Perspective
The Value of Federalism in Defining Essential Health Benefits
N Engl J Med 2012; 366:679-681February 23, 2012
Comments
open through February 29, 2012
- Article
The promise of nearly universal health insurance coverage embodied in the Affordable Care Act (ACA) has meaning in part because it is tied to a minimum set of covered services called essential health benefits (EHBs). Health and Human Services Secretary Kathleen Sebelius surprised the health care community when, on December 16, 2011, she announced that there would not be one single national definition for EHBs.1 Rather, each state will have 10 options to choose from in defining the EHBs, 7 of which are tied to existing coverage in that state's small-group, state-employee, and health maintenance organization markets.
Although critics of this decision grudgingly acknowledge that it was good politics to avoid a high-profile national battle over benefit design, they generally see little substantive merit in the secretary's approach. Yet her decision is sound public policy and capitalizes on the strengths of American federalism that run throughout the new health care reform law.
The ACA sets forth 10 services that must be included in the EHBs, and it explains that the EHBs must be based on a “typical employer plan.”2 Under the secretary's approach, states will need to consider two factors when selecting from among their EHB options. First, they must consider how the plans define the scope of each of the 10 services. This question captures issues such as whether or not particular high-cost drugs should be included in the prescription-drug benefit. Second, states must consider whether to include benefits beyond the 10 enumerated in the federal law. This consideration captures issues such as whether in vitro fertilization and applied behavior analysis for autism — the subjects of state-level mandates in 8 and 29 states, respectively — should be included.
Under the principles of federalism that have guided the development and implementation of policy in this country since it was founded, there are three potential benefits associated with permitting states to make these decisions with respect to the EHBs. These three advantages relate to learning what works, tailoring policies to local conditions, and reflecting citizens' values.
The metaphor that states are the laboratories of democracy is most apt when applied to situations in which we truly don't know what the best policy would be. A perfect example is the statutory requirement that the EHBs include habilitative services. As the Department of Health and Human Services (DHHS) noted when it released its bulletin, habilitative services are not defined in a consistent way in existing commercial insurance plans. Supporters of a single federal standard for the EHBs would have the federal government craft a definition of this benefit. But when it comes to something new and unknown, there is value in testing various conceptions and definitions before settling on a single, national standard.
A more challenging example involves defining the scope of a given benefit. Allowing for variation, particularly with regard to the boundaries of coverage, is an excellent way to learn both the value and the cost of that coverage. The fraught history of coverage for autologous bone marrow transplantation in the 1990s, when insurers were pressured through legal and political means to cover a treatment that had a limited evidence base and that ultimately proved to be ineffective, serves as a reminder that early judgments regarding the efficacy of a given procedure — particularly when influenced by politics — may be erroneous.3 With regard to whether high-cost services should be included in the EHBs, faith that the judgment of the federal government would be better than that of the states is misplaced.
The second reason to define EHBs at the state level is to match policy to the local context and conditions. Secretary Sebelius's approach is minimally disruptive in that it enables coverage to remain largely unchanged for people who have it and assures that those who gain coverage have a plan that looks similar to what their neighbors already have.
The Institute of Medicine recommended that affordability be taken into account in the development of the EHBs.4 Substantial regional variation in health care spending makes that task impossible at the national level. Allowing states to define the EHBs in terms of one of the dominant plans already in place within their jurisdiction means that they can select a plan that has already met a market test of affordability. A single, national set of EHBs could require insurance carriers around the country to modify their benefit offerings to include new services or exclude services they have historically covered, resulting in conservative (high) pricing because of uncertainty.
The third reason to allow states to choose the EHBs is to better match policy to local values. Fundamentally, decisions regarding the scope and scale of the EHBs are decisions regarding the portion of health care costs that should be shared rather than borne by the individual. A national compromise on this matter is likely to disappoint everyone.
Of course, federalism has some costs as well. The primary weakness of the secretary's approach is its potential inefficiency. One must ask whether it's a good use of resources to have 50 individual states analyze the relative merits of 10 different options for EHBs while also considering the very complex matter of the fiscal liability that those options will create for the state.5 And in the current political environment, giving states yet one more choice creates yet another opportunity for opponents of the law to delay its implementation.
The most common, but least convincing, argument against the secretary's federalist approach has to do with equity. It is a truism that state flexibility will yield differences within the country and that those differences cannot be defended on the basis of differing basic human needs for health care services. But those inequities must be viewed in context. The law is quite specific regarding the composition of the EHBs. The degree of variation among states' 10 options, and among the options that states ultimately select, is likely to be small. As the Institute of Medicine noted, the primary type of variation in health insurance products is in cost sharing (deductibles, copayments, and coinsurance), which defines the four benefit tiers outlined by the ACA but is unrelated to the choice of services included in the EHBs.
