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New Essential Health Benefits Rules Give Obamacare Plans More Flexibility As They Face Rising Competition

The Department of Health and Human Services (HHS) just issued its annual revision of the rules for Obamacare plans that are sold on the state Exchanges (Marketplaces). The rules give states and insurers more flexibility in determining what benefits these plans should offer. Likewise, they fix some nonsensical prior guidance from HHS that discouraged plans from providing special benefits to children, elders, women and the disabled. This flexibility is needed as Obamacare plans begin to compete with association and short-term health plans.

Obamacare plans must cover ten “essential health benefits” (EHB) based on a standard “benchmark” plan selected by each state (premiums for almost all members (about 85%) are subsidized). The list of EHBs includes the basics: doctor, emergency, hospital, pharmacy and lab services. Then it adds things like wellness services, pediatric vision and dental care. Nice to have, but each benefit increases the cost of a plan for consumers.

The new regulations do not change this basic structure, but they do give states more leeway in setting their benchmark plans. Under the old rules, to set the scope of required benefits for Obamacare plans, each state did not create a list of benefits from scratch; rather, they selected an existing insurance plan to serve as the “benchmark” – the exemplar that plans were required to follow with limited exceptions. For the benchmark, states could pick from one of the largest small group, state employee or HMO health plans in the state, or one of the largest federal employee health plans. They could modify their selection by substituting some benefits, and supplement it so that all ten EHB categories were included.

The new regulations, which apply for plan years beginning in 2020, permit states to also: (1) use the entire EHB plan from another state, (2) substitute portions of the EHB plan from another state for provisions in their own state plan – for example, the prescription drug coverage section, or (3) just design their own set of benefits. To prevent states from making Obamacare plans too skinny, their plans will be required to provide the “scope” of benefits provided by one of the biggest fully insured large group health insurance plans in the state. HHS’s guidance indicates that a state does not have to include the same list of benefits, but the actuarial value of each of the ten EHB categories in the state’s and the large employer plan must be close. States are also not permitted to let their plans exceed the generosity of their prior EHB plans.  

In a very helpful move, the new rules institute the requirement that states comply with the “diverse segments” portion of the EHB statute. HHS’s EHB regulations forbid EHB plans from discriminating on the basis of race, sex, age and disability, inter alia. The rules for these four categories differ, and discrimination law has long permitted – or even required – special services to be provided to children, the elderly, women, the disabled and other groups. Congress recognized this fact and the EHB statute requires plans to “take into account the health care needs of diverse segments of the population, including women, children, persons with disabilities, and other groups.” But HHS’s prior EHB regulations omitted the “diverse segments” portion of the statute, and its prior guidance stated that it would be discriminatory, for example, if a plan covered hearing aids for children, but not adults. So if a plan wanted to cover hearing aids for the small percentage of infants with hearing loss during their speech-acquisition years, it would have to cover them for the vast majority of adults who lose hearing later in life – an expensive policy that vitiated the diverse segments statute.[1] By adding the diverse segments requirement into the EHB regulations, HHS appears to be moving away from this prior guidance.

The new regulations also give health insurers a little more flexibility, by permitting them to do their own benefit substitution in their state’s benchmark plan between EHB categories, if permitted by the state. The new rules add that a plan with substituted benefits must provide benefits “substantially equal’ to the state benchmark and provide benefits for diverse segments of the population.

Obamacare plans are facing increasing competition on many fronts, which will increase if the regulations for association and short-term health plans become final. These plans are expected to compete by offering lower premiums – in part because they are not subject to the EHB rules. Obamacare plans have their own advantages – they are the only plans eligible for federal premium subsidies. The additional flexibility in plan design permitted by the new regulations should also help.  

David Johnson can be contacted at or (415) 857-6751.

This blog post is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.

[1] For more on this issue, see my article Anti-Discrimination Law Comes to Health Benefit Design: Is HHS Getting the Rules Right? AHLA Connections 32 (August, 2015).