The Essential Health Benefits Provisions of the Affordable Care Act: Implications for People with Disabilities

Home , Affordable Care Act, Utilization management

MARCH 2011 Realizing Health Reform’s Potential

The mission of The Commonwealth Fund is to promote a high performance health care Sara Rosenbaum, Joel Teitelbaum, and Katherine Hayes system. The Fund carries out this mandate George Washington University by supporting independent research on health care issues and making grants to improve health care practice and policy. Abstract Support for this research was provided by The : In establishing minimum coverage standards for health insurance plans, the Commonwealth Fund. The views presented Affordable Care Act includes an “essential health benefits” statute that directs the U.S. here are those of the authors and not Secretary of Health and Human Services not to make coverage decisions, determine reim- necessarily those of The Commonwealth Fund bursement rates, establish incentive programs, or design benefits in ways that discriminate or its directors, officers, or staff. against individuals because of their age, disability, or expected length of life. This issue brief examines how this statute will help Americans with disabilities, who currently are subject to discrimination by insurers based on health status and health care need. The authors also discuss the complex issues involved in implementing the essential benefits provision and offer recommendations to federal policymakers for ensuring that people with disabilities receive the full insurance benefits to which they are entitled.

    

For more information about this study, please contact: Overview Sara Rosenbaum, J.D. Chair of the Department of Health Policy When fully implemented in January 2014, the Patient Protection and Affordable George Washington University School of Care Act (Affordable Care Act) will transform the health insurance market for Public Health and Health Services [email protected] people with disabilities, enabling them to secure access to more affordable coverage. Beyond the threshold issue of access, however, lies an equally important question: whether coverage will be appropriate to their health and health care needs or will leave them at risk for insufficient and ineffective care along with significant out-of-pocket financial exposure.

To learn more about new publications when To avoid this, the Affordable Care Act breaks new ground by directly they become available, visit the Fund's Web addressing the content of coverage through the concept of “essential health ben- site and register to receive email alerts. efits.” The law establishes an essential health benefits framework in two distinct Commonwealth Fund pub. 1485 Vol. 3 markets. The first is the market for qualified health plans sold through state health insurance exchanges to individuals and small-employer groups. The second 2 The Commonwealth Fund is the general market for individual and small-group • prohibit discrimination in coverage based on health plans, whether sold as qualified health plans health status—that is, prohibit plans from deny- through state health insurance exchanges or outside of ing coverage to individuals, and from utilizing the state exchange structure in what might be thought varying health insurance premiums, based on of as a parallel, state-regulated market. factors other than family size, region, age, or Whether sold inside or outside an exchange, whether the individual participates in wellness plans sold in the individual and small-group markets programs; will be regulated by the state within the same general • bar the use of preexisting condition exclusions; rules, and will be available, if not marketed, to the guarantee the renewability of coverage; same groups of individuals—namely those without employer-sponsored coverage and those who work • bar lifetime and annual limits on coverage; for small employers. Embedded within this essential • establish medical-loss ratio standards; health benefits framework is a prohibition against cov- • prohibit cost-sharing for certain preventive ser- erage discrimination based on disability. (While there vices; and are other prohibited grounds for discriminating in the essential benefits statute, we focus on disability in this • require coverage of routine patient costs associ- issue brief, because disabling conditions are emblematic ated with certain clinical trials. of the types of higher health cost risks that in turn trig- ger insurers’ exclusionary coverage practices.) How this These reforms alone will not ensure the nondiscrimination framework advances prior federal adequacy of coverage in relation to health care need. laws and will be implemented as part of essential health Nor will they prevent insurers from designing cover- benefits policy can be expected to emerge as a central age—including benefits, cost-sharing, and provider issue in the implementation of the reform law. networks—in ways that attract and better serve health- This issue brief examines the Affordable Care ier individuals with lower financial risks. Moreover, Act’s essential health benefits statute and considers without provisions aimed at standardizing the con- its provisions both separately and in relation to prior tent of coverage, it is very difficult for individuals and federal laws that address health insurance. We explore small-employer groups—the prime beneficiaries of the the concept of coverage discrimination and the various Affordable Care Act’s market reforms—to make mean- techniques of plan design and administration that can ingful comparisons among coverage options. The need produce discriminatory effects against people with dis- for some level of product standardization has long been abilities. We then examine how the reform law’s essen- recognized as a key element in making a health insur- tial benefits statute builds on existing federal laws that ance market work. relate to health insurance and disability discrimination For this reason, the law also broadly defines and discuss how implementation of the essential ben- what benefits need to be covered through policies efits statute might be approached. offered in the individual and small-group markets. Under the Public Health Service Act (PHSA) as THE ESSENTIAL BENEFITS STATUTE amended by the Affordable Care Act, all insurers oper- When fully implemented in 2014, the Affordable Care ating in the individual and small-group markets must Act will establish a range of reforms under various fed- cover an “essential health benefits” package. eral laws that are intended to make insurance coverage The Affordable Care Act further directs that fairer and more accessible to individuals with height- qualified health plans sold in state health insurance ened health needs. Among other things, the law will: exchanges (including co-op plans) cover these essential health benefits. The Essential Health Benefits Provisions of the Affordable Care Act 3

Exhibit 1. Essential Benefit Classes Covered by Qualified Health Plans Under the Affordable Care Act • Ambulatory patient services • Emergency services • Hospitalization • Maternity and newborn care • Mental health and substance use disorder services • Prescription drugs • Rehabilitative and habilitative services and devices • Laboratory services • Preventive and wellness services • Chronic disease management • Pediatric services, including oral and vision care

Source: Authors’ analysis of the Affordable Care Act.

