Biden proposals call for shift from essential to unlimited health benefits, strips State control over insurance exchanges
Yesterday American Experiment filed comments on the proposed 2025 Payment Notice—the annual federal rule that updates standards on health insurance and exchanges. This rule represents the latest proposals from the Biden administration to amend the federal policies that implement the Affordable Care Act (ACA).
American Experiment’s comments strongly oppose several of the main proposals in the rule. As the comments summarize: “The most concerning elements represent what can fairly be described as a federal takeover of state-based Exchanges and a shift from essential to unlimited health benefits.”
Federal takeover of state exchanges
The ACA established health insurance exchanges to help people enroll in subsidized health coverage. The law intended for states to establish these exchanges and left the federal government to establish some of the basic rules governing Exchanges. This structure created a partnership between the states and the federal government on running the Exchanges.
Within this partnership, the federal government has historically left much of the discretionary policy decisions in the hands of the states when they choose to run their own Exchange. This deference to states respects how states are better positioned to tailor policies to meet the unique issues facing their markets.
The 2025 Payment Notice proposes a dramatic reversal from this traditional deference to states. The rule proposes seven major policy changes that remove state discretion over important aspects of administering state exchanges, the health plans offered through the exchanges, and how to launch new exchanges. If finalized, states will be forced to align with federal requirements on Exchange call centers, the structure of their eligibility and enrollment platform, standards for web-brokers that enroll people through their own websites, annual and special enrollment periods, and network adequacy standards for health plans.
States that don’t currently operate an Exchange will also be forced to meet new requirements to implement a new state exchange. Despite the successful launch of several new state exchanges in recent years under the current rules, this proposal would create additional burdens and delays on states that want to begin operating and controlling their own exchange.
Overall, the scope of these proposals pull back so much discretion from states over the administration of state exchanges that it is entirely fair to describe the proposal as a federal takeover of state exchanges.
Shift from essential to unlimited health benefits
The ACA requires health insurance issuers on the individual and small group markets to include a set of essential health benefits (EHB). These EHBs must cover “at least” ten categories of items and services, which sets the minimum level of benefits a plan must cover. The scope of benefits provided by EHBs must also be equal to the typical employer plan. This sets the limit on the scope of what EHBs can cover and gives meaning to the term “essential.”
Two key proposals in the rule undermine this limitation on EHBs and effectively allow states to shift to an unlimited health benefits requirement. The first proposal would remove the requirement on states to defray the cost of state benefit mandates that occur after December 31, 2011 if the benefit is currently in the state’s benchmark EHB. This gets a little technical and convoluted due to the creative way the Obama administration first implement EHB requirements. But removing defrayal under these circumstances basically opens a back door for states to increase the scope of EHBs.
The ACA requires states to defray the cost of new state benefit mandates. Defrayal exists largely to ensure that federal premium tax credits don’t automatically increase to fund additional state benefit mandates. Instead of setting a uniform national EHB standard, the Obama administration allowed states to select an EHB based on the benefits offered by a selection of four benchmark plans offered within the state. Three of the four are fully regulated by the state and therefore subject to state benefit mandates.
The trouble with the proposal to amend the defrayal requirement is that it appears to open an opportunity for states to enact a benefit mandate that already exists in their currently chosen EHB benchmark plan without defrayal which can carry forward to any new benchmark plan the state chooses in the future. This appears to allow for strategic or just inadvertent switching among EHB benchmarks from year to year to add in new state benefit requirements without the need for defrayal.
While that back door to increasing the scope of EHB might be bit hard to follow, the second proposed change to EHBs is quite simple. The 2025 Payment Notice also proposes to remove the regulatory prohibition against including routine non-pediatric dental services as an EHB. Employers generally only offer dental services for adults as a separate insurance plan. Yet, the rule proposes to allow states to include this separate employee benefit as an EHB in addition to the EHBs covered by the employer’s major medical insurance benefit.
Shift from essential to unlimited health benefits
Obviously increasing the scope of EHBs, especially adding routine adult dental services, is going to increase premiums and increase federal spending on premium subsidies. Other elements of the proposed rule will also increase premiums and federal spending. In fact, the rule estimates that one proposal to permanently allow certain lower-income people to effectively enroll at any time during the year will increase federal spending on premium subsidies by $2.5 billion. That’s because the proposal lets people wait to enroll until they need health services which harms the insurance market risk pool.
Health insurance premiums are far too costly to justify any proposal that raises premiums even higher. By raising premiums, the proposals will further undermine access for people who do not qualify for subsidies. The federal government needs to get back to the business of making health insurance markets stable and affordable. If things don’t change soon, insurance markets subject to strict ACA regulations may become so costly that they can no longer survive without federal subsidies.