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Smart Benefits: Small Employers Must Cover ‘Essential’ Benefits

Tuesday, December 11, 2012


No matter what the futures of exchanges hold in Massachusetts, small businesses will need to cover "essential benefits" by January 1, 2014.

Small employers in Massachusetts have been defined as groups with less than 100 employees. But when it comes to covering the new “essential” benefits, effective January 1, 2014, that definition will include employers with up to 100 employees, according to proposed regulations issued recently by the Department of Health and Human Services under the Patient Protection and Affordable Care Act (PPACA).

Essential Benefits Defined

Just what are essential benefits? There are ten categories of benefits that will collectively need to be included in all health insurance plans offered through an exchange, as well as to all non-grandfathered plans offered in the individual and small group market (less than 100 employees):

  • Ambulatory patient services

  • Emergency services

  • Hospitalization

  • Maternity and newborn care

  • Mental health and substance abuse disorder services

  • Prescription drugs

  • Rehabilitative and habilitative services and devices

  • Laboratory services

  • Preventive and wellness services and chronic disease management

  • Pediatric services, including oral and vision care

And existing legislation prohibits annual and lifetime limits on these benefits.

Insurers’ Plans Meet Requirements

The essential benefits are generally already covered through health plans offered by all of the health insurers in the state. However, each state will be required to designate a benchmark plan that mirrors the ideal essential benefits program.

Cost-Sharing Limits will Apply

The proposed regulations extend beyond just identifying benefit categories; there will be cost-sharing limits for deductibles, copayments, coinsurance and any other employee charges, prompting some employers to change plan designs.

The limits for 2014 follow, and will increase by the average percentage increase in health insurance premiums.

  • Employee out-of-pocket expenses cannot exceed $6,250 for individual coverage and $12,500 for other tiers of coverage (i.e. family).

  • In-network deductibles will be subject to a separate limit in 2014 of no more than $2,000 for individuals and $4,000 for other tiers.

Adjustments to deductibles will be allowed in certain situations. And for employers who offer much higher deductible plans, provisions will be made to include employer contributions to a health savings account (HSA) or health reimbursement arrangement (HRA).

Minimum Plan Value Calculations

Under the employer mandate, employers with at least 50 full-time employees must cover at least 60% of the actuarial value of the total allowed costs of health care. The state exchanges will offer bronze plans (60% of actuarial value), silver plans (90% of actuarial value), gold plans (80% of actuarial value) and platinum plans (90% of actuarial value); the proposed rules allow for small variations in these levels. Any plans offered by insurers available through the exchanges must also be available outside the exchange.

2013 Key to 2014

Small employers affected by the essential benefits regulations will need to start planning and preparing for plan modifications in 2013 for renewals beginning in 2014 if the proposed rules get finalized. Large employers with more than 100 employees may also be affected, depending on how their coverage compares and how many of their employees may qualify for the exchanges. Self-insured employers must follow the employer mandate of providing coverage, but will have more flexibility in plan design.

Amy Gallagher has over 19 years of healthcare industry experience. As Vice President at Cornerstone Group, she advises large employers on long-term cost-containment strategies, consumer-driven solutions and results-driven wellness programs. Amy speaks regularly on a variety of healthcare-related topics, is a member of local organizations like the Rhode Island Business Group on Health, HRM-RI, SHRM, WELCOA, and the Rhode Island Business Healthcare Advisory Council, and participates in the Lieutenant Governor’s Health Benefits Exchange work group of the Health Care Reform Commission.


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