The law also establishes cost-sharing limits How treatments subsumed within an essential with respect to the overall actuarial value of the plan, benefit class will be treated when applied to exchange the total amount of cost-sharing to which individuals products has not yet been determined. and families can be exposed, and the size of the annual Although the essential benefits statute vests deductible that must be met. discretion in the HHS secretary, the law also sets Finally, it amends the Employee Retirement boundaries on how she exercises that discretion, shown Income Security Act (ERISA) to apply these provi- in Exhibit 2 and excerpted below. These boundaries sions, codified in the PHSA provisions to ERISA- consist of certain elements related to public notice and governed employer groups. comment, inclusion of treatments and services falling The act exempts large-group health plans, within the essential health benefits package, consulta- as well as self-insured ERISA plans and ERISA- tion with the Secretary of Labor on establishing cover- governed multiemployer welfare arrangements not age parameters based on a Department of Labor survey subject to state insurance law, from the essential benefit of “typical” employer plans, and a series of “required requirements. elements for consideration.”1 The term “essential health benefits” is defined Specifically, the law states that the HHS sec- as a series of broad benefit classes, with considerable retary must “ensure that such essential health benefits discretion left to the Secretary of the U.S. Department reflect an appropriate balance among the categories . . . of Health and Human Services (HHS) to further so that benefits are not unduly weighted toward any define the concept (Exhibit 1). Qualified health plans category.”2 Second, the secretary may “not make cover- are not barred from offering additional benefits, and age decisions, determine reimbursement rates, establish states may require that qualified health plans sold in incentive programs, or design benefits in ways that dis- state health insurance exchanges also cover state-man- criminate against individuals because of their age, dis- dated benefits. ability, or expected length of life.”3 Third, the secretary Where a state mandate adds an entirely new must take into account “the health care needs of diverse benefit class to qualified health plans sold in exchanges, segments of the population, including women, children, a state must pay the cost differential for coverage of persons with disabilities, and other groups.”4 Fourth, these benefits. the secretary must ensure that essential benefits “not be subject to denial to individuals against their wishes 4 The Commonwealth Fund

Exhibit 2. Parameters That Guide the HHS Secretary’s Determination of an Essential Benefits Package

Benefit classes: Certain classes of benefits must be represented in the essential benefits package. Scope of benefits:Essential health benefits must be equal in scope to benefits provided under a typical employer plan. Certain elements must be considered: Elements that must be considered include: the balance among benefit categories; nondiscrimination against individuals because of their age, disability, or expected length of life; the health care needs of diverse segments of the population; and the fact that benefits cannot be subject to denial on the basis of an individual’s age or expected length of life or the individual’s present or predicted disability, degree of medical dependency, or quality of life. Cost-sharing: The law includes broad limits on cost-sharing, including deductibles, coinsurance, copayments, or similar charges. Utilization management: The HHS secretary cannot prohibit a group health plan or health insurance issuer from carrying out commonly used utilization management techniques.

Source: Authors’ analysis of the Affordable Care Act.

on the basis of the individuals’ age or expected length Taken together, the Affordable Care Act’s of life or the individuals’ present or predicted disability, essential benefits provisions set out a multipronged degree of medical dependency, or quality of life.”5 decisional framework. First, they establish certain broad The essential health benefits definition also benefit classes that serve as anchors for the definition addresses cost-sharing, defined as “deductibles, coinsur- of an essential health benefits package. Second, they ance, copayments or similar charges.”6 These provi- empower the HHS secretary, rather than health insur- sions address both the limits on annual cost-sharing as ers, to define the essential benefits package, in consul- well as how these limits will be applied in relation to a tation with the Labor secretary and on a nonreviewable four-tier cost-sharing coverage structure. This structure basis (“as determined by the Secretary”). Third, the ranges from “bronze” plans (covering 60 percent of the provisions peg the benefits to a “typical” employer plan full actuarial value of benefits provided) to “platinum” while at the same time barring the HHS secretary from plans (covering 90 percent of the full actuarial value). making coverage decisions, determining reimbursement (A fifth level of coverage pertaining to catastrophic rates, establishing incentive programs, or designing plans may be sold to individuals under age 30 or others benefits in ways that discriminate on the basis of age, who are certified by the exchanges as not having access disability, or expected length of life. Finally, the law to affordable coverage, as defined in the statute.7) The bars the secretary from prohibiting group health plans concept of a plan’s actuarial value is defined as the level or health insurers from employing “utilization manage- of coverage determined by the secretary based on the ment techniques” that are “commonly” used, while leav- essential health benefits covered.8 ing both terms undefined. The law also contains the following limitation The essential health benefits framework raises on the HHS secretary’s discretion to define an essential important issues. To the extent that current “typical” benefits package: “Notwithstanding any other provision coverage practices by group health plans discriminate of the . . . Act, nothing . . . shall be construed to pro- on the basis of disability, the secretary nonetheless is hibit (or authorize the Secretary of Health and Human obligated to ensure that such discriminatory practices Services to promulgate regulations that prohibit) a are not carried over into the individual, small-employer group health plan or health insurance issuer from car- group, and qualified health plan markets. But this pro- rying out utilization management techniques that are vision raises the question of what “typical” employer commonly used as of the date of enactment of this practices consist of. Furthermore, how will the terms Act.”9 The term “utilization management techniques” is “coverage decisions,” “reimbursement rates,” “incentive not defined. programs,” and “benefit design” be defined in terms of the provision that bars the secretary from using such The Essential Health Benefits Provisions of the Affordable Care Act 5 tools in ways that would discriminate against people people with disabilities and more advanced health on the basis of age, disability, or expected length of life. needs can occur in such plans. In this context, the con- Finally, what are the “utilization management” tech- cept of discrimination is meant to denote practices that niques the secretary is barred from prohibiting? limit insurers’ cost exposure in the case of members with high health care needs. Because the Affordable COVERAGE DESIGN AND UTILIZATION Care Act’s market reform provisions effectively bar MANAGEMENT PRACTICES IN THE discrimination at the point of enrollment, efforts to EMPLOYER GROUP MARKET constrain costs at the point of coverage and use become 10 The starting point for determining how the essential all the more important to understand. health benefits package ultimately will be defined is the Insurers’ approaches to managing risk include: employer group market. It is thus useful to understand 1) techniques related to the design of benefits and the techniques used by insurers operating in this mar- coverage; and 2) techniques related to managing the 11 ket to manage costs and thereby limit their exposure to utilization of covered benefits. Coverage and benefit the financial risks associated with claims for coverage. design techniques can limit or exclude coverage out- To the extent that these techniques result in disability right, much in the way that an annual dollar limit on discrimination, the Affordable Care Act’s essential the value of coverage would place a hard limit on cov- benefits framework can be expected to curtail or mod- erage, regardless of need. Such techniques apply to all ify these practices. members enrolled in a particular plan and are intended Insurers’ strategies for managing risk are to exclude certain types of coverage altogether, regard- highly complex and extend well beyond simply offer- less of the characteristics of the individual who seeks 12 ing a broader versus narrower range of benefit classes care. In effect, design features act as fixed limitations or instituting a prior authorization process for certain and restrictions on the “amount, level, extent or nature treatments. For example, how a particular benefit is of benefits or coverage for similarly situated individuals 13 defined may affect its availability in particular cases. enrolled under the plan.” These types of limits can- Furthermore, within any covered benefit class there not be challenged with medical evidence showing that exist thousands of specific procedures that may or may more or different treatments are necessary; coverage is not be covered. For example, a prescription drug for- not available regardless of the merits of the claim. mulary may exclude certain classes or types of drugs The second set of coverage risk management from coverage altogether. Provider networks may techniques relates to utilization management, that is, be designed to attract and enlist providers that treat techniques used by health insurers to manage the use of 14 lower-cost patients. Provider payment and incentive covered benefits in the case of individual patients. In plans may encourage short-term treatment while dis- this regard, the Affordable Care Act requires the HHS couraging longer-term interventions. Key terms that secretary to recognize existing utilization management govern the availability of all benefits, such as “medical techniques in use at the time of passage, although such necessity” or “experimental,” also can affect whether techniques presumably would be subject to the law’s coverage is available for a particular condition. The use broad nondiscrimination provisions. of certain types of exclusionary terms, such as “educa- The various types and range of coverage and tional” or “social,” can bar otherwise-available coverage. benefit design limitation techniques, as well as utili- Because the Affordable Care Act specifies zation management techniques, can be found in the 15 that the HHS secretary utilize the “typical” employee health insurance literature. Another and perhaps even health benefits plan as the starting point for determin- more useful source of evidence on these techniques is ing the scope of the essential health benefits package, it the large body of judicial case law involving appeals of is important to understand how discrimination against benefit denials under ERISA and other laws govern- ing health insurance and employee health benefits.16 6 The Commonwealth Fund

