The ACA and EHB

At the outset, it is important to clarify the fundamental nature of the Patient Protection and Affordable Care Act (ACA). Unlike Israel’s uniform national health reform scheme, the ACA did not displace prior coverage law through detailed, preemptive federal standards. Instead, responding to the cultural, constitutional and legal framework of the United States, the ACA law is designed to take what might be thought of as an interstitial approach by building out the previous, highly pluralistic coverage regime.

This pluralistic regime consists of numerous separate bodies of laws governing health insurance and employer-sponsored health plans. Employment-based coverage continues to dominate the working-age population, and plans offered by private employers continue to be governed by the ERISA (29 U.S.C. § 1001 et seq.). Although ERISA does require coverage of a handful of treatments and procedures (including the preventive services coverage mandated by the ACA for most forms of health insurance) (29 U.S.C. § 1181-1185d), ERISA continues to give larger employers, as well as employers of any size that self-insure their plans, wide latitude over what they will cover (PPACA § 1563). Similarly, public employee plans continue to be regulated by the laws that establish them, with larger plans continuing to be free to design their benefits. Medicaid, the shared federal/state public insurance program for the poor and medically vulnerable, continues give states considerable discretion over coverage for their traditional populations. Medicaid also gives states the option whether to extend eligibility to all low income adults as a result of the United States Supreme Court’s 2012 decision in National Federation of Independent Businesses v Sebelius striking down the law’s intended expansion for poor adults as an unconstitutional mandate (124 S. Ct. 2566). Medicare continues as a federally administered, federally regulated public insurance program governed by its own benefit design rules.

Still, the ACA contained revolutionary provisions whose purpose is not only to create affordable and accessible insurance for people who previously lacked it but also to strengthen and improve the quality and scope of coverage in the redesigned individual market as well as the small-group market. This second aim is captured in the ACA’s ‘EHB’ standard, which was a response to evidence of pervasive coverage gaps, limits and exclusions in policies sold to individuals (Pollitz et al., 2001) and small groups (IOM, 2012).

The ‘EHB’ requirement applies to two distinct private markets and one public insurance market. First, the definition applies to the ‘small-group’ market of ERISA-governed employer-sponsored health plans in the case of plans that cover ‘small’ groups (defined as 50 full-time employees or fewer except in states that opt for a higher cutoff up to 100 full-time workers) (Protecting Affordable Coverage for Employees Act, Pub.L. 114-60) that do not self-insure. Although insured employees in the United States are more likely to work for larger firms and firms that self-insure (Claxton, Reference Chinitz, Meislin and Alster-Grau2008 [Reference Chinitz, Meislin and Alster-Grau2002]) the small-group insurance market accounts for about 15% of the US population.

Second, the EHB standard applies to policies purchased in the individual insurance market, including ‘qualified health plans’ sold to eligible people on a subsidized basis through the health insurance marketplace (PPACA § Reference Plotnik and Keidar1302) who are seeking an affordable private insurance alternative because they lack either employee benefits or eligibility for public insurance (Gunja et al., Reference Grace, Noonan, Cheng, Rubin and Rosenbaum2016). As of July 2016, ~11.1 million people were insured through marketplace plans, and about 85% of those with marketplace coverage received subsidies (Center of Medicare and Medicaid Services, 2016). Another several million people obtain coverage through individual policies sold outside the marketplace (Levitt et al., Reference Kaplan and Baron-Epel2016), although many of these plans are covered by grandfathering rules that allow them to maintain an ACA-non-compliant benefit design through the end of calendar year 2017 (Counihan, 2016).

Third, the EHB standard applies to the adult Medicaid expansion population, whose numbers surpassed 9.6 million people by June 2016 according to the federal government (USDHHS/CMS, 2016). The EHB standard is both more and less generous than traditional Medicaid coverage standards. About one out of every six Medicaid enrollees is a newly eligible adult now included because of Medicaid expansion (states can and do supplement the EHB coverage floor with additional, traditional benefits) (Rosenbaum et al., Reference Rosen2016).

In sum, the EHB statute reaches the small-group insurance market, the individual private insurance market and the Medicaid expansion market. In 2011, the Institute of Medicine (IOM) estimated that by 2016, ~68 million people would be enrolled in a form of health insurance subject to its terms (IOM, 2012), elevating the importance of the EHB standard.

