___________

8

Allowance for State Innovation

Under Section 1302 of the Patient Protection and Affordable Care Act (ACA), the Secretary of Health and Human Services is granted the authority to define essential health benefits (EHB) provided the definition takes into account and complies with various requirements provided in the statute. This grant of authority would allow the Secretary to approve state-specific variations of the EHB definition, provided that any such state-specific definition complied with the relevant statutory language and was reviewed and approved by the Secretary. The committee provides guidance on the rationale and standards the Secretary should use in approving state-specific definitions of essential health benefits, and recommends that the Secretary consider state-specific definitions as soon as administratively feasible. Such state-specific variations would only be available to states operating their own exchanges.

The insurance provisions in the ACA balance federal and state authority. For example, while federal law will regulate certain aspects of the individual and small group market through various pricing and issuance requirements, states are given relatively broad authority to operate their own health benefit exchanges and to regulate other aspects of health insurance such as premium increases. This balancing of authority is not surprising, given the role that states have traditionally1 played in regulating health insurance (Pierron, 2008).

AUTHORITY FOR STATE VARIATION

The ACA is clear that the Secretary shall define the EHB, within certain statutory guidelines. The statute is silent, however, regarding whether the Secretary could approve more than one EHB definition, provided that the statutory requirements are otherwise met. The committee believes that the Secretary therefore has the authority to approve refinements of the national EHB definition, if the Secretary chooses to do so, provided such definitions otherwise meet the requirements of Section 1302.

There is also explicit authority in Section 1332 of the ACA for the Secretary to grant waivers of the EHB requirements (along with other provisions in the ACA) beginning in 2017. The committee considered and was favorable to this statutory authority as an option for promoting innovation on the EHB as long as the waiver with

1 Traditional was defined in the McCarran-Ferguson Act, which allowed the states to regulate the business of insurance (15 U.S.C. § 1011-1015).



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8 Allowance for State Innovation Under Section 1302 of the Patient Protection and Affordable Care Act (ACA), the Secretary of Health and Human Services is granted the authority to define essential health benefits (EHB) provided the definition takes into account and complies with various requirements provided in the statute. This grant of author- ity would allow the Secretary to approve state-specific variations of the EHB definition, provided that any such state-specific definition complied with the relevant statutory language and was reviewed and approved by the Secretary. The committee provides guidance on the rationale and standards the Secre - tary should use in approving state-specific definitions of essential health benefits, and recommends that the Secretary consider state-specific definitions as soon as administratively feasible. Such state-specific variations would only be available to states operating their own exchanges. The insurance provisions in the ACA balance federal and state authority. For example, while federal law will regulate certain aspects of the individual and small group market through various pricing and issuance require - ments, states are given relatively broad authority to operate their own health benefit exchanges and to regulate other aspects of health insurance such as premium increases. This balancing of authority is not surprising, given the role that states have traditionally1 played in regulating health insurance (Pierron, 2008). AUTHORITY FOR STATE VARIATION The ACA is clear that the Secretary shall define the EHB, within certain statutory guidelines. The statute is silent, however, regarding whether the Secretary could approve more than one EHB definition, provided that the statutory requirements are otherwise met. The committee believes that the Secretary therefore has the authority to approve refinements of the national EHB definition, if the Secretary chooses to do so, provided such definitions otherwise meet the requirements of Section 1302. There is also explicit authority in Section 1332 of the ACA for the Secretary to grant waivers of the EHB requirements (along with other provisions in the ACA) beginning in 2017. The committee considered and was favorable to this statutory authority as an option for promoting innovation on the EHB as long as the waiver with 1Traditional was defined in the McCarran-Ferguson Act, which allowed the states to regulate the business of insurance (15 U.S.C. §§ 1011-1015). 129