Because the judicial record is comprehensive and pub- altogether under the terms of a plan, the result is total lic, it is possible to view with particularity the specific exclusion regardless of individual circumstances, and no risk-avoidance techniques used by group health plans. appeal can be mounted.19 While these cases do not shed light on the frequency with which certain types of claims are denied, the deci- Coverage exclusions and limitations. A sions provide understanding of the design and manage- claim denial can stem from an across-the-board cover- ment techniques that are available to group health plans. age exclusion, embedded in the plan document, that excludes specific services and procedures in all cases. Benefit and Coverage Design Limitation Exclusions can be expressed in durational or quan- Techniques tity limits (e.g., no more than 30 speech therapy ses- One of the largest trends in care and cost management sions) or be tied to specific procedures or treatments. in recent years has been the use of benefit and cover- For example, prior to passage of the Women’s Cancer age design to manage risk. Initially, in the late 1980s, Recovery Act of 1998, breast reconstruction following insurers testing cost-containment strategies tended to mastectomy was considered cosmetic and was routinely 20 use broadly crafted coverage documents coupled with and explicitly excluded from coverage. individual patient management, such as prospective Exclusions also can be condition- or diagnosis- and concurrent utilization management procedures.17 based. For example, otherwise-covered speech and Eventually, this approach proved to be ineffective at physical therapy might be excluded in cases in which containing costs. As a result, over the past two decades, the purpose of the treatment is to recover lost function- far greater attention has been focused on the design ing or restore previous levels of functioning. In such a of the plan documents that describe what is covered situation the “recover” limitation is embedded in the in order to tighten the coverage criteria and thereby coverage definition itself (e.g., “speech therapy when exclude certain types of treatments and procedures. needed to restore prior functioning”) or in a broader Design strategies also utilize financial techniques such medical necessity definition that defines medical neces- as patient cost-sharing and payment incentives aimed sity as existing only when a treatment has the potential 21 at encouraging more efficient practices and care-seek- to aid in recovery. ing behavior.18 In addition, coverage exclusions can be pur- What sets plan design cost containment apart pose-based. For example, an exclusion may be applied from utilization management efforts is that the denial against coverage of otherwise-covered physical therapy of coverage is based on a specific limitation or exclu- where the insurer determines that the purpose of the sion that is not specific to an individual’s health condi- therapy goes beyond clinical value and also will aid tion or treatment needs, and thus cannot be challenged. in broader health goals such as education or social Under traditional employee health benefit plan prin- and job-based functioning. This type of exclusion is ciples and in the absence of specific legal requirements, sometimes applied when a child with developmental employers that sponsor health plans are considered disabilities present at birth is receiving treatment that to have unlimited discretion to exclude coverage. By has clinical value as well as the added value of allow- contrast, in cases involving patient-specific utilization ing the child to develop speaking and movement skills management denials, the claim denial rests on a deter- that ultimately can be expected to result in an overall 22 mination that a particular benefit is not necessary for a improvement in health and functioning. In those particular patient. The latter decision rests on medical cases, an insurer may deny coverage because the therapy evidence and factual issues at play, giving rise to appeals has an educational benefit, as well as a clinical benefit. rights. But where a claim denial is based on an administrator’s assertion that a particular benefit is excluded The Essential Health Benefits Provisions of the Affordable Care Act 7