What makes the EHB standard so potentially far-reaching is that it is positioned to set a federal minimum coverage standard for state-regulated private insurance sold in the individual and group markets that previously lacked such a floor. Under constitutional principles of federal preemption, this coverage floor thus implicates a vast body of state insurance laws that regulate the individual and small-group insurance products. Furthermore, the EHB statute, while confined to a relatively small slice of the employer market, represents a marked departure from ERISA law and custom, since it potentially raises the standard of coverage in the small-group market. The EHB standard thus presents a major policy issue: To what extent should federal law displace the primacy of state insurance regulatory laws, including the prior body of state law governing the individual and small-group markets? It also raises substantive policy issues of which benefits should be included as EHB.

Implementation of the EHB standard

Implementing the EHB coverage standard has meant confronting several distinct challenges. The first is how much to displace state laws that impose a lower standard. This challenge in turn raises both legal and political concerns given the pull of the federalism tradition. The second challenge is financial. Too broad an interpretation of the provision raises the cost of coverage, and while health insurance subsidies in the marketplace constitute an open-ended legal entitlement, the focus on keeping the cost of public subsidies down is as intensive as it is with Medicare and Medicaid. The question has become how to advance this regulatory foray into the meaning of insurance coverage while maintaining cost controls and finding a way to reconcile the EHB standard with a blizzard of variable state laws.

The course of implementation, which was delegated to the Secretary of the United States Department of Health and Human Services (HHS) begins with the legislation itself, which is a mass of inconsistencies and contradictions. The statute directs the HHS Secretary to ‘define’ EHB. In doing so, however, the law not only sets forth 10 broad benefit categories but also directs her to address ‘the items and services’ within each covered category. In other words, the Act establishes 10 coverage categories and then instructs the Secretary to define – at a specific ‘item and service’ level – what will be covered within each category. Furthermore, the statute bars the Secretary from using coverage standards, benefit design standards, payment standards or payment incentives that discriminated in coverage on the basis of disability or expected length of life. Taken together, these requirements appear to amount to a national legislative directive to the HHS Secretary to establish a nationally uniform, granular coverage standard that displaces not only broader and potentially vaguer state laws but also the discretion of insurers to decide, within any broad coverage category, exactly what treatments and services they will cover.

At the same time however, the ACA, and its specific EHB coverage standard, established two crucial caveats. Both of these caveats ultimately would exert strong practical and political pressures on the federal implementation effort. The first caveat was preservation of state primacy to regulate health insurance. This primacy could be read as extending only to insurance markets not superseded by the EHB standard. But read to its fullest extent, the preservation of state powers could be interpreted as a cautionary light governing how far HHS should go in implementing the standard. Furthermore, because state insurance laws are so variable, this decision to rest the ACA atop state insurance law virtually meant that somehow the standard had to be reconciled against highly variable coverage requirements. This variation is not only from state to state; additionally, states vary in the level of regulation they apply to distinct markets, with stricter rules for the large group insurance market and more relaxed rules in the smaller and less stable small-group and individual markets.

The second caveat – and one reminiscent of the Clalit point of reference in Israel’s health reform experience – is the requirement that in defining coverage, HHS is expected to adhere to the coverage standards reflected in a ‘typical employer plan’ [PPACA § 1302(B)(2)(A)]. The law offered no definition of what a ‘typical employer plan’ consists of, other than 10 essential benefit coverage classes (ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services including behavioral health treatment, prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive services and chronic disease management, and pediatric services, including oral and vision care) [PPACA § Reference Pollitz, Sorian and Thomas1302 (b)(1)] (as it would turn out, at least two major benefit classes – habilitation and pediatric-specific benefits – were not features of ‘typical’ employer plans, an obvious contradiction). Beyond lacking a definition of the employer benchmark, the legislative language of the ACA also overlooked the fact that the scope and depth of coverage in terms of the range of benefits offered may differ significantly depending on whether the employer is large or small.

Added to the vagaries of the EHB statutory terms is another crucial aspect of coverage in the United States – cost sharing. Because the cost of health care is so uncontrolled (Frankford and Rosenbaum, 2017), private health insurance has eroded substantially and now includes sizable deductibles that vary by plan design, as well as elaborate copayment and coinsurance requirements that vary with the type of treatment and the setting of care. Not only do Americans bear the full cost of uncovered treatments, items and services, but depending on whether their covered services are delivered ‘in network’ or ‘out of network’ their direct financial obligations also can vary and can be quite substantial.