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130 ESSENTIAL HEALTH BENEFITS respect to the EHB meets the criteria that the committee outlines later in this chapter. There has been some inter- est expressed in amending this statutory authority to allow waivers to begin before 2017 (HHS, 2011b; The White House, 2011); because it has not passed, waivers are not yet a viable option at this time. 2 As a result, this chapter does not focus on such waivers. Rather, this chapter addresses the ability of the Secretary to approve state-specific variations of the EHB definition that meet each of the requirements set forth in Section 1302. FLEXIBILITY IN DETERMINING THE EHB Although the committee notes the deference given to states as they set up their health insurance exchanges (HHS, 2011a) and proceed with rate review enhancement (HHS, 2010), those situations are not analogous to the EHB determination process. The Secretary’s responsibilities to lead and define the EHB determination process are clearer, greater, and more direct than those the Secretary has with respect to the health insurance exchanges. For establishment and implementation of health insurance exchanges, the ACA is clear that states have primary responsibility,3 and it is only if a state opts out or fails to meet the requirements to establish an exchange that the federal government will become involved.4 Conversely, with respect to defining EHB, the ACA is clear that the Secretary of Health and Human Services (HHS) has sole authority to define the EHB. The authority granted to HHS to define the EHB does not, however, preclude the Secretary from using that authority to approve state-specific variations of the EHB definition. State Flexibility The committee believes some state flexibility in defining the EHB package is important from a public policy and practical standpoint. Although informed by clinical evidence and economics, judgments of what constitutes an essential health benefit are social value decisions and reflect, at their core, a set of decisions regarding which medical expenses must be shared within a community. As discussed above, the committee believes that the Sec - retary has the authority to approve refinements of the EHB definition, and that there will be some circumstances under which the Secretary should approve state-specific EHB definitions that allow states to make their own social value prioritizations and deviate from the federal standard definition of essential health benefits. The committee believes the definition of benefits should become more evidence-based, specific, and value-promoting over time and believes state-based innovation should support these goals, as it charges the Secretary to act (see Recommen - dation 4a). The committee proposes guiding principles that HHS should consider in determining whether or not to approve a state-specific variation of the federal EHB definition. The committee’s recommendation focuses solely on guidance for when the Secretary should consider state- specific variations of the national EHB definition. It should be noted that nothing in the committee’s recommenda - tion negates the direction in Section 1302 for inclusion of the 10 categories of care or observance of the required elements for consideration. Furthermore, the committee believes that the Secretary’s approval of a state-specific variation of the EHB definition should be contingent on the state’s developing a package with content that is actuari - ally equivalent to the national package established by the Secretary during initial definition or updating; otherwise, state-specific variations of EHB could either substantially increase aggregate package costs or significantly reduce the intended scope of packages covered by the EHB. From a practical standpoint, state-specific EHB developed locally and with a credible, accountable public deliberation process are even more likely to gain sustained state-based public support than a single federal defini - tion with no possibility of state-based innovation. The committee suggests guidelines for public deliberation on priorities in Chapter 6. 2 The White House has indicated its support of state empowerment and innovation under the ACA, including support for bipartisan legislation to make waivers available starting in 2014—the “Empowering States to Innovate Act” (HHS, 2011b; The White House, 2011). 3 Patient Protection and Affordable Care Act of 2010 as amended. § 1311(b), 111th Cong., 2d sess. 4 § 1321(c).

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131 ALLOWANCE FOR STATE INNOVATION Additionally, the committee believes that state-specific EHB definitions are appropriate only when a state has made a commitment to operating its own health insurance exchange, as the alternative is a de facto agree- ment to federal involvement5,6—which is inconsistent with a desire for a state-specific EHB definition, hence the distinction. In other words, the rationale for not allowing the variation option for states that do not operate their own exchange is that their program would revert to the federal exchange. A state that develops its own definition should be accountable for it; the federal exchange should not have to monitor multiple state-based definitions through the exchange. Also, in making decisions regarding requests for state-specific EHB definitions, deference should be given to states that have already undertaken significant efforts to establish comprehensive state-based processes for defining a basic health benefit package. Massachusetts has developed a comprehensive process regarding the content of coverage in the individual and small group markets. Several states have also engaged in efforts to define essential health benefits in other market segments—for example, Oregon’s Medicaid program (Oregon Health Services Commission, 2011). Provided that these programs and processes meet the minimum requirements set forth below, the committee believes that such preexisting, comprehensive processes with meaningful public input should be afforded deference as the Secretary considers whether to grant a request for a state-specific EHB definition. Recommendation 3: For states administering their own exchanges that wish to adopt a variant of the fed - eral EHB package, the Secretary should use statutory authority to grant such requests, provided that the state-specific EHB definition is consistent with the requirements of Section 1302 of the ACA and the criteria specified in this report, that they produce a package that is actuarially equivalent to the national package established by the Secretary, and that the request is supported by a process that has included meaningful public input. To best achieve this, the Secretary should encourage a public deliberative process as described in this report and should provide technical assistance to the states for implementing that process. CRITERIA FOR APPROVING A STATE-SPECIFIC EHB DEFINITION In determining the more general criteria that must be established in order for a state-specific EHB defini - tion to be approved, the committee focused on two primary goals: (1) clear guidance to the states regarding the circumstances under which a state-specific EHB definition will be considered and (2) ensuring that the state EHB definition is consistent with the broader goals of the ACA. The committee envisions that proposals for state- specific EHB definitions will be proposed and generated by the states themselves, and submitted to the Secretary for approval in accordance with the criteria presented below: • Consistency of process and standards. If the elements of the process and the standards recommended by the committee to be used to develop the EHB are appropriate for the federal definition (see Recommendation 1: coverage of at least the 10 categories of care, scope of typical small employer plan nationally, 7 inclusion of a public deliberative process, and the criteria defined in Figure S-2 in the Summary), then they must also be ensured by HHS to be integral in any state process. • State authority. Such an EHB process must be conducted by an executive or legislative branch office or agency with the legislatively designated authority to make the request to HHS for a state-specific EHB definition and implement the results of the process. The committee takes no position on what state entity is best positioned to do this work, as long as such entities are clearly designated by the legislature. • No “race to the bottom.” The Secretary must ensure that state-specific EHB definitions provide coverage that is actuarially equivalent to the national package established by the Secretary—neither significantly higher nor lower. The state-based process should allow for a different set of social values to emerge 5 Patient Protection and Affordable Care Act of 2010 as amended. § 1311(b), 111th Cong., 2d sess. 6 § 1321(c). 7 The committee emphasizes that equivalence should be in benefit comprehensiveness; national data to determine state EHB equivalence are a practical consideration and would eliminate cost variances in the determination.

