Confusion over essential health benefits

by Nicholas Bagley — Friday, Mar. 24, 2017

The post has been revised to take into account feedback on how best to understand the manager’s amendment.

Last night, House Republicans released the text of the final manager’s amendment to the American Health Care Act, including changes to the rules governing the essential health benefits. With these tweaks, the House hopes to pass the bill today.

House Republicans should look before they leap. Even if they’re on board with the amendment’s goals, its actual language is a train-wreck. If it becomes law, the individual insurance market will likely collapse nationwide in 2018. Its fate after that will be highly uncertain.

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Eliminating the requirement that insurers in the individual and small-group market cover the essential health benefits would create a vicious race to the bottom among insurers. Fortunately, the manager’s amendment doesn’t go that far. Instead, the amendment tells each state to define what counts as essential within the state, “for purposes of section 36B of the Internal Revenue Code.”

State-defined benefits will then drive the size of the tax credits: the more expansive the benefits, the bigger the tax credit. Did House Republicans really want to give states an incentive to expand the definition of essential health benefits in order to draw down more federal dollars? As Tim Jost points out, this problem dissipates in 2020, when the tax credits will be fixed amounts that don’t turn on which benefits are essential. But the concern is very real for 2018 and 2019.

Even if you think that’s good policy, the manager’s amendment is troubling. Start with its irresponsibility. The new rule would apply as of January 1, 2018. But insurers have to create and price their health plans within the next few months in order to get them approved prior to the start of open enrollment. They don’t know which services their states will say are essential and they don’t have time to wait around while their states bicker about it.

The problem runs deeper. Section 36B governs eligibility for tax credits; among other things, you’re eligible only if you buy a qualified health plan that covers the essential health benefits. In 2018 and beyond, then, it looks like you’re eligible for tax credits only if you buy a health plan that adheres to state-defined essential health benefits.

So—in a weird echo of the argument in King v. Burwell—if a state hasn’t defined the essential health benefits, it seems that no one in the state is eligible for tax credits. If that’s right, then the best way to read the manager’s amendment may be the same way that Republicans in King argued the ACA should be read: as dangling tax credits to induce states to do what Congress couldn’t order them to do directly.

I can’t imagine that’s what House Republicans have in mind, just as it wasn’t what the ACA’s drafters had in mind. But that appears to be what this amendment says. Perhaps HHS could adopt an alternative interpretation through rulemaking, but that too will take time—several months, probably closer to a year—and any rule would be challenged in court. Until the uncertainty is resolved, no insurer will offer health plans in any state that—for whatever reason—can’t get its act together to specify the essential health benefits.

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Which brings me to the next big ambiguity. The manager’s amendment retains almost the entirety of the ACA’s rule governing the essential health benefits. The Secretary of HHS is still required to “define the essential health benefits,” which must include the ten major benefit categories, including maternity care and mental health services. Plus, the Secretary must “ensure” that the scope of the essential health benefits is “equal to the scope of benefits provided under a typical employer plan.”

The amendment just tacks on a provision saying that, for 2018 and beyond, “each State shall define the essential health benefits with respect to health plans offered in such State, for purposes of section 36B.” That’s all the provision says; it doesn’t elaborate. So do these state-defined essential health benefits also have to cover the ten categories of benefits? And do those benefits have to be the same as those in a “typical employer plan”?

The amendment doesn’t say. It’s probably best understood to give states carte blanche. The ten categories and the typicality requirement would then apply only to the HHS Secretary’s definition, not to the states’ definitions.

But that’s not the only way to read the amendment. It’s also possible to read it as shifting responsibility for defining the essential health benefits from the Secretary to the states. On that view, states would have to adhere to the same rules that govern the Secretary’s definition. Maternity care and mental health services, among other benefits, would still count as essential. Typicality would be preserved.

Now, Secretary Price could probably issue a rule resolving this ambiguity in favor of state authority. But that, again, will take time—maybe years, if you take into account the inevitable litigation. In the meantime, the uncertainty over the availability of tax credits will drive insurers from the individual insurance markets.

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The deficiencies of the manager’s amendment exemplify the perils of refashioning an enormous and complex system on the fly. Health care is complicated; anyone who tells you otherwise is delusional. If Republicans want to change the rules governing the essential health benefits, they need to take care that they don’t accidentally destroy the individual insurance market. The manager’s amendment fails to clear that very low bar.

@nicholas_bagley

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About Nicholas Bagley

Nicholas Bagley is a Professor of Law at the University of Michigan Law School.

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