are strictly adhered to, this could be an appropriate way to give state exchanges and Medicaid programs flexibility.

• The report strongly recommends that the implementation of the EHBs be monitored closely so they can be updated and improved over time. It recommends that the EHBs be updated annually and that a National Benefits Advisory Council be established to advise the Secretary on updates. This seems like a prudent way to make sure there is a way to make needed adjustment to the balance between cost and comprehensiveness.

While the IOM’s recommendations are an important step in defining the EHBs, they are just that–recommendations, and in fact are recommendations for the methods for determining the EHBs, not the EHBs themselves. The Secretary of HHS has the crucial authority to set the EHB package. We expect some kind of proposal on the definition before the end of 2011 and a final decision by the middle of 2012. In the meantime, we’ll be studying the IOM’s report more closely, so stay tuned for more on EHB.