Meanwhile, the major provisions of the ACA represent a tremendous step toward interstate equity. The ACA establishes a national eligibility standard for Medicaid and a single, national formula for tax credits that subsidize the purchase of health insurance by middle-income families that cannot obtain affordable coverage through an employer. The quite narrow variation in state approaches to defining EHBs that is likely to result from the secretary's decision represents a modest potential source of inequity relative to the overall direction of the law.
The secretary's decision is consistent with the overall federalist structure of the ACA and the U.S. health care system as a whole. Under the ACA, states are responsible for establishing health insurance exchanges, retain primary responsibility for regulating private health insurance, and continue to have a great deal of discretion in the design and administration of the Medicaid program.
Uniform national standards are fair — and are always appealing to people who believe that the chosen standards will conform to their values and preferences. But in this environment of uncertainty, with sizable preexisting local variability in insurance markets and substantial disagreement surrounding the fundamental value of sharing risk, embracing federalism in defining the EHBs is not just good politics — it is good policy.
Disclosure forms provided by the author are available with the full text of this article at NEJM.org.
This article (10.1056/NEJMp1200693) was published on February 8, 2012, at NEJM.org.
Source Information
From the National Academy for State Health Policy, Washington, DC.
- References
References
1
Center for Consumer Information and Insurance Oversight, Department of Health and Human Services. Essential health benefits bulletin. December 16, 2011 (http://cciio.cms.gov/resources/files/Files2/12162011/essential_health_benefits_bulletin.pdf.)
2
42 U.S.C. § 18022.
3
Mello MM ,Brennan TA . The controversy over high-dose chemotherapy with autologous bone marrow transplant for breast cancer. Health Aff (Millwood) 2001;20:101-117
CrossRef | Web of Science | Medline4
Institute of Medicine. Essential health benefits: balancing coverage and cost. Washington, DC: National Academies Press, 2012.
5
California Health Benefits Review Program. California's state benefit mandates and the Affordable Care Act's “essential health benefits.” Issue brief 2011-01 (http://chbrp.org/documents/ACA-EHB-Issue-Brief-011211.pdf).
- Comments (4)
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4 Reader's Comments
ilaboo lener | Other | Disclosure: NoneFebruary 09, 2012Makes no sense
Why states believe they have expertise in designing a complicated medical system like this is beyond me. Federalism of our health care system by persons who have never treated anyone is beyond me. I suspect sooner or later the physicians are going to opt out of the system since it is the only option that makes sense.
Francesco Bandello, MD | Physician | Disclosure: NoneMilano ItalyFebruary 09, 2012Federalism is essential to define health system needs in different areas
The expenses requested by the health system are increasing all over the world. Europe is, by tradition, a continent where the health system is based on a comunistic approach: everything to everybody. Health economics started to become an important issue only recently. Ophthalmology is an example of a specialty where everything was given to everybody, but now with an important increase in the costs of our therapies we cannot follow this approach and we need to decide which are the priorities. And our needs must be discussed together with the needs of other specialties (usually considered much more important like oncology, reumathology, etc.). The problem is: how can we establish what is more important? Is more important to have an oncology patient living some months more by a new expensive drug or is it more important to guarantee that this patient can save sight as much as possible? Who is in charge of this kind of decisions? The answer must be: the politicians and they must make their choices on the bases of our advice and of specific needs of different areas. That's why federalism is essential to define health system needs in different areas.
JONATHON ROSS, MD | Physician - Health Law/Ethics/Public Policy | Disclosure: NoneOTTAWA HILLS OHFebruary 08, 2012The best benefits for the least money: Single payer- Medicare for all
I wonder how much federal flexibility will be allowed to Vermont, Hawaii and perhaps even California if they want to move quickly forward with a state based single payer insurance that will cover all state residents with a high level of comprehensive benefits. The comprehensive and equitable coverage that could be afforded with the administrative savings under a single payer will be impossibly unaffordable in the crazy quilt mess of the insurance exchanges of the ACA. We shall see. The best benefits for the least money: Single payer improved and expanded Medicare for all.
Justly equitable
It is of interest that after many years, the centralized National Health Service (NHS) in Great Britain will be abandoned. Included in the September 2011 decision, the NHS also decided to close down their current electronic health record, after a $50 billion investment. As we begin to consider the reform of our healthcare industry, it seems inevitable that some degree of benefits will need to be limited more carefully. What will the the character of the decision process that will generate acceptance and support of any limits? How likely is it that a federally legislated process for defining health insurance benefits would generate this support and acceptance? Wouldn't it also be important that any benefit structure should eventually be honored by all payers and supporters of health care, e.g., Medicare, Medicaid, Veterans Administration, Community Health Centers, Indian Affairs, as well as, private insurance? And, finally, shouldn't any benefit structure allow for uniquely special needs, neighborhood by neighborhood and community by community? And, what will be the character of the future physicians who chose to serve the health needs of each citizen under this structure?