The Secretary is charged to define the essential health benefits (EHB) and asked the Institute of Medicine (IOM) for advice on a process for this task. The committee outlines steps and criteria to achieve the initial EHB set: first, building from the statutory requirements of a typical employer plan (with the committee recommending that small employer be used to define what is typical) and 10 categories of care; next, applying the committee’s recommended criteria to assess the package as a whole and for individual components (Figure S-2 in the Summary); and then, adjusting the content so that it could be accommodated under the expected national average premium for a silver plan for a small employer in 2014. The final adjustments should be informed by a public deliberative process that advises on preferences in making tradeoffs. The committee’s advice for the Secretary’s guidance to insurers and the exchanges on the content of the EHB is to give the greatest degree of specificity that current national data and best practices in subscriber (enrollee) contracts allow. Additionally, the committee offers suggestions for secretarial guidance with respect to the required elements for consideration and medical necessity.
Before insurance products that are required to incorporate the essential health benefits (EHB) can be developed, the Secretary of the Department of Health and Human Services (HHS) must define which benefits constitute the EHB package. The Patient Protection and Affordable Care Act (ACA) directs that the scope of this package should reflect benefits offered in typical employer plans and the 10 broad categories of care listed in Section 1302 of the act. In the previous chapter, the committee reached several conclusions related to the legislative language:
• The scope of a typical employer plan should be based on what is typically offered by small employers.
• Because the specificity of national data on covered benefits in the small employer market is limited, scope should also be interpreted to mean equal financial value to a typical small employer premium.
• Every service or item that might be classified within the 10 categories or the typical employer plan is not essential.
• To ensure a more consistent national benefit package, initial secretarial guidance should include as much specificity as can be developed from current best practices in plan documentation because the EHB will be implemented in policies and programs across multiple jurisdictions each with its own state-based oversight body.
These conclusions and the committee’s previously listed criteria frame the process, outlined in this chapter, by which this IOM committee recommends that the Secretary define the EHB. The process starts with the content and structure of the typical small employer plan and then broadens the coverage to incorporate ACA-required categories that are not usually found in those packages (Box 5-1). Because the package must be affordable to individual purchasers, employees of small firms, and public funders, the committee recommends balancing the comprehensiveness of the package offered against its potential cost and explores several options for incorporating costs into the EHB definition before recommending a specific approach. Additionally, the committee comments on the issue of secretarial guidance regarding the specificity of the EHB package, “required elements for consideration” as stipulated by Section 1302(b)(4)(A) through (E), and definitions of medical necessity.
Typical Small Employer Policy
The ACA calls for the scope of benefits to reflect those typical of employers today; the committee recommends that the small employer market define what is typical at the outset. The level of specificity in benefit definition varies across insurance plan documents, often making it difficult to assess if a benefit is covered or simply not listed in a plan document. Given the paucity of data to determine typical benefits, the Secretary will likely have to be guided by the contents of plans that provide more detailed coverage information. To make concrete the level of coverage that characterizes current contracts covering millions of employees working for small firms, the committee collected information provided from three major insurers to illustrate which covered benefit inclusions are national in scope and which are covered only in some states because of market conditions and state mandates (Appendix C). The committee was not able to assess whether these are “typical” of the entire small group market, but this plan coverage detail provides a starting point for developing a list of EHB content that can be refined by both additions and deletions during the following steps.
1. Develop the Starting Point for the EHB
a. Start with a typical small employer plan based on available knowledge
b. Develop preliminary service list (with inclusions and exclusions) to fulfill 10 categories
c. Apply the committee-developed criteria and adjust the preliminary list as necessary
2. Incorporate Cost into the Development of the Initial EHB
a. Assess the cost of the package developed in the first step
b. Develop a target budget for the EHB (e.g., national premium target based on typical small employer plan)
3. Reconcile Preliminary List to the Premium Target
a. Publicly identify actuarial expenditures for components for possible tradeoffs
b. Receive guidance on priorities from public deliberation processes and other public participatory processes
c. Review final list by reapplying IOM committee criteria to evaluate the aggregate package
4. Issue Guidance on Inclusions and Permissible Exclusions
Meeting the 10-Category Requirement
The committee noted that the typical employer plan in either the small or large group market does not include all of the 10 categories of care specified in the ACA; therefore, the Secretary must next identify the gaps. In its review, the committee found that some areas—habilitation, mental health and substance use disorder services, some wellness services and chronic disease management, and pediatric oral and vision care—appear less likely to be covered in standard commercial subscriber contracts. Pediatric oral and vision care have been available as policy riders, and the contents of those policies can be examined. Habilitation and much of mental health, substance abuse, and behavioral services have largely been left to the public sector. The committee is guided by the unambiguous direction of Section 1302 to start with a commercial health insurance benefit; however, it suggests that the Secretary compare, in particular, how Medicaid plan benefits for habilitation and mental health and substance abuse services compare with commercial plans that currently include such services. For example, Maryland has requirements to cover habilitative services in children under the age of 19 in its Comprehensive Standard Benefit Plan for Small Businesses although the small business products are not subject to all state-mandated benefits (Maryland Insurance Administration, 2009; MHCC, 2011). On the basis of this review, the Secretary would add selected services to the preliminary list to fulfill the 10-category requirement.
Consistency between the exchange-defined benefits and traditional Medicaid program benefits would reduce the benefit gaps experienced by the large number of people who move between the two types of insurance (Sommers and Rosenbaum, 2011). The testimony received by the committee was mixed as to whether such consistency should occur by making exchange benefits look like Medicaid or by changing Medicaid to look like the new exchange policies. The EHB requirement, however, only applies to the Medicaid expansion benchmark and benchmark-equivalent programs, which are designed to more closely resemble private sector plans, not traditional Medicaid.
The committee did not recommend specific service expansions beyond the 10 categories required by the ACA because these, together with the requirement for the scope of services of typical employers, were seen as sufficiently broad and adding categories beyond these, although not precluded, might prove difficult under the committee process that requires consideration of the overall cost of the package.
Applying Committee Criteria
The committee expects that at this point in the process the Secretary will have a long and varied list of potential categories and specific services for inclusion. The description will in all likelihood be a mix of services, conditions, and treatments that range in level of specificity. This heterogeneity reflects current practice, but the committee recommends that the definitions of covered services become more specific over time, as HHS monitors implementation (Chapter 7) and updates the EHB (Chapter 9).
The committee recommends a set of criteria for evaluating both the specific elements for inclusion and the overall package, as well as criteria to guide the process by which the overall package and its elements are defined (see Figure S-2 in the Summary). Specifically, in considering whether particular categories or services are included, the committee recommends evaluating each to determine whether it is safe, effective, likely to enhance patient outcomes when compared with available alternatives, and that the cost is justified by the health gain. Included elements should perform acceptably on all of these criteria. The committee also recommends evaluating the overall set of benefits to determine whether the package is affordable, likely to maximize the number of people with insurance, able to protect the most vulnerable, likely to encourage best practices, consistent with the principle of advancing stewardship of finite resources, likely to protect people against the greatest financial risks, and addresses the medical concerns of greatest importance for the eligible populations.
To accomplish the initial evaluation in the timeframe required for implementation, the committee recognizes that a formal value-based analysis cannot be conducted for each possible service in each benefit category. However, resources are available that can help the Secretary in assessing the relative merits of potential categories or services. Some of these have been used by states in building benefit structures for existing public insurance programs, by insurance companies in developing clinical policies, and in the research literature. For example, in Chapter 2, the committee reviews how the state of Washington applies graded evidence to its decisions on service inclusions for insurance benefits in its public programs (e.g., insurance coverage for state employees) (CMS, 2010; Thompson,
2011). Value-based insurance design and the Oregon prioritized list, as now being adapted for the commercial sector, provide other examples of how the relative values of different services have been evaluated (Kapowich, 2010; Oregon Health Services Commission, 2011; Saha et al., 2010; Smith and Saha, 2011). Using existing assessments, where available, will facilitate the evaluation of categories and services for initial prioritization for inclusion in or exclusion from the EHB package based on available evidence.
