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IOM Throws Curve Ball at Essential Benefits: Next up HHS

A number of external organizations have been tasked with advising the Department of Health and Human Services (HHS) on critical aspects of implementation of health reform. Earlier this year, the National Association of Insurance Commissioners (NAIC) took a very responsible approach toward defining minimum medical loss ratios (MLR) for commercial products. Certain “good spend” by health plans that improves quality will count in the minimum MLR. HHS bowed to NAIC’s expertise and long track record of fairness and adopted the recommendations in full.

Now it is the Institute of Medicine’s (IOM) turn to recommend definitions on another major pillar of health reform – essential benefits. Combined, the MLR and essential benefit definitions will play a major role in determining what future healthcare premiums will be. The IOM came out with the much anticipated recommendations last week. Although not proposed anywhere in PPACA, IOM made a strong recommendation for including cost-effectiveness parameters in defining essential benefits.

The Patient Protection and Affordable Care Act (PPACA) lays out broad categories of the types of services that should be included in the essential benefits definition. Most expected IOM to surgically hone in on and methodically prescribe what specific services, diagnostics, testing or procedures should be included in each broad category in PPACA: 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; and pediatric services, including oral and vision care.

An expansive essential benefits list would drive up the overall cost of healthcare. Further, PPACA dictates tiers of plans where insurers have to cover a given percentage of overall costs of healthcare for individuals and families: Bronze (60 percent), Silver (70 percent), Gold (80 percent) and Platinum (90 percent). A rich essential benefit and a relatively low 60 percent insurer coverage target for Bronze coverage would mean major out of pocket costs for Americans.

IOM took a completely different approach. It calls for, among other things: (1) Essential benefits to be benchmarked against the actuarial value of a typical small employer plan in 2014; (2) Limiting the national average cost of essential benefits to that threshold; (3) Allowing only medically necessary services to be covered; (4) Allowing new treatments only if meaningful outcomes can be substantiated; (5) Assessing state insurance mandates against the national model’s valuation; and (6) Adopting additional strategies to contain costs.

What is significant is that small employer coverage is generally far less generous than healthcare offered by larger employers. Thus, the initial scope of each person’s or family’s policy might be considerably less than anticipated, and therefore the actuarial valuation at each tier would be far less as well.

Insurers have quickly embraced IOM’s focus on cost-effectiveness, while special-interest advocates are gearing up to lobby HHS to reject the recommendations. Advocates argue that, if adopted, the IOM approach would not really save the nation money because the benefits would be too sparse and lead to higher out-of-pocket costs for needed but uncovered services and ultimately uncompensated care. In individual cases perhaps, but the approach overall is far more sound than what those in favor of PPACA initially had in mind. It recognizes that traditional insurance offerings are overly generous, leading to waste and inefficiency. This has meant too many economic resources being dedicated to healthcare.

And richer benefits also carry higher inflationary trends than more modest ones.

HHS is now in a bit of a bind. The agency may be forced to back away from IOM’s approach at a time when health inflation is on the nation’s mind. Even adopting a middle ground could be a significant additional drag on an economy that is not expected to be fully recovered by the time Exchanges are scheduled to come on line in 2014.

We think HHS should resist pressure to abandon the IOM approach. Congress wanted an overly prescriptive set of mandated benefits tied to overly generous plan coverage. IOM is recognizing that more reasonable benefits and health care costs are key to ensuring affordability on the part of citizens and the nation as a whole.

Marc Ryan

Marc S. Ryan serves as MedHOK’s Chief Strategy and Compliance Officer. During his career, Marc has served a number of health plans in executive-level regulatory, compliance, business development, and operations roles. He has launched and operated plans with Medicare, Medicaid, Commercial and Exchange lines of business. Marc was the Secretary of Policy and Management and State Budget Director of Connecticut, where he oversaw all aspects of state budgeting and management. In this role, Marc created the state’s Medicaid and SCHIP managed care programs and oversaw its state employee and retiree health plans. He also created the state’s long-term care continuum program. Marc was nominated by then HHS Secretary Tommy Thompson to serve on a panel of state program experts to advise CMS on aspects of Medicare Part D implementation. He also was nominated by Florida’s Medicaid Secretary to serve on the state’s Medicaid Reform advisory panel.

Marc graduated cum laude from the Edmund A. Walsh School of Foreign Service at Georgetown University with a Bachelor of Science in Foreign Service. He received a Master of Public Administration, specializing in local government management and managed healthcare, from the University of New Haven. He was inducted into Sigma Beta Delta, a national honor society for business, management, and administration.

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