Self-funded Plans May Vary From Plans Sold on Exchanges
Employer’s Guide to Self-Insuring Health Benefits December 2011 | Vol. 19, No.3
Health plans outside of health reform’s system of state-run insurance exchanges are not required to observe the health reform law’s essential benefits package (EBP), so self-insured plans will have an option of carving out benefits in the interest of affordability. Individual and small-group policies offered through exchanges must cover the package, which includes outpatient services, emergency services, hospitalization, maternity/newborn care, mental health/substance abuse services, prescription drugs and four other categories. The EBP takes effect in March 2014. Self-funded Plans May Decide Whether to Cover ‘Essential Benefits’ as IOM Accents Affordability
Health reform’s essential benefits package (EBP) — required for all coverage sold on state-run insurance exchanges — is designed to spread health coverage to individuals and employees at small companies.
Plans and insurers outside the exchange are not required to observe the EBP, so self-insured plans have an option of carving out benefits in the interest of affordability.
All policies offered on state-run exchanges (individual and small-group) need to cover the EBP. Non-exchange plans do not have to implement the EBP, which takes effect in March 2014.
IOM: Package Must Be Affordable
The Institute of Medicine (IOM) was commissioned by the U.S. Department of Health and Human Services (HHS) to define what the EBP should include. In an October 2011 report, the IOM says it will not decide what the EBP will cover, but it does outline the criteria that the government will use when compiling the EBP.
• First and foremost, the package must be affordable for consumers and taxpayers, the IOM stressed. The IOM described its approach as having a fixed budget and including services only to the extent allowed by the budget.
• It should allow coverage to go to the greatest possible number of presently uninsured people.
• For services to make the list, they need to be safe, medically effective, demonstrate meaningful improvement, and not serve a primarily social or educative function. Required services must be cost-effective. Otherwise plans can subject them to limits or exclusion.
• All decisions about benefits, benefit design, and changes must be transparent and publicly available.
• State mandates should not be incorporated into the EBP. IOM noted that while the health reform law does give HHS the authority to do so, state mandates should not receive special treatment.
An outside expert who reviewed the report told the Kaiser Family Foundation that its emphasis on affordability could mean less robust benefits. “They made affordability the first imperative here,” said Sara Rosenbaum, health policy professor at George Washington University. “That means very limited coverage for people because of the underlying cost of health care.”
She said IOM, in advising that a benefit be medical and not educational or social, “leaves the door open to the kinds of denials” of coverage “that Congress said should not happen.” Some insurers, for example, have refused to provide certain types of autism treatment because they have deemed them educational in nature rather than medical, she noted.
The IOM justified its cost-driver stance:
Unless we are able to balance the cost with the breadth of benefits covered in the [EBP], we may never achieve the health care coverage envisioned [in the health reform law]. If the benefits are not affordable, fewer individuals will buy insurance. If accessing benefits is too difficult, people will not get the care that they need. And if health care spending continues to rise rapidly, the benefits covered under the [EBP] will begin to erode, eventually resulting in minimal coverage for the people who need it most.
See the report: http://www.iom.edu/Reports/2011/Essential-Health-Benefits-Balancing-Coverage-and-Cost.aspx.
The health reform law requires that the EBP include at least 10 general categories of health services and have benefits similar to those currently provided by a typical employer. The 10 categories include:
• 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 and wellness services and chronic disease management
• Pediatric services, including oral and vision care
Will Self-insured Plans Cut Benefits?
While it’s true that the EBP might set a standard that pressures ERISA plans into covering it all so as not to lose the recruiting advantage of insuring workers’ health, the health reform law gives self-funded plans the option of skirting parts of the EBP.
For example, employees can purchase insurance through a state-run exchange if an employer plan fails to cover 60 percent of plan health cost. But since selfinsured plans are not subject to an essential-benefit requirement, such employers can slim the package down, so it becomes cheaper and easier for employees to beat the 60-percent threshold, thereby avoiding fines.
As Attorney Ron Peck of the Phia Group puts it, “this begs the question of whether this 60-percent requirement was meant to increase employer contributions, or to decrease the amount of benefits offered, thereby driving previously insured lives into the exchange.”
Self-Insured Plans Could Avoid Selected Benefits
Self-funded plans are subject to the prohibition on lifetime limits for essential health benefits. But if a selffunded plan chooses not to cover an essential health benefit, the plan sponsor doesn’t have to worry about that lifetime limit.
Again, self-insuring employers may avoid selected “essential benefits” to avoid the unlimited lifetime caps. This may look like a loophole and opportunity to some self-insured plans.
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