Early in its deliberations, the committee concluded that the costs associated with offering the EHB would materially affect the likelihood that the ACA would achieve its goal of significantly reducing the number of people without health insurance. The committee, therefore, incorporates into its recommended process, consideration of overall costs to frame choices about what would ultimately be included in the EHB package. This section examines the committee’s rationale for including cost as a criterion and the various approaches considered before arriving at its recommended approach.
Rationale for Incorporating Costs into the Definition of Essential Health Benefits
The committee had a series of robust conversations about whether to incorporate cost considerations into the definition of essential health benefits and ultimately decided that costs were a critical component of the definition for five reasons.
First, and most importantly, cost provides a useful mechanism to help frame tradeoffs between competing options for inclusion in a benefit package. In fact, the law makes clear that the essential health benefits should reflect the scope of a typical employer plan, and typical employers commonly use premiums as a key element in deciding on the benefit package they will offer employees. For employers, establishing a budget creates one way to explicitly consider benefit package tradeoffs when resources are limited.
Second, in examining the legislative history of the ACA and in testimony received from congressional staff involved in the development of the law, it is clear that improving access to care by expanding the number of people with health insurance was the primary goal of the legislation. Because one important determinant of the number of people who have health insurance is the cost of obtaining coverage (Abraham and Feldman, 2010), the price of the EHB package will influence the ability to achieve the law’s goal.
Third, the committee observed that the cost estimates developed by the Congressional Budget Office (CBO) for the ACA were a key element in its ultimate passage. Those cost projections incorporated an estimate of the average premium price of health insurance to be purchased on the exchanges, which in turn affected the total cost of the subsidy and the cost of the federal portion of Medicaid.
Fourth, the committee reflected on the current concern around the deficit and the impact of existing open-ended entitlements, such as Medicare, on the manageability of the federal budget. From a pragmatic viewpoint, requiring a benefit package that was more expensive than typical packages was not regarded by the committee as consistent with today’s fiscal realities.
Fifth, the idea of having an explicit budget has been recognized as both an ethical and practical precondition for expanding access to care in medicine (Levine et al., 2007). The committee recommends three cost-related criteria—affordability of insurance, stewardship of resources and maximizing access to care—for the Secretary to use to assess the overall EHB package.
For all of these reasons, the committee concluded that the Secretary must use cost to provide guidance in developing the essential health benefits package.
Sources and Approaches to Setting the Initial Cost Target
The committee examined different sources and approaches that the Secretary might use in setting the initial cost target, including (1) CBO’s estimate of premium prices that was used in evaluating the overall cost of the legislation; (2) an analysis done by the RAND Corporation for the Department of Labor (DOL) that evaluated the
effect of design choices in the exchanges on premiums in the individual and small group markets; and (3) a competitive bidding process such as is currently used for Part D in Medicare. These are discussed below to illustrate how the Secretary can incorporate costs into the definition of the EHB.
Fixed Target Approach Based on CBO Estimates for the ACA
The CBO, in a letter to Senator Bayh on November 30, 2009, noted that premiums are set to cover the average amount the insurer expects to pay for services that are eligible for coverage under a plan, plus an amount for administrative expenses, overhead, and profit (CBO, 2009). The costs for covered services reflect the following:
• The scope of covered benefits (the essential health benefits)
• Cost-sharing requirements (deductibles, co-payments)
• The health status of the covered population and the propensity of that population to use health services
• Provider payment rates
• Degree of medical management
These factors interact with one another. For example, research has demonstrated that cost sharing can affect the propensity of people to use services (Newhouse et al., 1981; Rosenthal et al., 2009; Rowe et al., 2008). Provider payment rates may affect both the mix and volume of services offered (Buntin et al., 2009).
The CBO then considered the effect of the proposed legislation on changes to premiums in the small group market and identified differences in three major areas: (1) the amount (e.g., comprehensiveness of benefits, level of cost sharing) of insurance purchased due to changes in the scope of benefits; (2) the price for a specific amount of coverage for a particular group of enrollees; and (3) the characteristics of people obtaining coverage. Table 5-1 shows the CBO-estimated effect on premiums, compared to projected premiums without the law, in the small group market from each of these factors before accounting for subsidies or small business tax credits. The committee noted that the average aggregate effect on premiums in the small group market was small.
Although the committee selects the small group market as the basis for establishing the essential health benefits, it is worth noting that the EHB definition will also apply to policies in the individual market. Based on its microsimulation model, the CBO also estimated the effects of the law on premiums for individual policies, as shown in Table 5-2. The expanded scope of benefits in the individual market, coupled with reduced patient cost sharing, is the main factor contributing to higher premiums in that market under the new law compared to projections of premiums that would have prevailed had the law not been enacted. The committee noted that the effect on premiums in the individual market is much larger than for the small group market.
For illustrative purposes, the committee converted the CBO estimates, which were presented in 2016 dollars, to 2014 dollars because that is the year the EHB policy will take effect. The resulting premiums, compared to premiums if the law had not passed, show little to no change in the small group market but an increase in the individual market premiums (Table 5-3).
|Component Affecting Premiums||Expected Difference Between Premiums in Small Group Market After the Law Compared to Premiums Projected Without the Law|
Difference in amount of coveragea
|0 to +3%|
Difference in price paid for a given amount of insurance coverageb
|-1 to -4%|
Differences in characteristics of insured
|-1 to +2%|
Total (before subsidies)
|-2 to +1%|
|Component Affecting Premiums||Expected Difference Between Premiums in Non-group Market After the Law Compared to Premiums Projected Without the Law|
|Difference in amount of coveragea||+27 to +30%|
|Difference in price paid for a given amount of insurance coverageb||-7 to -10%|
|Differences in characteristics of insured||-7 to -10%|
|Total (before subsidies)||+10 to +13%|
|Type of Policy||Premiums in the Absence
of the ACA
|Premiums After Implementation
of the ACA
|Small Group Market|
Fixed Target Approach Based on RAND Estimates in Department of Labor Study
RAND conducted a study for the Department of Labor examining, among other issues, how some of the design features of the exchanges might affect coverage, health care spending, and choice of insurance (Eibner et al., 2010). The RAND study, which utilized microsimulation modeling, also took a more detailed approach to defining and projecting the behavior of the small group market than had previously been undertaken by any research group. Table 5-4 shows the premiums used in the RAND analysis (which generates premiums within the model rather than using an externally selected price).1 Unlike the CBO analysis, which used a single national average premium, the RAND analysis provides premiums by precious metal tier,2 which demonstrates the effect of the cost-sharing element on the premium. The committee also converted the RAND estimates from 2010 dollars to 2014 dollars because that is the year the EHB policy will take effect.
In designing their exchanges, states have the option to either keep the individual and small group markets in separate risk pools or combine them into a single risk pool. Table 5-5 shows the difference in premiums if the risk pools are separated.3 Because people who are enrolled in the exchanges as individuals tend to be less healthy than those who are enrolled through an employer, the premiums for the individually enrolled population are about 40 percent higher. RAND found that if the risk pools were combined, fewer small employers would offer coverage and many of those who would have otherwise been covered through employer-sponsored insurance (ESI) would choose to enroll in Medicaid.
This analysis suggests that the Secretary may have to take into account some of the design choices being made by states in incorporating costs into the determination of essential health benefits. It also suggests that an estimated
1 This enables an explicit accounting for health status and change in utilization as a result of newly acquiring insurance.
2 ACA Section 1302(d)(1)(A)-(D) describes four “precious” metal tiers of actuarial value (AV): bronze, silver, gold, and platinum; see Chapter 2 for further description of actuarial value and the metal tiers. The EHB are required in each metal tier.
