While the pace of health care reform has seemingly slowed, the process for defining which health benefits should be considered "essential" is heating up -- possibly with profound cost implications for employer-sponsored health plans.  

Defining 'essential': Employers could get unexpected help with health care costs

jim-oconnell.jpgWhile the pace of health care reform has seemingly slowed, the process for defining which health benefits should be considered "essential" is heating up -- possibly with profound cost implications for employer-sponsored health plans. 

"The essential health benefits issue is very important," said Jim O'Connell, Ceridian's executive consultant on health care reform in Washington, D.C. "It could set a standard for what coverage employers choose to offer in the future."

To ensure a more consistent level of benefits, the Patient Protection and Affordable Care Act (PPACA) requires that certain insurance plans -- including those offered to individuals via state and private health insurance exchanges -- cover a package of diagnostic, preventive and therapeutic benefits defined as "essential" by the Department of Health and Human Services (HHS).

"If that package of benefits is too narrow, coverage might be inadequate for participants," O'Connell said. "If it is too broad, insurance might become too expensive."

It's a classic battle of affordability versus coverage, and the outcome is likely to create a baseline for employer-sponsored health plans in the long run.

If the HHS essential benefits package contains a long list of covered services, many group health plan costs could increase, leading employers to choose whether to continue sponsoring coverage or to send their employees to a private or state-based health care exchange. 

On the other hand, if the essential benefits package that emerges from the process is lean, it may help keep premiums steady and entice more employers to continue offering coverage. Also, a lower level of mandated essential benefits might prompt employers that offer rich plans today to scale back in the future. 

 

Implications to health care consumerism

"Through all the health care law debates and legislation, the thinking was the law would put a heavier requirement on employers. But it may actually allow employers to provide less coverage," said Doug Field, founder of The Institute for HealthCare Consumerism. 

While there's still some subjectivity involved, Field noted, technically the law allows the employer to go from 85 percent coverage to 65 percent. 

"If that's truly the case," Field said, "it's a no-brainer for employers to run toward consumer-directed health plans to help contain costs." According to the study issued last month by the Institute of Medicine (IOM), "Essential Health Benefits: Balancing Coverage and Cost," benefits covered by individual and small group plans starting in 2014 under the health care reform law should be based on what small businesses typically offer, which are generally less expensive than large employer-sponsored health plans.

That recommendation may please many employers and insurance companies, but it could cause concern among consumer advocates and patients with particular illnesses who want more expansive benefits. 

 

Deciding what is 'essential'

Coverage for autism, for instance, is being heavily lobbied as an essential benefit. But if a plan adds autism coverage, plan costs are estimated to increase between 1 percent and 3 percent.

"If the government takes a comprehensive approach with essential health benefits to satisfy all advocates, the cost of exchange-based coverage could explode health insurance costs and make coverage less affordable than it is today," O'Connell said. 

By the end of the year, HHS is expected to issue a proposal on which benefits must be covered. The agency will soon initiate a series of conversations where employers and consumers from across the country will have the opportunity to share their thoughts on these issues.

In the meantime, we invite you to weigh in on this topic right now by posting a comment below. 

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