Coverage and treatment guidelines incorporated into the plan’s terms of coverage. Health plans make extensive use of benefit and clini- To the extent that current cal guidelines to inform coverage decision-making. In “typical” coverage practices by group some cases, the guidelines are used by an insurer to health plans discriminate on the guide decisions but are not part of the plan documents themselves and thus do not bind a plan administrator basis of disability, the HHS secretary to award or deny a benefit based on individual circum- nonetheless is obligated to ensure stances. In other cases, however, guidelines are incorpo- that such discriminatory practices are rated into the plan documents as part of the coverage terms and thus create express limits on the types of not carried over into the individual, treatments that can be covered. The guidelines express small employer group, and qualified the full breadth and scope of treatment under the terms health plan markets. of the plan.23 For example, medical management guidelines might specify coverage of long-term treatment for alcohol addiction only in situations in which short- term treatments have failed—thus barring the use of condition” as a concept could be construed narrowly longer-term treatments even in situations in which a to exclude physical and mental health conditions that short-term treatment is clinically inappropriate, given a are not considered by clinical experts to be the product patient’s underlying health condition.24 of a disease but are instead determined to be present at birth. Definitions of key benefit and coverage Tiered cost-sharing. terms. How plan documents define benefit classes can Creating different lev- determine whether coverage is available. For example, els, or tiers, of cost-sharing has gained popularity as where a plan’s terms define speech therapy as therapy a way to provide incentives for the appropriate use of 27 needed to recover lost speech or restore speech, the care. In tiered cost-sharing arrangements, higher-cost effect is to exclude coverage for a child or adult whose treatments and services (e.g., brand-name prescrip- health condition can benefit from therapy but for tion drugs, a specific type of operation performed whom prior functioning cannot be “restored.” This type by an out-of-network surgeon) are subject to higher of example has particular resonance for children born cost-sharing when, in the health plan’s determination, with developmental disabilities and who need therapy a lower-cost treatment or in-network provider would 28 to attain speech, or adults with muscular dystrophy provide equally effective treatment. Similarly, cost- who need therapy to maintain speech or avert the loss sharing may be reduced in cases in which adherence to or deterioration of speech.25 In both cases, the therapy a particular course of treatment (e.g., use of prescrip- is clinically indicated as an effective health intervention drugs to control blood pressure) is consistent with tion, but coverage is excluded because the intervention sound clinical practice and good health outcomes. in the patient’s case falls outside the terms of coverage. Tiering decisions may be made on a case-by- In a similar vein are medical necessity defini- case basis or may be subject to practice guidelines that tions that apply to all covered treatments and pro- are embedded in plan documents and coverage terms cedures and that limit coverage to services that are and therefore automatically place certain treatments 29 required for the treatment of “illness, injury, diseased and procedures on a higher tier. Where the tiered condition, or impairment.”26 Such a framework may arrangement is the result of a medical management exclude some conditions. For example, a “diseased decision specific to a particular patient, modification to consider whether the guidelines appropriately address 8 The Commonwealth Fund

that patient’s underlying condition may be possible. But where the tiered arrangement is the result of a The Affordable Care Act’s guideline that is directly embedded into the terms of coverage, challenges are generally not possible.30 essential benefit nondiscrimination provisions add new dimensions to Tiered provider networks.31 Early efforts prior federal laws regulating insurance by health plans to encourage patients to use efficient, high-quality providers involved a total exclusion of and health plans and barring certain providers from networks, leaving patients discrimination. completely uncovered for out-of-network care. In recent years, group health plans have moved to a more nuanced, value-based approach that involves the use benchmarks that may or may not reflect the actual of provider tiers. Providers who have been shown to health status of the provider’s patients. have higher costs and/or worse outcomes, as measured by a health plan, may be subject to higher cost-sharing Utilization Management Techniques or excluded altogether. The lowest cost-sharing levels Prospective and concurrent review. Health plans are required for health professionals who deliver high have used prospective and concurrent review to con- value. Depending on the methodology used to compare trol costs for decades. These processes are designed to providers, tiering may or may not take into account control unnecessary utilization of covered but costly whether providers treat patients with more extensive resources through advance or concurrent consideration health needs and thus utilize more resources either in of the medical necessity of the treatment or service their own practices or through specialty care referral under review. Central to the review process are: the patterns. Furthermore, tiers may be determined based substantive standards to assess the need for care; the on practice measures that are designed for populations strength of the clinical evidence considered; the appli- with health conditions (e.g., diabetes), but without cation of clinical decision-making guidelines to par- considering patients whose health conditions are made ticular treatments, as well as the quality and relevance more complex by the presence of underlying disabling 32 of the guidelines to the case at hand; and the extent to conditions (e.g., diabetes and schizophrenia). which the reviewer takes into account the clinical evidence that is presented in relation to the case at hand.34 Provider payments. Health plans give providers several different types of incentives to be parsi- Care coordination and care management. 33 monious in their use of resources. Incentives may take An insurer or health plan may offer or require case the form of a year-end bonus or a shared-savings plan. management for certain types of conditions. In some Incentive payments may be tied to a provider’s overall cases, the service may be offered in addition to other consumption of resources and benefits (e.g., laboratory covered services. Patients with particular conditions tests), and providers may be benchmarked against one may be offered additional treatments and counseling, another without taking into account their patient mix. and their health and course of treatment may be closely Providers may be offered bonuses or case management monitored to measure improvement. In other cases, a fees to actively manage complex patients. To determine disease management protocol may take on the qualities such incentive payments, health plans might compare of an embedded practice guideline that restricts cover- the costs and outcomes for actual patients or, alterna- age to certain predefined treatments and charges higher tively, might compare costs and outcomes for a pro- cost-sharing for certain treatments. When imple- vider’s patient panel against established and normative mented in this fashion, care management may operate The Essential Health Benefits Provisions of the Affordable Care Act 9 as an exclusive form of coverage for a particular illness group market. But unlike the reform law, HIPAA does or condition rather than as a process for tailoring cov- not address the problem of discrimination in the design ered benefits to individual needs.35 and administration of coverage because it does not address the content of insurance itself. HOW THE NONDISCRIMINATION ERISA. Other than having to abide by the PROVISIONS EXTEND EXISTING LAW HIPAA provisions, ERISA generally accords employ- The Affordable Care Act’s essential benefits nondis- ers broad discretion in health benefit plan design and crimination provisions break new ground in how to administration, regardless of whether the plan is fully think about these common techniques of health benefit insured (and thus also subject to applicable state laws) design and management—adding new dimensions to or self-insured (and thus exempt from state laws regu- 38 prior federal laws regulating insurance and health plans lating insurance). Thus, for example, although ERISA and barring discrimination. The nondiscrimination contains provisions barring discrimination against provisions have no real parallel in state insurance laws, participants or beneficiaries who exercise their right which do not address discrimination in the content of to benefits, this prohibition has been held not to bar a coverage but instead tend to mandate specific treat- group health plan from singling out a specific disability 39 ments and procedures that otherwise were at risk for for express limitation or exclusion from coverage. exclusion. For example, no state’s insurance laws bar the There are important exceptions, however. use of a “recover” or “restore” medical necessity standard For example, ERISA requires that certain individuals in the group health market, but as of 2010, 23 states experiencing a “qualifying event,” including illness and have laws that require coverage for certain types of job loss, be permitted to continue to buy group health habilitation treatments aimed at promoting the overall coverage under their ERISA plans (a right popularly 40 health of children with autism.36 known as “COBRA”). ERISA also bars exclusion Although the nondiscrimination provisions from coverage of college students on a medically neces- 41 are unprecedented in the context of coverage content, a sary leave of absence. number of federal laws offer important precedents. Furthermore, ERISA has been amended to bar discrimination against certain types of patients in terms Federal Laws Regulating Insurance and of the content of coverage. For example, ERISA pro- Employee Health Benefit Plans hibits group health plans from excluding coverage for reconstructive surgery to women with breast cancer or HIPAA. The Health Insurance Portability and from covering only minimal hospital stays for pregnant Accountability Act of 1996 (HIPAA) provided the women and newborns.42 Perhaps most important in the foundation for the Affordable Care Act’s market context of discrimination, ERISA bars discrimination reforms.37 HIPAA was the first major attempt to use in coverage in the case of individuals with mental ill- federal law to prevent insurers from discriminating ness or substance use disorders, as discussed below. against people with health conditions and disabilities. Amending the PHSA, ERISA, and the Internal GINA. The Genetic Non-Discrimination Act Revenue Code in order to reach both state-regulated of 2008 (GINA) bars certain employer and insurer health insurance and self-insured health benefit plans, practices related to the use of genetic information, but HIPAA bars discrimination based on health status at nothing in GINA directly addresses content restric- the point of enrollment and renewal. In effect, the new tions that might reduce or eliminate coverage for cer- reform law builds on the HIPAA precedent, extend- tain individuals with conditions tied to genetic traits.43 ing nondiscrimination prohibitions into the individual market and strengthening existing provisions in the 10 The Commonwealth Fund