3 Regardless of risk pool, each metal level contains the EHB.
national average premium price for a particular metal level, such as the silver plan, would be reasonable because this is the premium price that is used to determine the amount of subsidy for which an individual is eligible.
|Market||Premiums in the Absence
of the ACA (2014 $)
|Premiums Projected After
Implementation of the ACA (2014 $)
|Non-group (individual market)||7,426||N/A|
|Split Risk Pools (2014 $)|
|Individual||Small Group||Combined Risk Pool (2014 $)|
Competitive Bidding Approach
Rather than the fixed-target approaches described above, the committee also considered a competitive bidding approach similar to that being used for Medicare Part D (prescription drug coverage). Under Medicare Part D, the broad elements of the basic benefit package design are established (e.g., the amount of the deductible, the cost-sharing portion, the level at which catastrophic coverage begins). Plans may offer alternative coverage structures as long as the alternative is actuarially equivalent to the standard plan. Plans may also offer coverage that goes beyond the basic benefit package, but such supplemental coverage is not subsidized by Medicare.
The Centers for Medicare & Medicaid Services (CMS) obtains bids annually from plans wishing to offer coverage in this program. The bids are based on covering a standard Medicare population. CMS calculates a national average premium based on the bids received. Enrollees pay a base premium plus any difference between the bid of the plan they enroll in and the national average. Those electing more expensive plans pay higher-than-average premiums, while those electing less expensive plans pay lower-than-average premiums.
A competitive approach in the context of the exchanges would have to be administered at the state level, and the committee believes that considerable variability exists in the ability of states to execute this function. On the one hand, states are already responsible for reviewing many aspects of plan operations, so this requirement would increase the burden on states that do not have an adequate infrastructure in place to review bids. On the other hand, many states are already involved with competitive bidding in Medicaid managed care programs and Medicaid pharmacy programs, so the existing infrastructure may be available for this option. Given the considerable pressure on state budgets, variability in the states’ infrastructure necessary to support reviews of competitive bids, and the relatively tight timeframe for implementation of the EHB, the committee concluded that this approach was likely not feasible in all states and thus was not an approach the committee recommends to the Secretary.
How Costs Could Be Incorporated into Determining the Essential Health Benefits Package
The committee considered how the Secretary might use the sources of data above to set the initial essential health benefits package within a target cost. Table 5-6 illustrates the steps in the process.
Conceptually as envisioned by the committee, the Secretary would start with a figure like the aggregate CBO estimate for the small group market ($6,933 for an individual policy) or the RAND estimate for a silver plan ($5,474 for an exchange policy in which the risk pools are combined). Because these base estimates were arrived at before the ACA was finalized,4 the CMS Chief Actuary would need to update the “starting amount” for 2014 taking into account the provisions of the ACA that have already taken effect. Because neither the RAND nor the CBO analyses considered in any detail the potential effect of the required 10 categories of coverage on the premiums for those policies, the Secretary would also need to obtain estimates of the incremental costs of expanding the scope of benefits for a typical small group plan from the CMS Chief Actuary. The committee discussed this approach with an actuarial expert and determined that it was a feasible approach.5 Then, the Secretary could obtain estimates from the CMS Chief Actuary on the incremental costs of all other potentially included elements. The Secretary will also have to make some assumptions about the degree to which benefit design, on average, is currently operationalized as a mechanism in controlling premium costs; those assumptions should be made public. The premium target is created as a mechanism for bounding decisions about what will be included in the EHB. It establishes a nationwide budget mechanism for the Secretary to work within when defining the EHB package.
The alternative approach, rejected by the committee, would have been to define the EHB without considering the cost of the resulting package. The committee does not intend for the premium target to be used to specify the premiums that can be established by qualified health plans. In fact, the committee does not believe that the Secretary has the authority to specify a premium for any plan. The premiums set by plans in the market that offer the EHB will vary as they do today. The distribution of resulting premium prices in different locales will reflect the other elements that determine the cost of health insurance: health status of enrollees, propensity to use services, provider payment rates, network design, and medical management. However, the committee’s guidance to the Secretary is to establish the initial package of essential health benefits that are actuarially equivalent to a national average
|Process||Result from Step||Updated Result|
|Starting amount from fixed target sources estimated to reflect a silver plan||$5,474-$6,933||$5,474-$6,933|
|Change due to expanding scope of benefits to any of the required 10 categories not included in small employer plans today||+$168||$5,642-$7,101|
|Obtain actuarial estimates of the incremental cost of each proposed additional element in the scope of benefits||Dollar amounts by individual areas of coverage||Components of overall premium price provided as an actuarial “price list”|
|Conduct public deliberative process to set priorities||Package selected to fall within budgeted range||Final description of the scope of essential health benefits eligible for coverage|
|Final result: benefit package with a estimated national average premium||$5,474-$6,933|
4 Note: The modeling by the CBO and RAND does not typically discriminate the inclusion or exclusion of specific small service categories; deductibles and co-payments are the main drivers of the premium prices observed and/or generated in these models.
5 For example, these estimates could be expressed either as a percentage of current premiums or as a dollar amount per member per month. Overall, the expert estimated for illustrative purposes that under one assumption about expanded scope, premiums might increase by approximately $130 per member per year in 2014 dollars. Removing limits that exist today (lifetime and annual dollar amounts) might increase premiums by $40 per member per year in 2014 dollars. Similar estimates could be obtained by the Secretary from an actuarial consultant.
The central debate in constructing the EHB package has been balancing the comprehensiveness of benefits with their costs so as to promote value. This is not an academic exercise but one that has real repercussions for how many people will be able to afford the premium—because the essential health benefits apply to individual and small group policies both inside and outside the exchanges. Furthermore, it will have an impact on state and federal budgets through subsidies and whether people are able to obtain commercial insurance or need to remain fully on public programs. The committee envisions that the Secretary will be able to calculate the estimated national average premium, as well as obtain the actuarial estimates for the categories and services that comprise the list of potential benefits. These may then be compared to reconcile the list to ensure that the incremental cost of all of the proposed benefits will fit within the premium target.
From an ethical standpoint, if constraints are real and must be acknowledged, this should occur in as fair and just a fashion as possible per the committee’s criteria on methods (see Figure S-2 in the Summary). In evaluating the individual components of the EHB and the overall package, the committee encourages the Secretary to engage in public processes that are transparent, participatory, equitable and consistent, sensitive to value, responsive to new information, attentive to stewardship, encouraging of innovation, and data-driven.
The use of a public deliberative process for setting priorities, as described in Chapter 6, provides an effective method for meeting many of these requirements. Thus, the committee recommends, in this stage of the process, that structured, public deliberation sessions be conducted to set priorities within the concept of a budgetary constraint. Actuarial estimates of different components of benefits and choices in benefit design should be publicly available for consideration in the context of public processes. Recognizing the time limitations for development of implementation guidance to the states and insurers, the committee envisions that a total of 10-15 of these small group meetings could be conducted in different areas of the country by a nongovernmental organization funded by HHS or through philanthropic means. Although the results of this process are advisory only, they must be well structured to permit full dialogue and consideration of possible tradeoffs. These deliberations differ from simply receiving comments through stakeholder meetings, in which individuals or groups promote particular benefits. The deliberations will also serve an important public education function, allowing the public to see the cost tradeoffs among benefits as well as the impact of different co-insurance and co-payment structures. A national public deliberation effort, even with a limited number of participants, can serve as a model for states that wish to replicate the process. The Secretary should additionally seek public comment through the publication of a notice of proposed options for inclusion in the EHB and actuarial estimates associated with those options simultaneously with the public deliberation exercise. The availability of actuarial information will enrich the content of public input through both mechanisms.
