Reform Alert - News from the Blues' Office of National Health Reform

HHS issues proposed rule on Essential Health Benefits and Actuarial Value

Updated: March 18, 2014 - 2015 Actuarial Value Calculator and methodology released

Update: March 7, 2013 - HHS Releases Essential Health Benefits, Actuarial Value, and Accreditation Final Rule

Dec. 27, 2012

On November 20, 2012, the Department of Health and Human Services (HHS) issued a proposed rule on essential health benefits (EHBs) and actuarial value (AV). Additionally, the Centers for Medicaid and Medicare Services (CMS) issued the draft actuarial value calculator. Comments are due December 26, 2012. The rules, if finalized, would become effective beginning on or after January 1, 2014.

What are the state-required benefits for Exchanges?

All insured non-grandfathered individual and small group market coverage (offered on or off the Exchange) must provide essential health benefits. Essential health benefits must include all of the benefits and services included in the benchmark health insurance plan selected by the state.  Plans are permitted to cover additional benefits and services beyond those covered in the benchmark plan, but those benefits will not be considered essential health benefits.

States will be responsible for covering the cost of benefits included in the benchmark plan as a result of a state mandate passed after December 31, 2011.  Since the Exchange is responsible for certifying qualified health plans (QHPs), the rule proposes that the Exchange identify which additional state-required benefits, if any, are in excess of the essential health benefits (EHB). HHS has published a list of state-required benefits for Exchanges to use as a reference tool.

QHPs are responsible for calculating the cost of state mandated benefits passed after December 31, 2011. The Affordable Care Act requires states to defray the cost of any benefits required by state law. A member of the American Academy of Actuaries will perform an analysis to calculate the state’s cost of covering additional benefits.  CMS also proposes the calculation be done prospectively to allow for the offset of an enrollee’s share of premium and for purposes of calculating the premium tax credit and reducing cost sharing.

What is Actuarial equivalence?

Actuarial equivalence is a term used to describe two or more plan designs that have approximately the same value. Issuers may substitute benefits that are actuarially equivalent to the benefits being replaced based on the value of services without regard to cost-sharing.  The actuarial equivalent substitution process is not permitted for prescription drug benefits.  States have the option to enforce a stricter standard on benefits substitution, or prohibit it completely.  The Office of Financial and Insurance Regulation has stated that Michigan will not permit actuarial equivalent substitutions.

What are “Habilitative” Benefits?

While there is no industry definition of habilitative services, habilitative services can be viewed as those services that help people overcome long-term developmental problems.  The EHB rule proposes allowing states to define which benefits should be included in the EHB statutory category of “habilitative” services. If the state does not define habilitative services, then issuers have the option to provide habilitative services equal to rehabilitative services, or decide which habilitative services to cover, and report that coverage to HHS.

What are the Prescription Drug Benefit Requirements?

In order to meet the EHB prescription drug benefit requirements, issuers must offer the greater of the following options:

  • One drug in every category and class
  • The same number of drugs as the benchmark plan

In the event that the benchmark plan does not cover a drug category or class, plans must cover at least one drug in that category or class.

How is Cost Sharing Applied?

Deductible limitations apply to the small-group market and do not apply to the self-insured, large group, or individual markets.  The deductible limitation for small group market coverage is set at $2,000 for self-only coverage, and $4,000 for coverage other than self-only. In the event that a plan cannot meet a given metal tier (bronze, silver, gold, or platinum) and comply with the deductible limitations, the rule proposes that a plan may exceed the annual deductible using a “reasonableness” standard in which the issuer would provide reasonable justification for the increased deductible.  An alternative to the reasonableness standard would be to use the AV calculator to determine a sound increase to the deductible that could be used by all plans in the small group market.  

Will Stand Alone Dental Have an Annual Limit?

Stand alone dental plans will have an annual limit on cost sharing on the pediatric essential health benefit portion of dental benefits that is separate from the annual limit on the remaining essential health benefits.

Pediatric dental benefits will also be required to meet a separate actuarial value applicable only to pediatric dental benefits.  Pediatric dental benefits, whether covered by a stand-alone dental plan or embedded with a medical plan, will be required to meet either a 75%  (+/- 2%) actuarial value (considered a “low” plan), or an 85% (+/- 2%) actuarial value (considered a “high” plan).  The actuarial value calculator will not be used to determine the actuarial value of pediatric dental benefits. Pediatric dental benefit must get actuarial certification of meeting the high or low actuarial value levels.

Where can I find more information?

More information can be found at More information can also be found in the proposed rule: Standards Related to Essential Health Benefits, Actuarial Value, and Accreditation (as published in the Federal Register on November 26).  

The information in this document is based on BCBSM’s review of the national health care reform legislation and is not intended to impart legal advice. Interpretations of the reform legislation vary, and efforts will be made to present and update accurate information. This overview is intended as an educational tool only and does not replace a more rigorous review of the law’s applicability to individual circumstances and attendant legal counsel and should not be relied upon as legal or compliance advice. Analysis is ongoing and additional guidance is also anticipated from the Department of Health and Human Services. Additionally, some reform regulations may differ for particular members enrolled in certain programs such as the Federal Employee Program, and those members are encouraged to consult with their benefit administrators for specific details.