Mental health and substance use disor- The parity provisions thus offer an important der parity. Mental health parity represents the most precedent in approaching the essential benefits provi- important law enacted to date that directly addresses sions of the Affordable Care Act. In the case of mental discrimination in the design and administration of health parity, the federal agencies not only have directly state-regulated health insurance and ERISA-governed addressed the range of plan design and administration employer-sponsored health benefit plans. The Mental practices, but have identified many types of practices Health Parity Act of 1996, revised and expanded by that must be held to nondiscrimination standards, the Paul Wellstone and Pete Domenici Mental Health including specific benefit definitions, broad definitional Parity and Addiction Equity Act of 2008, broadly terms such as medical necessity, the use of practice addresses the problem of discrimination against mental guidelines, and the use of provider network and cost- illness and addiction disorders in both benefit design sharing tiers. These strategies are grouped together and plan administration.44 as nonquantitative in nature and set the framework The original legislation addressed parity only of coverage itself, as well as how that coverage will be in relation to annual and lifetime dollar limits on cov- administered. erage; the 2008 amendments extend the concept of parity to reach a broad range of coverage limitations Civil Rights Laws and exclusions. These amendments were further refined The Affordable Care Act directly incorporates numer- in implementing regulations released in 2010 by the ous civil rights laws into Title I.47 Specifically, it pro- Departments of Labor, Treasury, and HHS, which vides that: define parity in terms of quantitative treatment limits An individual shall not, on the ground pro- (i.e., the number of visits permitted) as well as “non- hibited under title VI of the Civil Rights Act of quantitative” treatment limits that “otherwise limit the 1964, title IX of the Education Amendments of 45 scope or duration of benefits for treatment.” These 1972, the Age Discrimination Act of 1975, or types of limits lie at the heart of modern benefit design section 504 of the Rehabilitation Act of 1973, and medical management systems; in particular, non- be excluded from participation in, be denied the quantitative design and management techniques, which benefits of, or be subjected to discrimination in some cases are expressly designed to constrain cover- under any program or activity, any part of which age to individuals with disabilities. is receiving federal financial assistance, includ- The 2010 parity regulations affect many of ing credits, subsidies, or contracts of insurance, the health benefit design and management practices or any program or activity that is administered described above. For example, the regulations specify by an Executive Agency or any entity estab- that discrimination may be present under the par- lished under this title.48 ity law when mental illness and addiction disorders The provision thus incorporates federal civil are singled out by guidelines that restrict coverage to rights laws applicable to federally assisted programs certain treatments, regardless of the medical evidence, while also clarifying that these laws reach federally even when no similar absolute limits apply to other subsidized contracts of insurance such as qualified conditions. The rules also clarify that parity can be vio- health plans that receive federal premium tax credits. lated through discriminatory medical necessity criteria By incorporating these laws into the Affordable Care that utilize more restrictive tests of necessity in the case Act, the general nondiscrimination provision further of mental illness and through other design techniques strengthens the core essential health benefit nondis- such as tiered cost-sharing, tiered network arrange- crimination statute but does not duplicate it, since civil ments, and utilization management procedures that are 46 rights laws barring discrimination against people with applied in a discriminatory fashion. disabilities have been held not to reach the content of The Essential Health Benefits Provisions of the Affordable Care Act 11 coverage itself.49 Preexisting nondiscrimination laws intentional discrimination as well as de facto discrimi- might be expected to reach insurance and health plan nation—practices that are neutral on their face but practices inside exchanges such as: sales, outreach, discriminatory in their impact. Because the Affordable and marketing practices; the selection and deselection Care Act specifically incorporates existing disability of health care providers; the accessibility of care and law, and because existing law reaches both intentional appeals procedures; and other issues related to access to and de facto discrimination, the essential benefits non- covered benefits. But it is the essential benefits nondis- discrimination provisions should be interpreted in a crimination provisions that affect the actual content of fashion that parallels existing disability law. This means benefits and do so both in exchange markets as well as that the provisions should be interpreted as reach- in the parallel market for individual and small-group ing not only intentional practices (such as a coverage products. standard that specifies the need for “recovery” before a claim will be allowed) but also de facto practices such DISCUSSION AND IMPLEMENTATION as the use of facially neutral provider payment incen- RECOMMENDATIONS tives that nonetheless discriminate because they are Implementation of the Affordable Care Act’s essential applied without consideration of a provider’s underly- benefits provisions and its prohibition against discrimi- ing patients. For example, plans would no longer be nation against individuals with disabilities will raise a permitted to intentionally exclude providers that have number of complex issues. a special expertise in, and a disproportionate share of, patients with disabilities. In designing the nondis- Defining Key Terms crimination aspect of the essential benefits provisions, An important first step of the implementation process Congress clearly intended to reach matters of both plan is for the HHS secretary to define key terms in the design and administration practices, in order to ensure essential benefits provisions. In addition to needing to that plans do not discriminate by either intentional define the scope of each class of essential benefits, the design or practical effect. secretary must define such terms as “disability,” “cover- Plan Design and Administration Practices age decisions,” “reimbursement rates,” “incentive programs,” and “benefit design.” Also to be further defined The nondiscrimination provisions require that the in designing the essential benefits package is how the HHS secretary set the parameters under which insurers secretary will “take into account” the health care needs may operate in matters of both design and administra- of diverse populations, including people with disabili- tion, including benefit design, coverage decisions, reim- ties. Furthermore, the secretary must define the law’s bursement rates, and incentive programs. The sweeping prohibition against the denial of essential benefits language of the nondiscrimination provision means based on individuals’ “age or expected length of life” that, as with the mental health parity rules, the secre- or “present or predicted disability, degree of medical tary must address certain risk-avoidance techniques dependency, or quality of life.” In defining key terms, and strategies. the secretary presumably will look to existing laws and Exclusionary coverage terms. relevant industry practices. For example, existing laws Health insur- related to coverage decisions made by group health ers and qualified health plans should be expected to plans or Medicare provide guidance on how clinical adhere to nondiscriminatory coverage terms in order to evidence should be weighed. avoid excluding otherwise covered treatments simply The single most important definitional matter on the basis of a patient’s underlying condition. The may be the threshold question of whether prohibited decision of whether a particular treatment or service is discrimination on the basis of disability reaches both covered should turn solely on whether it is appropriate 12 The Commonwealth Fund