Although the committee believes there should be sufficient time to conduct these public deliberations before finalizing an EHB package by May 2012, the committee is also aware that time pressures may preclude the design and execution of a credible process prior to HHS issuing initial EHB details. If so, then the Secretary should arrange for the national public deliberation process to be conducted within the first year following the release of the initial EHB design.
The Secretary is ultimately responsible for the final definition of the EHB. Before finalizing the list, the Secretary should reassess how well it conforms to the committee’s criteria for the contents of the aggregate package (see Figure S-2). The Secretary should publicly identify the rationale behind choices in the final package of EHB that emerges for plans in 2014.
Once the final EHB package has been determined, the Secretary must communicate these decisions in the form of guidance and/or regulation. Again, the committee recommends a pragmatic approach, acknowledging the
reality of mixed methodologies that currently exist in coverage descriptions and working to improve them over time. Ideally, a description of a benefits package should provide clear and consistent guidance to consumers, providers, and insurers, resulting in fair, consistent, and easily understood coverage decisions. As discussed in Chapters 4 and 9, the reality falls well short of this ideal. The committee notes that when guidance lacks specificity, considerable variation will result. The committee urges the Secretary to be as specific as best practices, data, and time allow.
Defining Inclusions and Permissible Exclusions
Consistent with the structure of employer policies, guidance from the Secretary on the EHB must contain explicit direction about categories and services that must be included and those that it is “permissible to exclude.” The categories and services included in the EHB are the only ones that count toward limits on deductibles and co-payments and the only ones to which annual and lifetime dollar limits can be applied. In the absence of specific secretarial guidance on coverage, the resulting packages offered in exchanges will likely vary considerably with respect to what is considered an essential benefit. In contrast, benefit design considerations (e.g., provider network arrangements, medical management, deductibles) will vary and are expected to under the ACA’s metal levels. Although insurers may offer additional benefits in their packages and states may mandate additional benefits, those are not subject to all of the ACA limitations.
The HHS guidance on inclusions and permissible exclusions should be designed to achieve consistent benefit interpretations by qualified health plans, exchange authorities, state-based regulators, medical care providers, and patients. In anticipation of the EHB definitions being issued by the Secretary, various insurers today are coming to different conclusions about what might be excluded as nonessential (Anthem, 2011; UnitedHealthcare, 2011). Plan documents vary in how insurers address exclusions as well as listed inclusions. For example, exclusions might be defined as specific services (e.g., a plan does not cover cosmetic surgery, bariatric surgery, infertility services, or orthodontic care for temporomandibular joint syndrome) or more generally stated (e.g., no coverage for services, drugs, or supplies that are not medically necessary; no coverage for services, drugs, or supplies not required according to accepted standards of medical, dental, or psychiatric practice in the United States; no coverage for services not specifically listed as covered).6Appendix E presents exclusions in the small group market for one insurer; Appendix F lists exclusions from a broader spectrum of plans.
At the outset, the committee does not expect that the Secretary’s list will delineate every service that is covered, because this would require annotation with the medical condition and perhaps circumstances in which it would be appropriate for use (i.e., deemed medically necessary). However, the Secretary will need to identify permissible exclusions. Exchanges need to know if it is permissible to exclude certain services when qualifying a health plan. Guidance should provide the most comprehensive description possible that makes such variables clear and permits reasonable judgments (both substantive and actuarial) of what is covered. As noted previously, even if a service is listed as permissible to exclude from the minimum set of benefits that constitute the EHB and the related EHB limits, an insurer could offer the benefit in one of an array of plans they develop for the market.
The state exchanges and state regulators have an important role in monitoring submitted plan documents to ensure that they do not contain outlier practices that would undermine the intent of EHB coverage; although external appeals data and patient satisfaction surveys will provide important after-the-fact detail, this initial review and comparison of plans seeking to become qualified is critical and knowledge of what has been typical in the state should inform what detail is missing from the national list for most categories of care.
In Chapter 7, the committee discusses the degree of ambiguity in classifying different services and whether certain services are part of the 10 categories or fall outside. There will be considerable pressure on HHS from many stakeholders to have services classified as falling within the 10 categories of care as well as in being part of typical small employer plans. Although the committee’s process allows for inclusion of services that are beyond the 10 categories of care or the typical employer plan, realistically, the premium constraint may not allow additions.
6 The committee is not recommending specific exclusions, which was outside its task; these are illustrative of exclusions in existing plans listed in the Appendixes.
The committee’s direction on specificity in secretarial guidance and movement toward more uniformity is focused on what is covered or permissibly excluded by a plan, not on the level and features of deductibles, co-payments, co-insurance, and out-of-pocket maximums other than those set by the ACA. Some states are considering limits on the number of plans that could be offered in an exchange. It was outside the committee’s task to comment on whether exchanges should be allowed to limit the number of plan selections offered in an exchange.
Presenting General Exclusionary Language
Besides listing service-specific and general exclusions in plan evidence of coverage documents, the committee found the idea of having a standard set of general exclusions attractive so that the simplified six-page documents for consumer comparisons of plans on the exchanges could list whether a plan adopted or varied from a standard set of general exclusions. General exclusion language is often too voluminous to fit in the small space allotted on those consumer documents; for example, the committee found plan documents with seven pages of exclusions. Box 5-2 lists the general exclusions set out by the Office of Personnel Management (OPM) for fee-for-service plans operating within the Federal Employees Health Benefits Program (FEHBP). Plans are allowed to add to the list of general exclusions. For example, the Blue Cross and Blue Shield Service Benefit Plan expands the OPM general exclusions list to contain 30 general and specific exclusions. OPM offers a similar but slightly different set for health maintenance organization (HMO) plans.
• Services, drugs, or supplies you receive while you are not enrolled in this plan;
• Services, drugs, or supplies not medically necessary;
• Services, drugs, or supplies not required according to accepted standards of medical, dental, or psychiatric practice;
• Experimental or investigational procedures, treatments, drugs, or devices;
• Services, drugs, or supplies related to abortions, except when the life of the mother would be endangered if the fetus were carried to term, or when the pregnancy is the result of an act of rape or incest;
• Services, drugs, or supplies related to sex transformations;
• Services, drugs, or supplies you receive from a provider or facility barred from the FEHB Program;
• Services, drugs, or supplies you receive without charge while in active military service;
• Services or supplies for which no charge would be made if the covered individual had no health insurance coverage;
• Services or supplies furnished by immediate relatives or household members, such as spouse, parents, children, brothers or sisters by blood, marriage or adoption;
• Services or supplies furnished or billed by a non-covered facility, except that medically necessary prescription drugs and physical, speech, and occupational therapy rendered by a qualified professional therapist on an outpatient basis are covered subject to plan limits; and
• Charges that the enrollee or plan has no legal obligation to pay, such as excess charges for an annuitant age 65 or older who is not covered by Medicare Parts A and/or B, doctor’s charges exceeding the amount specified by the Department of Health and Human Services when benefits are payable under Medicare, or state premium taxes however applied.
SOURCE: Personal communication with Dean Schleicher, Office of Personnel and Management, July 15, 2011.
Because it was not the committee’s charge to define the EHB, the purpose of Box 5-2 is to illustrate the types of general exclusions that are common today. Under “Required Elements for Consideration” later in this chapter, the committee raises issues surrounding nondiscrimination and exclusionary language in plans.
In summary, the process for defining the aggregate EHB package must derive from its legislative foundations. In designing the EHB package, the committee recommends that the Secretary be guided by the offerings of the small group market, and then modify the package to take into account the more expansive 10 categories of care in the ACA. To balance the comprehensiveness of the total package against its cost, the Secretary will have to evaluate whether the package as a whole meets the committee’s criteria, reflects public priorities, and can be accommodated within the budgetary constraint defined by an estimated national average silver plan premium. As noted earlier, premiums are not based solely on the contents of the package, but reflect other elements of benefit design and administration. The Secretary will have to be explicit about the assumptions about benefit design and administration that should be used in developing the national average premium. These assumptions will influence the content of the benefit package consistent with the premium target level that the committee recommends—tying the target to the silver plan level because this is the premium price level that is used in calculating federal subsidies for plans purchased in the exchanges.
