05Jan2012

Essential health benefits – How will they be defined?

by Dan Pribe, consulting actuary, Optuminsight

Imagine you’re a committee member for your state’s Medicaid program.  Your committee must decide the Essential Health Benefit (EHB) package provided to Medicaid beneficiaries while keeping within the budget your state legislature has provided.  Through some rather contentious meetings, you’ve all agreed to a package which includes most medications and services, but excludes some very expensive ones such as Elaprase, a medication costing nearly $400,000 per year to cover Hunter’s Syndrome, an extremely rare metabolic disorder affecting about 500 people in the United States.  Now imagine you come home from work a few weeks later and in some weird twist of fate your spouse informs you that your child has been diagnosed with Hunter’s syndrome.  You realize that if you had been on Medicaid, you’d be out of luck.

While this particular situation is highly unlikely, it does draw our attention to how the EHB package required under the Patient Protection and Affordable Care Act (ACA) will be determined.  In October 2011, the Institute of Medicine (IOM), at the request of the Department of Health and Human Services (HHS), prepared a report brief titled “Essential Health Benefits – Balancing Coverage and Cost” proposing a set of criteria and methods that should be used in deciding what benefits are most important for coverage.  It recommends that HHS develop a set of benefits with a firm idea of what’s affordable to small employers and their employees.   It further recommends that, in updating benefits, HHS should consider projected costs, and the contents of the EHB package should be made within that projected cost.  Finally, it recommends HHS to embrace a framework that would:

• Consider the population’s health needs as a whole
• Encourage better care by ensuring good science is used to inform coverage decisions
• Emphasize the judicious use of resources, and
• Carefully use economic tools to improve value performance.

The IOM report raises several interesting issues.  However, let’s just focus on three:  affordability, the population’s health and politics.

Regarding affordability, the IOM report mentions both the small group and its employees.  Previous attempts to define affordability have focused on the employee and the percentage of his income that can be used for health care costs and have recognized that affordability may vary at different income levels (both individual and household).  So what is the most appropriate percentage for the individual in the context of EHB?  How do you define affordability for a small group?  And what if the definition of affordability for the individual is in conflict with that of the small group?

Now let’s move on to the population’s health.  The IOM has recognized they will have to balance costs with the needs of the population when defining the EHB.  One way to approach this is to maximize the health of the population for each dollar spent.  This approach emphasizes aggregate health improvement.  A second way to approach this is to maximize the well-being of the worst-off.  The application of these approaches in the context of defining the EHB could result in significantly different benefit packages.  Under both, however, care is essentially being rationed.

This leads into the third issue – politics.  Given current medical trends (relative to CPI), one could easily imagine the EHB package eroding over time as HHS tries to keep it affordable. Will the politicians have the intestinal fortitude to ride out the decisions that will have to be made due to the rationing of care described above?  Will they be able to accept not covering Hunter’s Syndrome…..or transplants…..or expensive cancer treatments?  Will they be able to reconcile the inevitable heart-wrenching situation that will put at odds the benefit of the individual and the benefits of the population as a whole?

The IOM is encouraging a public deliberation process in which individuals can participate in the defining priorities.  So what do you think?  How should HHS define the essential benefit package?  What is affordable?  Which approach should be used when looking at the population’s health?

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Discussion

2 responses to "Essential health benefits – How will they be defined?"

  • Tim Daniels says:

    At the 2011 Annual Meeting of the SOA, the incoming president Brad Smith challenged members to become more knowledgeable about current issues, and to pass that knowledge on to those we come in contact with in social settings. Not being in the healthcare field currently, I found this article to be very informative as well as thought provoking on some current issues and helps to equip me for related social conversations. Thanks, Dan!

  • Tom Bakos says:

    Perhaps with diseases like Hunter Syndrome which are genetic in origin and preditable (Hunter Syndrome is known to result from an abnormal copy of the I2S gene on the X chromosome – principally, passed to male offspring by a mother who is a carrier) a better approach might be to advocate for ways to avoid transmission of the disease to offspring. Other rare diseases have genetic origins like Hunter and with information can be avoided altogether.

    It is exected that a human genome will be able to be mapped for $1,000 by the end of 2012. Some are predicting a $100 human genome – soon. That, with resepect to any individual, only needs to be done once in a lifetime.

    To the extent that genetic information can be used to avoid these horendous medical costs in the future, shouldn’t it be? Then, discussions and decisions about their treatment cost and how or if they fit into health insurance program financing becomes unnecessary.

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