to a patient’s health condition—not whether it will whether the patient also has an underlying condition enable restoration or recovery or have effects that tran- such as major depression or diabetes. scend the purely clinical and go to overall health and Regardless of whether benefit and treatment ability to function. In the case of children and adults guidelines are used to set binding coverage limits or with disabilities, many treatments within the essential merely to guide treatment decision-making, the ques- benefits classes are clinically justified not because they tion is whether the nondiscrimination provision in the allow restoration or recovery but because they enable essential benefits statute bars the use of the guideline patients to attain good health, maintain their health, or to limit treatment when the effect of the guideline is to avert the loss of functioning that could lead to a dete- discriminate against certain health conditions. Such an rioration in health. exception is similar to the one that applies to coverage of outpatient prescription drugs under Medicare Part Excluding coverage for treatments that D, which permits individuals to appeal coverage deni- show both clinical and health benefits. The als on the ground of documented health care need and fact that a treatment may confer both clinical and to submit evidence demonstrating the utility of treat- broader health benefits should be irrelevant in decid- ments for a particular condition.50 ing whether it is appropriate. Exclusions based on the broader health benefits conferred by a clinical interven- Across-the-board coverage limitations tion (such as the ability to learn, work, or engage in and exclusions. Nothing in the Affordable Care Act social activities) are enhancements of the clinical effects prohibits the use of across-the-board limitations on of treatments, not reasons to deny them. coverage. While strict limits on the amount or duration of benefits work particular hardships on individuals Guidelines and coverage design and deci- with disabilities, the question is whether such limits sion-making. Benefit and treatment guidelines are a are discriminatory. As long as the limits apply to all staple in health plan design and plan administration, conditions and all treatments, discrimination per se is serving two purposes: 1) to set out coverage limits for not the issue. However, the essential benefits statute certain conditions or for one or more benefit classes; requires the HHS secretary to consider the needs of and 2) to use as a nonbinding tool to aid coverage deci- people with disabilities in designing benefits and mak- sion-making in specific cases. In both situations, the ing coverage determinations. This might argue for an impact of the guideline may be to foreclose potentially exceptions process to permit greater levels of coverage covered treatments within an essential benefit class in cases in which relevant and reliable evidence dem- at a level and scope necessary to achieve an appropri- onstrate the health benefits of a treatment. Further, ate health result. Guidelines that contain restrictions while across-the-board limitations and exclusions on based on whether treatments are intended to help in an entire benefit class might not be discriminatory, “recovery or restoration” would appear to fail under a exclusions that single out specific treatments used only nondiscrimination test, for the same reason that such for specific disabling conditions should be considered a limits are contrary to a nondiscrimination test when form of discrimination. they appear as limitations in the coverage definitional sections of an insurance plan. Further, guidelines that Tiered cost-sharing and provider net- place fixed limits on treatments may be inappropri- works. Tiered cost-sharing and provider networks are ate in situations in which the condition to which the increasingly common design features in health benefit guideline is applied is further complicated by the pres- plans. The use of tiering raises the question of the ence of an underlying disability. Thus the manage- need for an evidence-based exception to plan design in ment of asthma, for example, may vary depending on cases where a tier would otherwise result in the denial The Essential Health Benefits Provisions of the Affordable Care Act 13 of appropriate treatment based on a health condition Finally, of course, for the nondiscrimination or where a specific provider should be treated as an statute to be meaningful, compliance must be mea- in-network provider (with in-network payment rates sured and the terms of the law must be enforced. This and cost-sharing) in order to ensure the appropriate means assurance that the nondiscrimination provisions management of disabling conditions. In essence, the and implementing standards are incorporated into and question is whether the nondiscrimination provision applied to all state insurance contracts governed by the applicable to essential health benefits, when coupled essential benefits statute. In this way, the requirements with existing civil rights protections, requires that of federal law will become an inherent part of the health plans modify provider network selection and documents that create the plan and define the rights of tiering practices in order to protect against the threat of covered individuals. Further, government enforcement discrimination in access to equally effective care. standards developed for oversight of the individual and small-group market, as well as the exchange qualified Provider payment and incentive arrange- health plan market, should be structured to measure ments. Existing laws aimed at curbing health care plan adherence to nondiscrimination standards. This fraud and abuse prohibit incentive arrangements that structure will necessitate a review of plan documents induce health professionals to deny or withhold medi- and coverage terms, as well as an assessment of plans’ cally necessary treatment.51 However, payment and coverage determination, incentives, and payment incentive arrangements should not be benchmarked practices. against normative performance with a healthy patient panel, but instead should be risk-adjusted to take into account patients with disabilities. As with tiered cost-sharing and provider networks, this consideration reflects not only the essential benefit nondiscrimination provision but also federal civil rights laws that require access to equally effective health care.