Recommendation 1: By May 1, 2012, the Secretary should establish an initial essential health benefits (EHB) package guided by a national average premium target.
A. The starting point in establishing the initial EHB package should be the scope of benefits and design provided under a typical small employer plan in today’s market. To specify the initial EHB package, this scope of benefits should then be modified to reflect
• The 10 general categories specified in Section 1302(b)(1) of the Affordable Care Act (ACA); and
• The criteria specified in this report for the content of specific elements and aggregate EHB package (see Figure S-2 in the Summary).
B. Once a preliminary EHB list is developed as described in (A), the package should be adjusted so that the expected national average premium for a silver plan with the EHB package is actuarially equivalent to the average premium that would have been paid by small employers in 2014 for a comparable population with a typical benefit design.
C. The Secretary should sponsor a public deliberative process to assist in determining how the adjustments to the EHB package should be made.
D. Initial guidance by the Secretary on the contents of the EHB package should list standard benefit inclusions and exclusions at a level of specificity at least comparable to current best practice in the private and public insurance market.
The committee’s criteria on methods should apply to the overall process of defining the package. When the Secretary decides something should or should not be covered, those specific determinations should be transparent and the rationale made public. Whether the goal of balancing coverage and costs is met through initial definition of the EHB will ultimately be tested during implementation: for example, are projected reductions in the number of uninsured, participation rates in the exchanges, and increased access to appropriate care achieved? In the meantime, the average premium amount serves as a proxy against which benefit coverage is assessed.
This section discusses the required “elements for consideration” (balance, nondiscrimination) and determination of medical necessity. Toward this end, the committee considered in what areas the Secretary could provide additional guidance at the outset beyond the definition of the EHB to help exchanges protect at-risk groups and ensure the adequacy of plans. Although secretarial guidance will be informative, it is monitoring implementation that is the key feature to protect against untoward consequences related to these provisions.
Required Elements for Consideration
The “required elements for consideration” provisions of Section 1302 are designed to address the issue of insurer discretion to design benefits, make coverage decisions, determine reimbursement rates, and establish incentive programs in ways that could potentially discriminate against certain conditions, degrees of illness, or population groups. Per its charge, the committee examined the first four of the required elements for consideration in Section 1302, finding that (1) “balance among categories” and taking “into account the health care needs of diverse segments of the population” require the EHB package to have a focus on population rather than individual needs (e.g., including traditionally underserved populations), while (2) the references to nondiscrimination and to individual wishes focus on individual needs (Box 5-3). If the Secretary defines the EHB in accordance with committee’s policy foundations (Chapter 3), these dual interests will be accounted for, but during implementation at the state level, monitoring will be necessary to ensure that practice meets principles.
Balance Across Categories and Diverse Segments
“The Secretary is to ensure that the EHB reflect an appropriate balance among the categories … so that benefits are not unduly weighted toward any category.” The committee concluded that there is no simple way to address this element. The EHB should incorporate a spectrum of care that meets the evidence-based needs of the varied medical conditions and services that a diverse population of patients requires.
In response to the committee’s online query about balance and diversity, various approaches to assessing performance on these dimensions were suggested.7 Both employers and insurers tended to support having balance across categories defined by a marketplace norm of typical employer plans. The committee believes this is a reasonable approach at the outset, and any information the Secretary has obtained that describes such norms regarding limits and cost-sharing practices would likely be informational not regulatory. Another suggestion, provided by both WellPoint and the American Medical Association (Maves, 2010), was that the goal of balance should be to ensure parity in access to health care services—for example, by having “equal access to providers in each of the 10 categories, as determined by network adequacy standards” (Walter-Dumm, 2010).
Utilization patterns were most often offered as a way to measure and set norms of practice and identify diverse patient needs (Sacco, 2010; Sandstrom, 2010; Wojcik, 2010). This information may be helpful in actuarial estimation, but there are limits to the utility of this approach given the ACA’s addition of new service categories to the standard benefit package. Consumers and providers that provided input to the committee were often wary of depending solely on existing utilization and coverage patterns to assess balance (Kotch, 2010; Touschner, 2010). They argued that current utilization data or even the experience in typical employer plans cannot identify previously unaddressed needs related to some of the 10 categories of care, such as habilitation, mental health and substance abuse parity, and expanded access to preventive services. Others raised the problem of using utilization patterns to identify appropriate multidisciplinary or specialized care (Rice, 2010). Arguments were also presented against traditional “utilization” determinants for pediatric populations, pointing out that this population typically has consumed fewer resources than adults and that investing in preventive services for children presents an opportunity for life-long impact (Racine, 2011). Nevertheless, the committee supports measures of use as one approach to guide and assess balance considerations. For example, if enrollees of a given plan were systemically not using
7 Illustrative responses of the hundreds received are cited.
services considered high value (e.g., not managing their chronic disease adequately), the Secretary might examine the benefit offerings or design for evidence of inappropriate “imbalance.”
Section 1302 (b) (4) REQUIRED ELEMENTS FOR CONSIDERATION.—In defining the essential health benefits under paragraph (1), the Secretary shall—
(A) ensure that such essential health benefits reflect an appropriate balance among the categories described in such subsection, so that benefits are not unduly weighted toward any category;
(B) not make coverage decisions, determine reimbursement rates, establish incentive programs, or design benefits in ways that discriminate against individuals because of their age, disability, or expected length of life;
(C) take into account the health care needs of diverse segments of the population, including women, children, persons with disabilities, and other groups;
(D) ensure that health benefits established as essential not be subject to denial to individuals against their wishes on the basis of the individuals’ age or expected length of life or of the individuals’ present or predicted disability, degree of medical dependency, or quality of life;
(E) provide that a qualified health plan shall not be treated as providing coverage for the essential health benefits described in paragraph (1) unless the plan provides that—
(i) coverage for emergency department services will be provided without imposing any requirement under the plan for prior authorization of services or any limitation on coverage where the provider of services does not have a contractual relationship with the plan for the providing of services that is more restrictive than the requirements or limitations that apply to emergency department services received from providers who do have such a contractual relationship with the plan; and (ii) if such services are provided out-of-network, the cost-sharing requirement (expressed as a co-payment amount or coinsurance rate) is the same requirement that would apply if such services were provided in-network;
SOURCE: § 1302(b)(4)(A)-(E).
The concern raised by the diverse segments clause is that benefit packages could be established that would, in effect, enable plans to attract the healthiest enrollees (“cherry picking”) (Monahan, 2010; Sacco, 2010). This might happen through benefit design, for example, by having a provider network that did not include specific specialists, primary care physicians in certain geographic locations, or selected medications. Respondents to the committee’s online question about diverse segments of the population frequently interpreted the provision as addressing the question of disparities in access across racial, ethnic, language, and socioeconomic lines. If a plan failed to attract a reasonable number of beneficiaries in a given clinical or demographic group, it might be evidence of an imbalance in benefit design.
Congressional guidance to safeguard against the potential for discrimination based on age, disability, or expected length of life, as stipulated through Section 1302(b)(4)(B) and (D), reflects concern about past practices
by some insurers. One interpretation of this portion of the law provided in testimony to the committee was that “what Congress is trying to get at is the notion … if there is no objective evidence, if we have an absence of clinical evidence to suggest that the treatment does not work for persons with certain disabilities, then the [condition-specific] limitation should not stand” (Rosenbaum, 2011b). The committee interprets the congressional intent of these provisions as primarily to ensure that insurers do not make arbitrary and discriminatory decisions based on certain characteristics of people rather than assessing the individuality of each case when making medical necessity decisions and applying clinical policies.
