John Carroll

Health plans that have resisted inappropriate state mandates might be in a position to bill those states for their cost when policies are sold through an exchange

John Carroll

The Department of Health and Human Services won’t decide before the end of this year exactly what “essential services” are to be required for health plans to be included on state insurance exchanges being set up under the Patient Protection and Affordable Care Act and rolled out in 2014. But there’s already a big debate under way about the effect new exchange rules will have on the fate of a battery of state coverage mandates.

America’s Health Insurance Plans estimates that there are more than 2,000 state mandates requiring insurance companies to cover, for example, the cost of breast examinations, fertility treatments, or substance abuse programs. And every year patient advocates engage in a battle of words over new measures.

Under the health care reform law, though, any coverage mandated by a state that is not included under the federal government’s definition of essential services will have to be paid for by the states themselves when it’s provided to someone covered by a health plan offered through the exchange. Industry analysts and other keen observers say that provision could trigger a sharp backlash among cash-strapped states against mandated benefits, influencing debates about adding new mandates or inspiring discussions about stripping existing ones from the law books.

Faced with a legislative proposal to mandate coverage of breast ultrasound screenings, breast MRIs, and breast thermography, adding to the 49 mandates already written into Connecticut law, the lobbyist for the Connecticut Association of Health Plans noted that the new federal rule should force legislators to evaluate the added cost of this kind of coverage — and then kick it loose.

“The policy considerations have changed significantly in the wake of federal health reform,” says lobbyist Keith Stover, a lawyer at Robinson & Cole. It used to be that legislators would consider new mandates without any consideration of who winds up paying. Now, he says, “there will be a price for this.”

The state is not likely to add services that aren’t on the federal list because it would have to pay directly for them, he says.

But with most states finding their current spending plans already far too large to digest, adding new costs to the menu may not fly.

AHIP tackles the mandate issue

“I do think the states are going to change the laws,” says Linda Blumberg, PhD, a senior fellow at the Urban Institute. “In the past, these mandate costs have been spread broadly across those who are insured.” But with the economy flagging and states slashing budgets from coast to coast, “I don’t think the states are looking for more things that they have to fund for health care. My guess is that the vast majority of states will lower the benefit mandates as a consequence.”

Blumberg and others, though, are quick to add that they’re dealing with a host of unknowns when it comes to mandates and the essential benefits clause.

“We don’t know anything yet about the benefits,” says Rachel Morgan, health committee director at the National Conference of State Legislatures. “The Institute of Medicine will come out with recommendations for the criterion for selecting essential benefits in September. And HHS may not have a defined set of essential benefits until the end of this year, if not later.”

AHIP has campaigned for years against mandated health benefits. And it wasted no time in drawing a link between mandates and the affordability of these exchange plans. Back in January, the trade group issued a stern warning to the IOM against including the vast array of state mandates in the essential benefits package. Those mandates, insists the trade group, would pump up the price of health plans beyond the reach of many consumers.

“It would be impossible to include this large number of existing mandates in a national essential benefit package while at the same time providing affordable access to care for consumers,” the group said in written remarks.

Blumberg, though, tends to discount the financial effect of many mandates.

The coming backlash

“The vast majority have only a tiny, marginal cost attached,” she cautions. And some of the mandates that do sway premiums, like ones requiring coverage of substance abuse or mental health programs, are likely to be part of what federal regulators will include as essential benefits.

Insurers like to have complete control of plan designs because it gives them a chance to target particular consumers, says Blumberg. Fine tuning the benefits on offer is one way for clinical executives at health plans to define the demographic group they want to cater to.

If an insurer purposefully leaves out coverage of pharmaceuticals, for example, it’s because it wants to steer clear of patients who may make pricey demands for therapeutics. Alternatively, it will add benefits to woo members it most wants in the plan.

Blumberg, though, isn’t alone in predicting a backlash against mandates if legislators start to see a bill attached to them.

“I imagine some states will consider cutting back,” says Morgan, “if they feel they cannot afford that portion of the subsidy. Everybody’s short of cash right now and having a difficult time with budgets.” And state regulators are likely to take a hard look at which benefits can qualify as essential.

“I don’t want to bank on anything, I don’t want to predict.” But, she says, “we’re not looking at Cadillac plans here.”

Group coverage tends to offer a richer set of benefits with the risk and cost spread over a number of lives while individual policies tend to be more expensive with tighter controls over access to care. The feds want the exchanges to offer basic care coverage to individuals and small businesses, preventing these plans from rejecting anyone based on a pre-existing condition.

A state that has mandated benefits for something like fertility services, she adds, might reconsider if it has to pick up the tab for people who qualify for an exchange plan.

States have yet to declare whether they plan to offer their own health exchanges or will turn the job over to the feds. But there’s no question that there’s been a lot of interest.

“All except for Alaska have accepted the planning grant,” says Morgan. This year, implementation grants became available. States that opt to run their own program will have until the beginning of 2013 to demonstrate to HHS that they can be up and running Jan. 1, 2014.

But by the fall of 2012 they’ll have to have a functional enrollment process in place, leaving some states with only one more session before the actual nuts and bolts of the exchanges have to be in working order.

The exchanges are open to small businesses and individuals. People with incomes up to 400 percent of the federal poverty line will receive tax credits to help them pay for coverage.

Delayed reaction

So far, though, the health plans’ affordability argument hasn’t had much of an effect in Connecticut, says Stover. Connecticut legislators have been considering upward of a dozen mandates, he says, with little regard for the effect they could have on future budgets.

“I suppose it would take someone finally reading the federal bill and realizing that they are creating a fiscal impact where they used to think they could ignore the cost impact of mandates,” says the lobbyist.

But so far, he adds, there’s been little indication that most legislators in his state understand what’s about to happen.

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The days when states could pass a health plan mandate without considering the cost are coming to an end, says Keith Stover, a lawyer and lobbyist.

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