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132 ESSENTIAL HEALTH BENEFITS regarding covered benefits, but the overall makeup of that coverage locally should be equivalent to that provided under the federal definition of the EHB. The ACA guarantees both a right and a responsibility for a basic health benefit for all Americans—which should not be significantly compromised depending on the place of one’s residence. However, states that can more efficiently offer additional benefits by becoming more evidence-based and value-promoting are encouraged to do so. • Updating. The state would be held accountable for implementing its state-specific EHB definition, reporting to HHS on the results of implementation, updating the package at least every 2 years, and submitting the results of the updating, along with any requests to modify the state-specific EHB definition at least every 2 years. The goals for state updating should be in accord with the national goals of having the state-specific EHB become more specific, evidence-based, and value-promoting. • Oversight, compliance, and consequences. HHS shall have the authority to terminate any state-specific EHB definitions where necessary to comply with the requirements of Section 1302, or where the state has failed to comply with any requirements imposed by HHS as a condition of approving a state-specific EHB definition. • Innovation. Finally, the HHS set of standards for a state-based process should encourage state-level innovation in the way those standards are met and require an evaluation plan to document outcomes. HHS could encourage state participation in an HHS evaluation as a condition of granting a state-specific EHB definition. States should be encouraged to learn from one another as they set about creating a proposal for a state-specific EHB definition.8 These criteria would form the framework for a set of standards articulated by HHS that a state would have to meet as it embarks on its own process for creating a proposal for a state-specific EHB definition to submit to HHS for approval. In developing these standards, the committee believes HHS would best meet its oversight obligations by recognizing the primary importance of states’ demonstrating that they have the structures and processes in place to meet the standards, rather than the degree to which the resultant state package matches the federal package. For example, as HHS develops and applies these standards, the committee, as noted previously, has concluded that if a state already has established comprehensive basic benefit definition processes, as long as the results are consistent with the legislative requirements of Section 1302 and the committee’s recommendation, then the state program should be granted deference in the state-specific approval process. Chapter 6 documents the importance the committee attaches to a public deliberation process to elicit the social values important to developing the EHB definition and to building necessary public trust. The committee believes that HHS should provide technical assistance on public deliberation to states interested in incorporating this process into their application. POLITICAL IMPLICATIONS The determination of the EHB is a politically and socially charged endeavor. The committee believes the definition of an EHB package is integral if the ACA is to attain its promise. In meeting this promise, HHS is well advised to develop a process to consider state-specific EHB definitions that maximize the likelihood of success by ensuring the right balance between local engagement, support, and flexibility, and national protection of all citizens and legal residents. REFERENCES HHS (Department of Health and Human Services). 2010. Rate increase disclosure and review. Federal Register 75(246):81004-81029. ______. 2011a. Patient Protection and Affordable Care Act; Establishment of exchanges and qualified health plans. Federal Register 76(136):41866-41927. 8 There many examples of state-based learning facilitated by federal authorities at the Center for Consumer Information and Insurance Over - sight (CCIIO) and the Centers for Medicare & Medicaid Services (CMS) in partnership with private nonprofits such as the National Academy for State Health Policy and Robert Wood Johnson Foundation’s State Coverage Initiatives Program.

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133 ALLOWANCE FOR STATE INNOVATION ______. 2011b. Preparing for innovation: Proposed process for states to adopt innovative strategies to meet the goals of the Affordable Care Act. http://www.healthcare.gov/news/factsheets/stateinnovation03102011a.html (accessed June 30, 2011). Oregon Health Services Commission. 2011. The prioritized list. http://www.oregon.gov/OHA/healthplan/priorlist/main.shtml (accessed June 27, 2011). Pierron, W., and P. Fronstin. 2008. ERISA pre-emption: Implications for health reform and coverage. http://www.ebri.org/pdf/briefspdf/EBRI_ IB_02a-20082.pdf (accessed July 11, 2011). The White House. 2011. Fact sheet: The Affordable Care Act: Supporting innovation, empowering states. http://www.whitehouse.gov/the-press- office/2011/02/28/fact-sheet-affordable-care-act-supporting-innovation-empowering-states (accessed June 30, 2011).

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