Effect of benefits’ exclusionary language and required elements for consideration. The committee examined the scope of exclusions considered typical across the industry (Appendix F). Among those deemed to be “industry typical,” the committee questioned whether some would be considered to discriminate by disability. The committee did not have the time or resources to research the legal repercussions, nor was it tasked with addressing specific services; as a result, it does not take a position with respect to any of the items listed below or others on the expanded list (Appendix F). The committee brings the following illustrative examples to the Secretary’s attention as perhaps needing further evaluation to see if they should be allowable; for example, exclusions encompassed
• Any disease or injury resulting from a war, declared or not, … or any release of nuclear energy;
• Treatment of injuries sustained while committing a crime; a voluntary participant in disorderly conduct, riot, or other breach of the peace;
• Treatment of dementia, except for treatment of psychological symptoms;
• Nutritional supplements and formulas needed for the treatment of inborn errors; and
• Sexual reassignment surgery.8
The first two items might be considered situational exclusions, not disability-based exclusions. Should it be allowable for a plan to deny treatment if a person was exposed to environmental radiation?9 Should it be allowable for a plan to deny treatment to a person who needed treatment incident to a crime; what if the individual was considered involved in the crime due to exceeding a legal limit on blood alcohol level? The committee was advised during its first workshop that intoxication exclusionary clauses, once prevalent when alcoholism was considered a behavioral choice rather than a medical condition (Rosenbaum, 2011b; Rosenbaum et al., 2004), are less common today. Still the committee found exclusionary language in one plan, for example, that a person would not be covered if injured while intoxicated above a certain blood alcohol level and driving a car, scooter, or off-road vehicle.10 The remaining items raise debatable points about whether people are being denied treatment based on a disability as opposed to a decision made about the design of benefits—that is, the service is not elected to be among the priorities to be paid for out of shared resources.
Setting benefit limits. Could benefit limits also be discriminatory? Respondents to the committee’s online question about the issue of setting limits on benefit categories could be simplistically split into two groups: those in favor of benefit limits and those against benefit limits. Those in favor of limits noted that they are an important component of value-based benefit design and are necessary to ensure quality and affordability. Benefit limits are often cited as an effective means of lowering premium costs. Those who did not support limits frequently expressed concern that nonmonetary medical management limits (e.g., step therapy, visit limits, prior authorization) would increasingly be utilized by insurers as a “loophole” to get around the prohibition against lifetime and annual dollar limits. The National Partnership for Women and Families stated that “non-dollar service limits can be just as detrimental [as lifetime and annual limits] as insurers can simply substitute non-dollar limits, like annual service limits, nullifying the effect of this important consumer protection” (Monahan, 2010). Specifically, the following were raised as areas of most concern:
8 Sexual reassignment surgery is a frequent exclusion in plans; of note in FEHBP plans, it is considered a procedure-based exclusion rather than a condition-based one. Personal communication with Dean Schleicher, U.S. Office of Personnel Management, July 13, 2011.
9 Subrogation clauses allow insurers to recoup medical expenses the insurer paid from third parties who are legally responsible for an injury.
10 Personal communication with Tanji Northrup, Health Division Director, Utah Insurance Department, February, 23, 2011.
• Generic-only drug coverage, because certain drugs are not available in a generic-only formulary, leaving patients liable for needed high-priced pharmaceuticals and perhaps affecting their adherence to drug regimens (Fung et al., 2008)
• Condition-specific restrictions11
• Dollar or visit limits on specific benefit categories, services, or drug classes (e.g., therapy caps) even though the ACA prohibits annual and lifetime dollar limits
• Nonnormative limits such as very low numbers of allowed inpatient hospital days or coverage of the second day of hospitalization but not the first
The committee notes that there is a balance between setting arbitrary limits and those that reflect best practices and/or scientific evidence. Others have pointed out that limits, when undisclosed and not scientifically based, are problematic: “These normative, undisclosed, and fixed limits on treatment do not allow for any deviation based on underlying condition … are often not based on evidence; they are simply conclusory statements by actuarial firms” (Rosenbaum, 2011a, p. 8-5). The committee affirms its desire for evidence-based limits and medical necessity assessments considering the individuality of the particular case. This needs to be coupled with protections for vulnerable patients, such that any limit should have the right of appeal.
Conclusion: With respect to the required elements for consideration, the committee concludes that congressional and secretarial direction on the contents of the 10 categories of care and the scope of the typical small employer plan provides the best a priori guidance. One supplementary a priori approach that the Secretary could employ would be to require that contracts submitted to an exchange to become a qualified health plan (QHP) include an attestation in its subscriber contracts that the plan will abide by the required elements for consideration in Section 1302(b)(4)(A)-(D) or incorporate the required elements language fully in the contracts. As all small group and individual coverage, not just QHPs, is subject to the EHB, this approach could also be applied by state insurance commissioners to non-exchange plans.
It is impossible that HHS guidance will anticipate every circumstance that might be a possible violation of the required elements. It is the job of the exchanges and state insurance commissioners to identify insurer practices that will not provide meaningful coverage and consumer protection. Because states are on the frontline of review, they are likely sources to identify practices that are either problematic or possibly innovative through monitoring (see Chapter 7). Having a systematic way to communicate those findings across the exchanges and states in real time could help other states.
Chapter 7 outlines the importance of planning for data collection on benefits, benefit design, limits imposed, and monitoring implementation. At the outset, state health exchanges and state regulators will be able to compare what is being typically offered in their states under the EHB requirements and identify outlier practices for covered benefits, exclusions, and benefit design limits and networks. Over time, evaluation of these elements, appeals, and utilization patterns can help identify if any areas need further evaluation to determine if they are out of balance, do not serve diverse population segments, discriminate, or reflect desirable innovative practices. The purpose of well-developed internal and external appeals processes as required by the ACA is to allow consistency in benefit interpretation across insurers to emerge from the review of specific cases yet recognize individual circumstances when warranted. The right to appeal provides only a limited check on contract benefit limits and exclusions, because any external review will generally be bound by coverage limits imposed by the insurance policy. Although, in some appeals cases, medical necessity may “trump” a visit limit, medical necessity may not apply to some strict benefit design limitations in commercial insurers and some Medicare provisions.
11 An interim final rule related to limits was issued on June 28, 2010, and explicitly stated that “the rules of this section do not prevent a group health plan, or a health insurance issuer offering group health insurance coverage, from excluding all benefits for a condition” (U.S. Department of the Treasury et al., 2010, p. 37223). Additional guidance on limits can be found on the Center for Consumer Information and Insurance Oversight (CCIIO) website: http://cciio.cms.gov/resources/regulations/index.html#alw.
Emergency Room Coverage
The fifth required element has very specific language related to accessing emergency room services (Box 5-3[E]), and a prohibition against a plan being qualified unless it follows the outlined practices.
Conclusion: The secretarial guidance could require that the legislative language of the fifth required element be incorporated directly into contract provisions in order to participate as a qualified health plan. Similarly, state insurance commissioners could require this for plans outside the exchange that incorporate the EHB.
Medical necessity is a condition of benefit coverage usually found in insurance contracts, allowing health insurers to review the appropriateness of any intervention a patient receives. In evidence of coverage contract documents, there will be services listed that the enrollee is eligible to receive and that qualify for coverage contingent on a finding of medical necessity for the individual patient. Moreover, there will be non-listed services that are medically necessary, based on the patient’s specific condition, and unless expressly excluded in the plan documents, insurance coverage for the services will be determined by medical necessity review. Therefore, determination of medical necessity is used to ensure that each individual patient receives the most appropriate care; this is particularly important when every “inclusion” and “exclusion” is not listed, and as medical science changes, it allows for flexibility before lists can be updated.