Utilization management techniques. In addition to addressing the problem of discrimination in all aspects of benefit and coverage design and practice, it is important to address potentially discriminatory utilization management processes. The Affordable Care Act preserves existing utilization management practices but does so under the broader nondiscrimination provisions of the essential benefits statute. As such, and as with the mental health parity regulations, medical management techniques that differentiate based on the nature of the condition or disability should be prohibited. Further, the nondiscrimination prohibition should be extended to the claims appeals process applicable to essential benefits plans in order to ensure that evidence specific to an individual’s condition and treatment is always taken into account as part of the record. 14 The Commonwealth Fund

Notes Bergthold, “Medical Necessity: Do We Need It?,” Health Affairs, Winter 1995 14(4):180–90. 1 P.L. 111-148 §1302(b)(1) and PPACA §§1302(a)(1) 16 ERISA §502(a)(1)(B), 29 U.S.C. §1132 (a)(1)(B) and (b)(2). permits participants and beneficiaries to pursue legal 2 PPACA §1302(b)(4)(A). actions in court to recover benefits due them under 3 PPACA §1302(b)(4)(B). their ERISA plans. Thousands of cases involving appeals of benefit denials have been decided since 4 PPACA §1302(b)(4)(C). ERISA’s passage in 1974. There is no single com- 5 PPACA §1304(b)(4)(D). prehensive study that analyzes all benefit denial 6 cases. PPACA §1302(c)(3). 17 7 Rosenblatt, Rosenbaum, and Law, Law and the P.L. 111-148 §1302(e). American Health Care System, 1997, pp. 543–73. 8 P.L. 111-148 §1302(d)(2). 18 J. M. Robinson and J. M. Yegian, “Medical 9 PPACA §1565(d). Management After Managed Care,” Health Affairs Web Exclusive, May 19, 2004, w4-269–w4-280. 10 S. Rosenbaum, “Insurance Discrimination on 19 the Basis of Health Status: An Overview of Jones v. The Kodak Medical Assistance Plan, 169 F.3d Discrimination Practices, Federal Law, and Federal 1287 (10th Cir. 1999). Reform Options,” The O’Neill Institute for 20 29 U.S.C. §1185b. See Krauss v Oxford Health Plan National and Global Health Law (2009). for a discussion of the Act, at 517 F. 3d 614 (2d Cir., 11 R. Rosenblatt, S. Rosenbaum, and S. Law, Law 2008). and the American Health Care System (New York: 21 Bedrick v. Travelers Insurance Company, 93 F. 3d 149 Foundation Press, 1997), 139–42. (4th Cir., 1996). 12 See discussion of coverage limits in Kenseth v Dean 22 See, e.g., Mondry v. American Family Mutual Health Plan, 610 F. 3d 452 (7th Cir., 2010), 464–65. Insurance Co. 557 F. 3d 781 (7th Cir., 2009). 13 Kenseth v Dean, 610 F. 3d at 464. See also J. M. 23 See, e.g., Mondry v. American Family Mutual Yegian, “Conference Summary: Setting Priorities in Insurance Co., op. cit.; Jones v. The Kodak Medical Medical Care Through Benefit Design and Medical Assistance Plan, 169 F.3d 1287 (10th Cir. 1999). Management,” Health Affairs Web Exclusive, May 24 19, 2004, w4-300–w4-304. See Jones v. The Kodak Medical Assistance Plan, op. cit. 25 14 Yegian, “Conference Summary,” 2004. See Bedrick v. Travelers Ins. Co., op. cit. 26 15 See, e.g., S. Rosenbaum, “New Directions for Health Bergthold, “Medical Necessity,” 1995. Insurance Design: Implications for Public Health 27 See, e.g., A. M. Fendrick, D. G. Smith, and M. E. Policy and Practice,” Journal of Law, Medicine, and Chernew, “Applying Value-Based Insurance Design Ethics, Winter 2003 31(4 Suppl.):94–103; J. S. to Low-Value Health Services,” Health Affairs, Nov. Rosenbloom, ed., The Handbook of Employee Benefits, 2010 29(11):2017–21. 5th ed. (New York: McGraw-Hill, 2001); J. M. 28 Saltzman v Independence Blue Cross, 2010 WL Robinson, “Renewed Emphasis on Consumer Cost 2340182 (3d. Cir., 2010); See, e.g., Krauss v Oxford Sharing in Health Insurance Benefit Design, Health Health Plan, op. cit. Affairs Web Exclusive, March 20, 2002, w139–w154; Yegian, “Conference Summary,” 2004; C. L. Barry, 29 Saltzman v Independence Blue Cross, op. cit. J. R. Gabel, R. G. Frank et al., “Design of Mental 30 Saltzman, op. cit. Health Benefits: Still Unequal After All These Years,” Health Affairs, Sept./Oct. 2003 22(5):127–37; J. M. Robinson, “Consumer-Directed Health Insurance: The Next Generation,” Health Affairs Web Exclusive, Dec. 13, 2005, w5-583–w5-590; L. A. The Essential Health Benefits Provisions of the Affordable Care Act 15

