IOM's disturbing report on "essential health benefits"

Essential Health Benefits: Balancing Coverage and Cost

Institute of Medicine
October 6, 2011


The principle intent of the Patient Protection and Affordable Care Act (ACA) is to enable previously uninsured Americans to obtain health insurance. To accomplish this, in part, subsidized plans will be offered to low- and moderate-income individuals and small employers through health insurance exchanges. Plans qualified to be offered through exchanges must at minimum include "essential health benefits" (EHB). The ACA is not very specific on the definition of EHB except that such benefits shall include at least ten enumerated general categories and that the scope of the EHB shall be equal to the scope of benefits provided under a typical employer plan. The ACA requires the Secretary of the Department of Health and Human Services to define the essential health benefits.

The Institute of Medicine (IOM) was asked by the Secretary to make recommendations on the methods for determining and updating the essential health benefits. Notably, the request was to focus on criteria and policy foundations for the determination of the EHB, not to develop the list of benefits. The IOM formed a committee of volunteers with varied perspectives and professional backgrounds; the committee held four face-to-face meetings and numerous conference calls. Broad public input was obtained. In two open workshops, the committee heard from more than 50 witnesses, and 345 comments were received in response to questions posted on the web. The consensus report then underwent rigorous external review in accordance with procedures established by the Report Review Committee of the National Research Council.

As the committee examined its charge, it saw two main questions for the Secretary: (1) how to determine the initial EHB package and (2) how to update the EHB package.

Defining the initial EHB package. In considering how to determine the initial EHB package, the committee was struck by two compelling facts: (1) if the purpose of ACA was to provide access to health insurance coverage, that coverage had to be affordable; and (2) the more expansive the benefit package was, the more it was likely to cost and the less affordable it would be. How to balance the competing goals of comprehensiveness of coverage and affordability was key.

The committee concluded that it was best to begin simply by defining the EHB package as reflecting the scope and design of packages offered by small employers today, modified to include the ten required categories. This package would then be assessed by criteria and a defined cost target recommended by the committee. The committee considered how four policy domains - economics, ethics, population-based health, and evidence-based practice - could guide the Secretary in determining the EHB package in general. From these policy foundations, the committee recommends: criteria to guide the aggregate EHB package; criteria to guide specific EHB inclusions and exclusions; and criteria to guide methods for defining and updating the EHB.

To ensure affordability and protect the intent of the ACA, the committee concluded that costs must be considered both in the determination of the initial EHB package and in its updating. Thus, the cost of the initial EHB package resulting from the previous steps should be compared to a premium target defined by the committee as what small employers would have paid, on average, in 2014. Committee members believe that absent a premium target, there would be no capacity to acknowledge the realities of limited resources and the ongoing need for affordability of the package. The EHB package should be modified as necessary to meet this estimated premium, including using a structured public deliberative process. In addition, the committee recommends that states operating their own exchanges be able to design a variant of the EHB package if certain standards are met.

Updating the EHB package. Both medical science and our understanding of how best to design insurance products will change over time. Thus, the committee recommends creating a framework and infrastructure for collecting data and analyzing implementation of the initial EHB; a National Benefits Advisory Council is recommended to give the Secretary advice on the research plan and on updates to the EHB package. The committee believes that the EHB package should become more fully evidence-based, specific, and value-based over time. In addition, as with the initial package, costs must be taken into account such that any service added to the package should be offset by savings, through either medical management or the elimination of inappropriate or outmoded services.

Finally, the committee noted that even with the use of a premium target, the affordability of the EHB package is threatened by rising medical costs in the United States overall and recommends that the Secretary, in collaboration with others, develop a strategy to reduce health care spending growth across all sectors.

And from the IOM Report Brief:

One way to think about the EHB package is to compare HHS’s task to going grocery shopping. One option is to go shopping, fill up your cart with the groceries you want, and then find out what it costs. The other option is to walk into store with a firm idea of what you can spend and to fill the cart carefully, with only enough food to fit within your budget. The committee recommends that HHS take the latter approach to developing the EHB package and to keep in mind what small employers and their employees can afford. Employers who offer insurance packages make such choices now.


By Don McCanne, MD

From the start of the reform process it was understood that defining which essential benefits should be covered by the exchange plans would be controversial. What is no surprise is that, just as the process of writing the Affordable Care Act (ACA) was guided by the private insurance industry, this recommendation for establishing a process for determining essential benefits has the private insurance industry's fingerprints all over it.

When ACA was developed, the large group employer health plans were functioning fairly well, so it was decided to include policies that would encourage the continuation of these plans. It was the market of small group and individual plans that was not functioning well. Benefits were quite skimpy, and underwriting practices prevented many from obtaining coverage in this market. Thus it was decided to establish state health insurance exchanges in which a market of better regulated and more standardized insurance products would be available.

When the Institute of Medicine tried to balance the essential health benefits package (EHB) with affordability what did they choose? They decided that affordability must come first, and then benefits selected to match the affordable premiums.

Wait a minute! What is being made affordable? Health care or health plans? Skimpy benefits equate with unaffordable health care since much of health care has to be paid out-of-pocket simply because it is not part of the benefit package. By establishing the current benefits of existing small group plans as the standard essential benefits in the plans offered by the exchanges, the IOM has made a deliberate choice of making private health insurance products affordable at the cost of making health care itself unaffordable for those purchasing their plans in the exchanges.

This is precisely what the private insurance industry wanted when it came to defining the essential health benefit packages. By making the austere small business packages the new standard, the insurers could keep their premiums low enough to ensure that they still had a market for their products. The insurers could care less what happens to patients when they actually need care, as long as their own market is protected.

It isn't the insurers' problem now since they have the prestigious Institute of Medicine telling the nation that we can't have more than skimpy, spartan health care unless we are willing and able to pay for it out-of-pocket. Since most middle-income families can't, they'll just have to do without.

(Single payer systems do not cut benefits. They control spending through administrative efficiencies, global budgeting, price negotiations, elimination of coverage for detrimental services, and by planning and separate budgeting of capital expenditures.)