Per the committee’s Statement of Task to “assess the methods used by insurers currently to determine ‘medical necessity,’” the committee undertook an analysis of existing definitions and stakeholders concerns, and examined the use of evidence in the application of medical necessity and the related issue of clinical policy determination. Opportunity for public input—particularly on the advantages or disadvantages of current definitions, the need (if any) for secretarial guidance on medical necessity, and approaches to help formulate such guidance—was provided through the committee’s online questionnaire. Based on these public findings, additional testimony, and committee research into various options, the committee identified the following major issues:
• The term “necessity” can lead to misunderstandings—with patients asking how something their provider prescribes could not be considered necessary or physicians inquiring how an insurer can question their judgment. Such responses imply that the medical necessity process is established to deny coverage, rather than being built on a scientific evidence base, according to the National Business Group on Health (Wojcik, 2010). In insurance practice, the insurer makes the final assessment of medical necessity for uncontested cases; patients and providers have the right to an independent external appeal under many current policies and more will under the ACA.12
• Multiple definitions of medical necessity exist, and respondents were split in their views about whether the IOM or HHS should establish a national standard definition of medical necessity. Responses from consumers and providers tended to support a national definition, particularly emphasizing individualization of care and not inflexible clinical policies (Baker, 2010; Gascho, 2010; Morgan, 2010; Sacco, 2010; Smith, 2010; Zollar and Kendrick, 2010), and insurers tended to be opposed saying medical necessity is not a “tool for determining what items and services should make up a benefit package,” which they viewed as the task assigned to the Secretary (Fox, 2010). Furthermore, they noted that Section 1563 of the ACA allows insurers flexibility to employ appropriate medical review and determination of medical necessity (Bocchino, 2010; Calega, 2011; Walter-Dumm, 2010).
• Safeguards in the application of medical necessity may be needed, particularly for special populations (e.g., children; individuals with disabilities, mental illness, or rare diseases) both in the definition of what medical necessity means and in monitoring its implementation.
12 29 CFR 2590.715-2719(c)(2)(i).
Some commented that they preferred the term medical appropriateness, but the committee acknowledges that the term medical necessity is widespread in the vernacular and in regulatory guidance. Medical necessity has been historically and continually referenced in federal and state statute, and it is a familiar term in commercial medical insurance products. The committee believes the Secretary has the opportunity through the EHB definition process to educate the public on the meaning of medical necessity—why it is consistent with individualized assessments of the appropriateness of care, with keeping coverage affordable, and with ensuring patients’ rights of appeal if they view care as inappropriately denied (see additional discussion in Chapter 2 of medical management, of which medical necessity is one element).
Key Elements in Definitions
The committee considered multiple definitions of medical necessity across Medicare, in sample Medicaid programs, and in use by private insurers (Appendix G). In the late 1990s, a research team at Stanford developed a more “evidence-based” definition of medical necessity that has now been incorporated in a number of contracts of insurers and state Medicaid programs (e.g., Hawaii, Kansas, Blue Cross Blue Shield of Arkansas) (Coding Institute, 2000).13 Key elements were that an intervention could be considered medically necessary if first recommended by the treating physician and then determined by the insurer to have met conditions pertaining to each of the following elements: medical purpose, scope, evidence, and value (as illustrated in Table 5-7 and outlined in more detail in Appendix G). These five categories were identified as those into which most existing and proposed criteria at the time fell from the Stanford workshop members’ analysis. Notably, it was pointed out at the time that “it was clear that most definitions have criteria that address purpose and scope, and closely following those criteria in frequency are criteria about authority and evidence. [At the time], few definitions addressed value or cost effectiveness” (Singer et al., 1999, p. 57).
Similarly, a major national legal settlement between insurers (e.g., CIGNA, Health Net, Prudential, Anthem/WellPoint, Humana) and 900,000 physicians created a standard followed by many in the insurance industry.14 Starting with a “prudent physician” standard (the primary component of the American Medical Association [AMA] definition of medical necessity), the settlement contains the five elements of the Stanford definition. A separate Second Circuit Court of Appeals case directs that if “the plan administrator presents sufficient evidence that a treatment is not necessary in the usual case it is up to the patient and his or her physician to show that this individual patient is different from the usual in ways that make the treatment medically necessary for him or her” (Kaminski, 2007, p. 2). As in the Stanford definition, authority, purpose, scope, evidence, and value are part of defining what constitutes medical necessity in the national settlement (Table 5-7).
Additionally, the National Association of Insurance Commissioners, as part of its effort to define consumer-friendly insurance terms, conveyed to HHS a number of sample medical necessity definitions from subscriber contracts in six states (NAIC, 2010). Most of those samples reference prudent physician judgment, clinically appropriate care and best practice, and a scientific evidence base. Few sample definitions explicitly mention individualizing care or addressing value, efficiency, or cost-effectiveness of care, but those elements could be encompassed within the construct of delivering clinically appropriate care depending on how the definition is applied in practice.
The committee observed, based on the definitions from plans from these six states as well as plans in other states, that individual states do not require health insurers operating within a single state to have a uniform definition of medical necessity. Nor does the Federal Employee Health Benefits Program require participating plans to have a single definition.15
13 Personal communication with Linda Bergthold, health policy consultant, November 19, 2010.
14 Kaminski reports that if a “state-enacted definition is more expansive than the settlement’s definition, the state law will control. But if the settlement’s definition is more expansive, it will control with respect to the parties subject to the settlement” (Kaminski, 2007, p. 2).
15 Personal communication with Dean Schleicher, U.S. Office of Personnel Management, July 13, 2011.
|Terms Under||Stanford Definitiona||National Legal Settlementb|
|Authority||An intervention is medically necessary if, as recommended by the treating physician and determined by the health plan’s medical director or physician designee||Health care services that a physician, exercising prudent clinical judgment, would provide to a patient|
|Medical purpose||A health intervention for the purpose of treating a medical condition (i.e., to treat meaning to prevent, diagnose, detect, treat, or palliate) or to maintain or restore functional ability||Health care services for the purpose of preventing, evaluating, diagnosing, or treating an illness, injury, disease, or its symptoms|
|Scope||The most appropriate supply or level of service, considering potential benefits and harms to the patient||Clinically appropriate, in terms of type, frequency, extent, site, and duration and considered effective for the patient’s illness, injury, or disease|
|Evidence||Known to be effective in improving health outcomes. For new interventions, effectiveness is determined by scientific evidence. For existing interventions, effectiveness is determined first by scientific evidence, then by professional standards, then by expert opinion||Generally accepted standards of medical practice—meaning standards that are based on credible scientific evidence published in peer-reviewed medical literature, generally recognized by the relevant medical community, or otherwise consistent with standards of clinical judgment|
|Value||Cost-effective for this condition compared to alternative interventions, including no intervention, with application of the cost-effectiveness criterion in the case of the individual patient being determinative||Intervention should not be more costly than an alternative service or sequence of services at least as likely to produce equivalent therapeutic or diagnostic results|
Additionally, in light of the importance of medical necessity determinations during implementation of the EHB package and concerns about inappropriate denials of care, the committee examined the element of “medical purpose of the intervention,” which had been raised as particularly problematic because its phrasing in medical necessity definitions and, more importantly, in its interpretation as applied to patient cases can result in limitations of care. Although the committee heard anecdotal accounts of denials of care based on narrow interpretations of the wording of definitions of medical necessity, the extent of the problem was not well documented. Illustrative examples of medical necessity approvals confined to interventions that only “cure” a person’s condition or only “restore” their function were presented as discriminatory against conditions for which there may be no recovery (e.g., multiple sclerosis for which maintenance of function or prevention of worsening of infirmity is more pertinent) or conditions whose initial lack of attainment of developmentally appropriate functioning would effectively preclude the concept of such restoration (e.g., an individual with developmental disabilities who has never attained speech or movement) (Ford, 2011; Rosenbaum, 2011b).