31 See Bloomberg News, “In New York, Insurer Settles 44 Paul Wellstone and Pete Domenici Mental Health Its Dispute on Payments,” New York Times, Feb. Parity and Addiction Equity Act of 2008, P. L. 110- 4, 2009; E. Nakashima, “Doctors Rated But Can’t 343 (2008) (amending 26 U.S.C. § 9812, 29 U.S.C. Get a Second Opinion; Inaccurate Data About § 1185a, and 42 U.S.C. § 300gg-5). Physicians’ Performance Can Harm Reputations,” 45 29 C.F.R. §2590.712(a). Washington Post, July 25, 2007; A. B. Claiborne, J. 46 R. Hesse, and D. T. Roble, “Legal Impediments 45 C.F.R. §146.136(c)(4). to Implementing Value-Based Purchasing in 47 PPACA §1557. Title I of PPACA�� contains the pro- Healthcare,” American Journal of Law and Medicine, visions related to insurance market reforms, individ- 2009 35(4):442–504. ual and employer responsibility, tax credit subsidies, 32 Krauss v Oxford Health Plans, op. cit. exchanges, essential benefits, and qualified health plans. 33 Pegram v. Herdrich, 530 U.S. 211 (2000); Shea v. 48 Esensten, 107 F.3d 625 (8th Cir. 1997). PPACA §1557. 49 34 See, e.g., Bedrick v Travelers Ins. Co., op. cit.; Wickline See Doe v. Mutual of Omaha Insurance Co., 179 F.3d v State of California, 239 Cal. Rptr. 810 (1987). 557 (7th Cir. 1999), cert. denied, 528 U.S. 1106 (2000) (The public accommodations provisions of 35 G. P. Mays, M. Au, and G. Claxton, “Convergence the ADA do not reach the content of private health and Dissonance: Evolution in Private-Sector insurance); Alexander v. Choate, 469 U.S. 287 (1985) Approaches to Care Coordination and Disease (Section 504 of the Rehabilitation Act does not Management,” Health Affairs, Nov./Dec. 2007 reach the content of public health insurance)/ 26(6):1683–91. 50 42 U.S.C. §§ 1395w-104 (g)–(h) (2006); 42 C.F.R. 36 National Conference of State Legislators, § 423.578. “Mandated Health Insurance Benefits and State 51 Laws: Insurance Coverage for Autism,” available at: Social Security Act § 1128A(b), 42 U.S.C. § http://www.ncsl.org/default.aspx?tabid=18246. 1320a–7a(b) (2006). 37 P.L. 104-191 (104th Cong., 2d sess.). 38 Metropolitan Life Insurance v Massachusetts 471 U.S. 724 (1985); Kentucky Association of Health Plans v Miller, 538 U.S. 329 (2003). 39 McGann v H and H Music Co. 946 F. 2d 401 (5th Cir., 1991). 40 29 U.S.C. §1161 41 29 U.S.C. §1185c 42 The Women’s Health and Cancer Rights Act requires group plans that cover mastectomy sur- geries to cover “breast reconstruction, prostheses, and other treatments to address the complications of all stages of a mastectomy.” The Newborns and Mothers Protection Act applies to state-regulated group plans and employer plans subject to the Pregnancy Discrimination Act. Under the law, covered plans must provide a minimum of 48 hours stay following a normal delivery, and 96 hours following a Caesarean section. 43 29 U.S.C. 1182 (2010). 16 The Commonwealth Fund

About the Authors

Sara Rosenbaum, J.D., is the Harold and Jane Hirsh Professor and chair of the Department of Health Policy at the George Washington University School of Public Health and Health Services. She also directs the Hirsh Health Law and Policy Program and the Geiger Gibson Program in Community Health Policy. Rosenbaum has played a major role in the design of federal and state legislative and regulatory health policy related to Medicaid, has been named one of America’s 500 most influential health policymakers, and has been recognized by the U.S. Department of Health and Human Services for distinguished national service on behalf of Medicaid beneficiaries. She received her law degree from the Boston University School of Law.

Joel Teitelbaum, J.D., LL.M., is an associate professor and the vice chair for academic affairs in the Department of Health Policy at the George Washington University School of Public Health and Health Services. He is also the managing director of the Hirsh Health Law and Policy Program. Teitelbaum has won multiple teach- ing and research honors and is the lead author of Essentials of Health Policy and Law, an introductory textbook. He received his J.D. from Marquette University Law School his LL.M. degree from the George Washington University Law School.

Katherine Hayes, J.D., is an associate research professor in the Department of Health Policy at the George Washington University School of Public Health and Health Services. She has served as a health policy advisor to Democrats and Republicans in the House and Senate, as a senior advisor for a presidential campaign, and as an attorney in private practice. She received her J.D. from American University’s Washington College of Law.

Editorial support was provided by Martha Hostetter.