By Robert Holden, Senior Vice President

The Institute of Medicine (IOM) recommendations for Essential Health Benefits, released October 6, may have injected new life into state planning for health benefit exchanges during the upcoming 2012 legislative session. The IOM’s recommendations establish a process for identifying the benefits that will become the basis for health plans available to individuals, small businesses, and eventually to larger employers through each state (and any federal) health benefit exchange. The federal rules that emerge from this process will have a profound effect on insurance regulation in the states, as they will impact all state health insurance benefit mandates currently imposed on health insurance carriers.

Since the enactment of the Affordable Care Act (ACA), state policy makers have known that they would be required to pick up the cost of any state mandates imposed on plans offered through a state health benefit exchange that exceeded the federal essential benefits. As a result, states have already introduced legislation and established commissions to review state mandated benefits in anticipation of the federal rules. With the release of the IOM recommendations, it appears that states may have much more control of which mandate benefits they will be able keep.

States Pace Their Implementation Efforts on the Availability of Federal Guidance

The race towards the ACA’s 2014 deadline to implement state health benefit exchanges has become a “chicken or egg” process between state policy makers and the HHS, as states delay implementation while waiting for federal guidance. The release of federal rules on exchange governance came this summer, after many state legislatures had already adjourned. Federal rules on benefits are still pending, even as state planning and interim activity increases for the 2012 legislative session. States are particularly dependent on the HHS rules addressing essential benefits, as the ACA statute provides only broad benefit categories, such as “Prescription Drugs,” that must be made available in health plans. The IOM recommendations did not narrow the benefit categories for states, as IOM was authorized to provide the process for determining essential benefits and not the specific benefits themselves.

Opportunities for State Policy Makers

While state activity on specific benefits is still delayed, the IOM recommendations do offer some direction to state governments, starting with small group health plans. If it proceeds as recommended, HHS will begin with the benefits offered in a current, typical, small business health plan. These benefits will then be supplemented with additional required services so that each ACA benefit category is met. HHS will also develop an ongoing review process to account for future health technology advances and new benefits.

More importantly for state policy makers, IOM recommends that states have the flexibility to create alternative benefit structures, if they establish an exchange. Additionally, in comments made during the IOM’s release of their recommendations, it became clear that the IOM believes that states should decide how benefits addressing disabled and transitional Medicaid populations are structured. These recommendations not only give state officials additional flexibility and control over benefit mandates, they may provide needed incentive to continue implementing ACA exchanges. While it remains to be seen how states still considering their plans for implementation will react, this new incentive puts even more focus on the release of federal essential benefit rules and the formal authorization of states to create alternative benefit structures for their state exchanges.