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Defining Essential Health Benefits and Defining Away States’ Rights

The Obama Administration commissioned the Institute of Medicine to recommend an appropriate methodology for determining what health benefits will be included in most health plans under Obamacare. On October 6, 2011, the Institute of Medicine (IOM) issued its 297-page report that the Obama Administration will use to define what is included in the “Essential Health Benefits” (EHB) list.[1] The Department of Health and Human Services (HHS) is expected to define the EHB no earlier than May 2012.[2]

Hundreds of lobbyists and other interested parties issued comments to the IOM trying to influence the outcome of their report.[3] For health care providers, the contents of the EHB will determine what a large proportion of America’s health plans will pay for their services. For individuals, the EHB will determine not only what their plans will cover but how expensive the premiums will be. The IOM’s report says it this way,

A tradeoff exists between the inclusiveness of benefits, the cost of the insurance product for the consumer and the sustainability of subsidies for the taxpayer. If the appropriate balance between comprehensiveness and affordability is not attained, there are tangible repercussions....[4]

The report recommends a multi-step analysis that begins with benefits found in typical small business plans, applies to that list certain criteria set out by the IOM, and finally adjusts the list so that its final cost will be comparable to what a small business health plan will cost in 2014.

The problem for the states is that the Federal EHB standard limits the states’ ability to choose for themselves what must minimally be covered in health plans. In many instances, Obamacare will require states that have mandated benefits that are not included in the EHB to pay for these benefits out of their already cash-strapped budgets.

For example, California is one of twelve states that mandates that health plans include acupuncture services.[5] If the federal EHB definition does not include such services, then California will have to pay for acupuncture services by reimbursing certain insurance companies and, in cases where federal insurance subsidies are being used, reimburse either the federal government or the individual.

As elsewhere within Obamacare, the statute provides for a waiver of the EHB requirements through the “State Innovation Waivers,” but this won’t be available to the states until 2017.[6]

In perhaps a pragmatic gesture, the IOM is recommending that the Obama Administration give special waivers to states in the meantime. They suggest that while HHS is charged with defining the Essential Health Benefits, nothing prohibits them from issuing “variations” of the EHB for particular states.

But more Obamacare waivers in the middle of an election year may have political consequences. The Obama Administration has already been criticized for granting 1,500 plus waivers of Obamacare’s annual limit requirements[7] and 16 states have asked for waivers from Obamacare’s Medical Loss Ratio which they claim would stifle health insurance competition by disrupting individual insurance markets in their states.[8]

Bill Wilson, President of Americans for Limited Government says, “It’s outrageous that under Obamacare states have to grovel to politically appointed federal bureaucrats for waivers in order to get the ‘flexibility’ they need to serve their citizens.”

Besides the political consequences, the recommended waivers many not be legal. IOM’s recommendation that HHS issue EHB waivers is based on an optimistic but dubious legal justification for the expansion of HHS’s statutory powers. It is doubtful that Congress intended HHS to issue such waivers when they specifically provided for the EHB to be waived no earlier than 2017 through “State Innovation Waivers.”

But even with the potential waivers of the EHB, states would be limited in what they can mandate. The IOM recommends that waivers be granted only in cases where the state EHB variation is the “actuarial equivalent” to the federal EHB definition. In other words, the state list of covered benefits would have to cost the same as the federal list of covered benefits. But for states that want to cover additional benefits, the only way to make costs equal after adding such benefits is to remove other benefits.

Says Wilson, “This is just another example of why Obamacare’s one-size-fits-all prescription is bad for American healthcare.”


1 Cheryl Ulmer, et al., Institute of Medicine of the National Academies, Essential Health Benefits: Balancing Coverage and Costs, Prepublication Copy: Uncorrected Proofs (2011) available at http://www.iom.edu/Reports/2011/Essential-Health-Benefits-Balancing-Coverage-and-Cost.aspx.

2 Kate Nocera, HHS names federal exchange vendors - I-OMG! The essential benefits report edition - Schwartz gets 113 signatures for SGR repeal - House Approps want GAO to investigate DME bidding, POLITICO PULSE, Oct. 7, 2011, http://www.politico.com/politicopulse/1011/politicopulse597.html.

3 Obamacare Rent Seeking: Acupuncturists, Chiropractors, Plastic Surgeons, and Others Lobbying to be Defined “Essential,” OBAMACARE WATCHER, Aug. 25, 2011, http://obamacarewatcher.org/articles/220.

4 Supra note 1 at 9-20.

5 Victoria Craig Bunce, Director of Research and Policy, and JP Wieske, Director of State Affairs, Council for Affordable Health Insurance, Health Insurance Mandates in the States 2010, (2010) at 13.

6 Patient Protection and Affordable Care Act of 2010, 111 P.L. No. 148 § 1332.

7 The Center for Consumer Information & Insurance Oversight, Annual Limits Policy: Protecting Consumers, Maintaining Options, and Building a Bridge to 2014, updated Aug. 19. 2011, http://cciio.cms.gov/resources/files/approved_applications_for_waiver.html.

8 Kate Nocera, Part D gets a debate moment - ACA opponents see opportunity in jobs focus - CMS will continue 'secret shopper' program for Medicare Advantage marketing, POLITICO PULSE, Sept. 13, 2011, http://www.politico.com/politicopulse/0911/politicopulse579.html.