A congressional floor statement called attention to having a broadly based interpretation for the category of rehabilitative and habilitative services and devices, including “items and services used to restore functional capacity, minimize limitations on physical and cognitive functions, and maintain or prevent deterioration of functioning.”16
16 Floor statement of the Honorable Bill Pascrell, Jr., (NJ) in the U.S. House of Representatives. Congressional Record—House Extension of Remarks (March 21, 2010). Congressman Pascrell, a co-chair of the Congressional Brain Injury Task Force, included the following in his House floor statement: “The term rehabilitative and habilitative services includes items and services used to restore functional capacity, minimize limitations on physical and cognitive functions, and maintain or prevent deterioration of functioning as a result of an illness, injury, disorder or other health condition. Such services also include training of individuals with mental and physical disabilities to enhance functional development” (Pascrell, 2010).
Advocates for children, such as the American Academy of Pediatrics, suggested modeling medical necessity requirements after early and periodic screening, diagnosis, and treatment (EPSDT) coverage rules,17 stating that a disadvantage of typical insurance approaches is that they do not take into account developmental stages or the need for habilitative services that do not treat a disease but rather allow a child to accommodate to a condition and reach his or her highest level of functioning (American Academy of Pediatrics, 2005; Racine, 2011). On the other hand, concern has been raised that the Medicaid EPSDT requirement to address any diagnosed condition and its approach to defining medical necessity were far more extensive than any typical employer insurance plan; at the same time, others have noted that Medicaid is more likely to enroll and be responsive to the needs of children with special health care needs (The Commonwealth Fund and The George Washington University 2005; DHS, 2011; Jezek, 2010; Koyanagi, 2010; O’Connell and Watson, 2001).
Evaluations of medical necessity will have to comply with inclusion of the 10 categories of care as well as prohibitions against discrimination based on age, disability, and expected length of life in the ACA and secretarial guidance. As noted in testimony to the committee with regard to potential discrimination in the application of medical necessity to persons with disabilities, “The central question is whether the treatment is medical in nature and whether the individual can be expected to medically benefit from it” (Rosenbaum, 2011a, p. 8-3).
Insurers’ clinical policies help address ambiguity about coverage that is not specifically addressed in listings of included and excluded services, and are often applied in medical necessity decision making. Chapter 2 presents sample hierarchies of medical evidence that are used in developing coverage decisions and clinical policies; most services do not have randomized controlled trials to support them, and clinical policies are designed to identify the most objective, credible, and scientifically based heuristic or hierarchy of medical evidence.
Clinical policies are not available for all conditions but are usually developed in areas where additional clarity is needed, a high volume of services might be anticipated, the services have associated high expenditures, and/or medical benefit for patients is found only under certain limited clinical scenarios. For example, the Massachusetts Medicaid program publishes 16 separate guidelines for determination of medical necessity that are specific to different kinds of services (e.g., organ transplant, bariatric surgery). In the instance of organ transplant, the guidelines indicate the possibility for coverage in the case of a congenital maldevelopment, primary malignancy, and failure of vital organ function, among others, but do not “ordinarily” consider transplants necessary under certain circumstances, such as when a patient has ongoing systematic bacterial infection or presence of an irreversible disease (Massachusetts Department of Health, 2011). Many commercial plans similarly publish their clinical policies; Aetna, once unique in doing so, publishes hundreds of clinical policies online (Aetna, 2011). The “vast majority” of technologies is not selected for evaluation and is not subject to utilization management (e.g., pre-authorization, limits on visits) (McDonough, 2011).
Medical necessity reviews are where the tough decisions on coverage are made, and having more light shed on clinical policies and review criteria would enhance understanding of whether EHB coverage needs to be updated and if there are areas potentially subverting the intentions of the required elements for consideration. It was beyond the committee’s time and resources to mount a systematic examination of available clinical policies, but such an evaluation could reveal similarities and differences in clinical policies for specific conditions, and thereby interpretations of the strength of the evidence basis. This could inform where evidence supports additional specificity on EHB inclusions, as well as could reveal whether specific limits on services are rooted in evidence and should not be considered discriminatory based on age, disability, and expected length of life.
Secretarial Guidance on Medical Necessity
The committee believes that medical necessity evaluation is an important part of benefit design, with the potential to enhance appropriateness of care for individuals and through that mechanism to enhance the value and
17 “Screening and diagnostic services to determine physical or mental defects in recipients under age 21; and health care, treatment, and other measures to correct or ameliorate any defects and chronic conditions discovered” (42 CFR 440.40(b)(1)-(2)).
affordability of care. The committee considered that any definition of medical necessity is but one aspect of helping to ensure access to appropriate care and that promoting transparency in medical necessity definitions, clinical policies, and appeals monitoring would further understanding.
Conclusion: The committee’s vision for the EHB is that only medically necessary (or appropriate) services for individuals should be covered. The committee believes that the concepts of individualizing care, ensuring value, and having medical necessity decisions strongly rooted in evidence should be reemphasized in any guidance on medical necessity. Inflexibility in the application of medical necessity, clinical policies, medical management, and limits without consideration of the circumstances of an individual case is undesirable and potentially discriminatory. The committee believes transparency in a rigorous appeals monitoring process is the primary approach to addressing the nondiscrimination provisions in benefit design and implementation, including medical necessity reviews.
Rather than requiring a uniform national definition of medical necessity, the committee suggests the following areas for guidance to states and health plans:
• A requirement for transparency in its medical necessity definition in all plans containing the EHB, and the disposition of at least external review case data; and
• The components of the Stanford and national settlement definitions address areas that should be considered part of medical necessity definitions and criteria for application (i.e., authority, medical purpose, scope, evidence and value). Secretarial guidance should inform the breadth of the medical purposes of interventions possible under the EHB; interpretation of the medical purpose of interventions must be broad enough to address the services encompassed in the 10 categories of care—including services such as habilitation, rehabilitation, and prevention. Specifically, the criteria used for medically necessary services or services that conform to medical necessity are medical services that are (1) clinically appropriate for the individual patient; (2) based on the best scientific evidence, taking into account the available hierarchy of medical evidence; and (3) likely to produce incremental health benefits relative to the next best alternative that justify any added cost. In some cases, the next best alternative may be no treatment at all.18
These elements for the definition of medical necessity are consistent with best practices and supported by legal precedent (Kaminiski, 2007). The committee also encourages the development of new evidence; the Stanford definition language “known to be effective in improving health outcomes” should not preclude opportunities for innovation such as coverage with evidence development.
The committee view is that there can be variation in the wording of medical necessity definitions, but it is the interpretation of the definitions that is most important. The new national requirement for an independent external review is an important step in protecting the rights of patients; external review will begin de novo and will be binding on the insurer. Thus, in contested cases, external reviewers will ultimately make the final medical necessity determination. Because monitoring and learning from implementation are important, the committee further suggests
• Standardized data collection and evaluation of appeals (see Chapter 7 discussion of planning for such data collection);
• Examination of clinical policies (see Chapter 7 discussion of data collection and research the committee supports); and
• Transparency and disclosure of data and rationale on these decisions, while protecting individual confidentiality.
18 For example, in Washington State’s administrative code (WAC 388-500-0005), medically necessary “is a term for describing a requested service which is reasonably calculated to prevent, diagnose, correct, cure, alleviate or prevent worsening of conditions in the client that endanger life, or cause suffering or pain, or result in an illness or infirmity, or threaten to cause or aggravate a handicap, or cause physical deformity or malfunction. There is no other equally effective, more conservative or substantially less costly course of treatment available or suitable for the client requesting the service. For the purpose of this section, ‘course of treatment’ may include mere observation or, where appropriate, no treatment at all” (MRSC, 2011).
In Chapter 9, the committee recommends the establishment of a National Benefits Advisory Council (NBAC) to advise the Secretary on updating the EHB; as one of its functions, the NBAC should evaluate the nature of appeals to understand if more specific guidance is required on particular services.
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