The ACA did not eliminate this problem; indeed, it effectively locked the problem into law by sanctioning the use of substantial cost sharing in health plans, including those sold in the marketplace. This sanctioned use is expressed in ‘metal tiers’ tied to actuarial value. The standard silver plan, to which marketplace subsidies are tied, must achieve an actuarial value (the amount of premium allocated to payment for covered claims) of 70%. Plans can have actuarial values as low as 60% (bronze plans) and as high as 90% (platinum plans). The law does set upper limits on deductibles that are tied to the permissible deductibles used in the high-deductible health plan market [PPACA § 1302 (c) (3)]. But in 2016 this upper limit exceeds $6500 for an individual and $13,000 for a family (Internal Revenue Services, 2016). Within this stew, the ACA permits insurers to design their own cost-sharing rules, as the resulting design is considered non-discriminatory on prohibited grounds (although federal standards are vague on what would be considered discriminatory) (C.F.R. § 92.207).

HHS was thus expected to wade into this confusing and contradictory set of Congressional directions: establish the rules of coverage but follow (undefined) employer plan parameters; exercise preemptive controls but reconcile those controls with federalism principles and state regulatory primacy; move toward uniformity but respect the discretion given insurers to come up with their own Byzantine cost-sharing rules. In doing so, HHS turned for help to the United States Department of Labor, which regulates ERISA plans of all shapes and sizes. As it turned out however, and again reminiscent of the Clalit problem, even the Department of Labor could not say with any certainty what is covered under a ‘typical’ employer-sponsored health plan. A report entitled ‘Selected Medical Benefits’ prepared for HHS by the Labor Department in 2011 (Labor Department, Reference Saltman and Figueras2011), used information from the Bureau of Labor Statistics to try to answer the ‘typical’ question. Based on data from a representative sample culled from 36,000 employers, the study relied on plan summaries filed annually with the agency, which provide only the most cursory overview of coverage. For example, while the report indicated that 99% of plans from the most recent survey years covered hospital room and board with 92% requiring some level of patient cost sharing, the report lacked the type of details needed to arrive at what might be thought of as a national coverage standard.

The limited information from the Labor Department was further complicated by the fact that, as noted, several EHB service categories and sub-categories had no counterpart in the employer market; thus, there was no real frame of reference. For example, the habilitative service sub-category had virtually no counterpart under typical employer plans. Indeed, the Department of Labor 2011 report made absolutely no mention of habilitative services. Furthermore, while about half of all states now mandate coverage for habilitative treatments for children with autism, others do not, and many types of developmental conditions remain unaddressed entirely under state law. Other EHB coverage categories, such as pediatric services, simply are not recognized as a distinct coverage category under typical employer plans, other than, perhaps, for well-child exams; if references to pediatric coverage appear at all, they tend to do so as expressed exclusions of behavioral health treatments for children that are educational in nature (Grace et al., Reference Frankford and Rosenbaum2014). Indeed, the 2011 DOL survey showed that only 70% of plans explicitly provided for such coverage (a not-unexpected result given both the tendency of plans to describe coverage in general terms (e.g. inpatient care, medical care) (Labor Department, Reference Saltman and Figueras2011).

In sum, HHS was tasked with modeling a national coverage design based on a ‘typical’ employer plan that, as it turned out, either did not exist or else could not be described with particularity. Furthermore, the agency also had to reconcile benefit design with an actuarial standard (similar to the Israeli tradeoff between coverage and financial viability of the system) well below the typical employer plan (70% rather than 80%) (The United States Department of Health and Human Services, Assistant Secretary for Planning and Evaluation, 2011) for all but the lowest income purchasers who qualify for substantial cost-sharing assistance as well as premium subsidies. Keeping coverage affordable in the world’s most costly health system thus became an issue of paramount concern, particularly since the working assumption was that initial enrollees would be more likely to have serious health problems, thereby affecting the financial viability of the insurance market (Donohue et al., Reference Counihan2015).

