Essential Health Benefits: Balancing Coverage and Cost

Institute of Medicine
October 6, 2011

Abstract

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.

[…]

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.

….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.)

Getting serious about Medicare solvency requires that we get serious about reducing health care costs in general. In his new book, Dean Baker offers two rarely discussed ways to reduce health care costs quickly. The first is the elimination of drug patents. Although they are taken for granted as necessarily existing, drug patents — and patents in general — should be understood as artificial, government-issued monopolies over the production of a certain drug. This government-issued monopoly allows pharmaceutical companies to charge exorbitant prices for prescription drugs which drives up costs for individual consumers and government programs like Medicare.

By constructing a non-competitive marketplace for life and death products like drugs, government policy undermines its own interests in reducing health care costs. Baker claims that consumers and the government pay around $270 billion more per year for prescription drugs than they would without drug patents. Patents are usually held up as necessary to incentivize drug research, but as Baker points out, the government already spends $30 billion a year through the National Institute of Health on medical research. Increasing that by another $30-$80 billion could completely replace the drug research being done in the private sector, an increase which would be more than offset by the massive savings on patent-free prescription drugs.

In addition to eliminating drug patents, Baker also suggests in a previous book that we use the tactics of free trade already used against low-wage earners to depress the wages of doctors. As it stands, doctors in the United States benefit from exorbitant salary levels that result from proctectivist licensing restrictions manufactured by the American Medical Association. They also benefit from policies which make it difficult for professionals to immigrate to the United States and practice, professionals who would likely demand less for their services. Doctors in the United States presently make about twice as much as doctors in other wealthy countries do. Intentional policies to increase competition among doctors in the United States would likely put downward pressure on the salaries of doctors which would ultimately decrease health care costs.

The last big way to decrease health care costs, although not a suggestion mentioned by Baker, is to implement a single payer health care system. Single payer systems across the world have much lower administrative expenses than private insurers which decreases the cost of health insurance to consumers.

These three proposals are just a few ways to get started cutting costs, a policy approach which will both reduce government expenditures and overall health care spending in the economy. Medicare and Medicaid are not the problem and never have been; spiraling health care costs are and will continue to be. Any approach which is not focused on bringing those costs down or checking their growth should be immediately dismissed as non-serious. That conservatives have endorsed none of these approaches and continue to pursue merely cost-shifting — an approach which is still unsustainable as the CBO projection demonstrates — reveals their self-proclaimed fiscal realism as the posturing that it really is.

letterstomycountry:

other fun facts:

• 24% of the average person’s premiums go towards administrative costs for health insurance companies.  For 10,000+ employee companies, this is equal to 4-6% of their total costs; but the percentage is higher for smaller companies.
• In Taiwan, which has a single payer healthcare system, administrative costs amount to only 2% of total healthcare spending, i.e. administrative costs account for 2-3 times as much in expenditures for private health insurance companies in America

Now there’s a reasonable objection to be made here: a person who favors privatized health insurance could argue that much of the additional administrative costs of private health insurance arise out of the additional bureaucracy necessary to ensure compliance with state and federal regulations.  But when making this objection, you would have to demonstrate that this compliance accounts for a doubling and/or tripling of private-sector administrative costs to make private health insurance even comparable (much less cheaper) to single-payer plans in other countries.  

Now there is no doubt that regulatory compliance adds some additional administrative costs.  But one of the primary reasons that administrative costs are so high in the private sector is because they devote an obscene amount of resources to trying to deny payment to their policy holders, not to mention all the resources they have to spend both lobbying for preferential treatment, and on propaganda marketing.  And this is to say nothing of their ethical (and legal) duty to make a profit for their shareholders; or the obscene compensation packages they offer their CEO’s.  I know I’m glad that a 17-year old died after CIGNA denied a kidney transplant she should’ve qualified for, while a former CEO of CIGNA made 28.2 million a year (Why my friends on the Right complain about public servants making 6-figure salaries, but have no problem with their health insurance premiums subsidizing the unnecessary and unjustified salaries of health insurance executives will always be beyond me).

The point is, of course, that under a single-payer plan, these costs are extremely reduced or non-existent.  Nearly ever civilized country in the world now operates some sort of universal healthcare plan.  The United States is the only one that refuses to come to terms with the failures of its private-centric system.  

None of this means that single-payer doesn’t have its own problems.  No system will ever be perfect.  But at the end of the day, in a single-payer system, you can rest assured that a) you will be treated based on your medical needs, and not your ability to pay, and b) your premiums will not subsidize the obscene salaries of corporate CEO’s and the profits of corporate shareholders.  They will be used exclusively to administer and pay for your care.  Which is probably why every single country with a universal healthcare system pays less for healthcare on a per capita basis than the U.S.

The single payer plan that Baucus kept off the table is now very much on the table in Libby. Unknown to most of the public, Baucus inserted a section into the health reform bill that covers the suffering people of Libby, Montana, not just the former miners but the whole community—all covered by Medicare.

analog-blog:

“Facing possible extinction for the first time in four years, the single payer bill SB 810 pulled through, passing the Senate Health Committee on Wednesday on a 5-3 vote, state Sen. Mark Leno’s office reported. Up until a couple of days ago, committee chair Sen. Ed Hernandez had been undecided, putting the bill in jeopardy. But intense pressure from single payer advocates across the state and a massive phone campaign finally secured a “yes” vote from Hernandez. In addition, hundreds of single payer supporters descended upon the Capitol in Sacramento to attend the hearing.”

Way to go, California!  Neck and neck with Vermont to be the first state with a single payer health insurance plan.  Love to all the activists that have worked so hard for so many years to make this happen. 

As a doctor for many years – way too many – I can tell you that it’s a conservative profession, but the good news is that the majority of physicians, not to mention medical students, now see national health insurance as the answer.

Realizing Health Reform’s Potential: Will the Affordable Care Act Make Health Insurance Affordable?

By Jonathan Gruber and Ian Perry
The Commonwealth Fund
April 2011

Abstract:

Using a…