Regulatory implementation of the EHB coverage standard

Faced with these contradictions, and with limited help available from the Department of Labor, HHS turned to the Institute of Medicine (Subsequently renamed the National Academy of Medicine in 2015), a Congressionally established scientific body that undertakes health policy-related studies on behalf of the federal government and others. The charge to the IOM, which delivered its report in 2011 (full publication came in 2012) was not to define the specific benefits and services that should be included in the EHB package, but to provide guidance on ‘policy foundations, criteria and methods’ the Secretary should consider in establishing and later updating coverage in light of both the 10 required coverage classes and the directive that she reference the ‘typical employer plan’ in doing so. In so doing, the study committee was to assess insurers’ approaches to the question of coverage (in particular the question of medical necessity), as well as approaches in aligning the terms of coverage with other aspects of the law, including its non-discrimination requirement.

Reflecting the fundamental thrust of the EHB statute – to create a nationally uniform benefit design that reflected a typical employer plan and balanced a wide range of interests – the IOM recommended a national benefit design tied to premium spending benchmarks that reflected the contours of a typical employer package, as identified by the IOM through extensive review of employer plans and approaches taken by major insurers. In effect, the IOM recommended a strategy strongly reminiscent of the Israeli approach, that is, a set expenditure target tied to broad coverage terms, with discretion for insurers to interpret the terms of coverage and with the broad standards updated regularly. As for states, the IOM envisioned a role in which states were tasked with testing alternative approaches to coverage for specific conditions and treatments. In other words, the IOM came down on the side of a unified, preemptive federal approach.

Although HHS’ ultimate approach to implementation surprised many but made basic sense given the confusion of the legislative language itself, the political and constitutional tensions, and the need for a pragmatic solution that could move the nation toward full implementation of a benefit design affecting nearly 70 million people (Bagley and Levy, Reference Bagley and Levy2014).

In December 2011 – with time getting short (insurers would need years to develop, price and obtain federal and possibly state approval for their benefit packages, which had to be ready for sale on the Exchange by the fall of 2013) and before the IOM report was finalized – HHS issued a coverage bulletin (HHS Essential Health Coverage Bulletin, Reference Gunja, Collins, Doty and Beutel2011) that amounted to a full-blown rejection of the IOM vision of national uniformity that combined broad and preemptive coverage terms with discretion to insurers and actuarial values. Instead, HHS opted for an approach under which each state would set its own EHB ‘benchmark’ plan in accordance with selection rules designed to ensure that state selection would focus on its most popular plans. If a state did not select (and many, resisting the law, threatened not to do so), then the federal government would select the state’s most popular small-group plan. Each state (or the Secretary in the absence of state action) would then be expected to adjust its benchmark in order to conform its design to the 10 EHB coverage categories (e.g. adding in habilitative benefits or pediatric vision and oral coverage). States were given guidance on how to define pediatric oral and vision care as well as habilitative services, all of which were likely to be absent from underlying state insurance regulatory schemes.

In sum, the federal standard effectively became a federally adjusted state standard, leaving in place the coverage variability among the states while raising the overall terms of coverage to a minimum federal level reflecting the 10 broad EHB classes. The final formal regulations, issued in 2013 months before enrollment began echoed the Bulletin. Later policies would very slightly refine this approach but only around the edges. For example, subsequent policies required parity (i.e. broad equality in terms of quantitative limits) between habilitative and rehabilitative services (C.F.R. § 156.115) and offered a more unified approach to defining the term. But as implemented, the federal EHB framework operates in the interstices of state law rather than comprehensively supplanting it.

In the 34 states that as of 2016 rely on a federally administered health insurance marketplace rather than establishing their own exchanges (Kaiser Family Foundation, 2016), the federal government has been willing to be somewhat more directive. Thus, its 2017 plan year issuer letter, which offers policy guidance to issuers selling marketplace plans (United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, Center for Consumer Information and Insurance Oversight, Reference Claxton2016) encourages issuers to sell more standardized cost-sharing options in order to enable consumers to draw more meaningful distinctions among coverage design. But the federal marketplace continues to rely predominantly on the health plans licensed for sale in that state, with only limited federal adjustments to reflect the broadest contours of the EHB statute. In effect, the combined pressures of federalism, affordability, legislative confusion and the politics of US health policy has meant that – despite legislative language that could have legally supported a more robust federal approach similar to that found in the Israeli system – the Obama Administration chose a practical approach. Recent developments suggest a slightly greater federal willingness to intervene in coverage design, at least insofar as encouraging a more standard approach to patient cost sharing is concerned. But the federal role is one of light steering rather than dominance.