State “Essential Health Benefit” Benchmark Plans Include “Fairly Robust” Formularies So Far

According to a recent tally by Avalere, more than 30 states have either selected a benchmark plan or are progressing in that direction.

Most of the insurance plans selected by states so far as the benchmark for the “essential health benefits” that must be available in individual and small group plans beginning in 2014 have “fairly robust” formularies, according to Avalere Health Director for Health Reform Caroline Pearson.

Pearson’s analysis is based on benchmark plans submitted by 16 states for HHS review as of Sept. 28. At least 17 additional states had identified potential benchmark plans by that date, according to a tally by Avalere. Eighteen states have not yet publicly begun the process.

The Affordable Care Act requires that beginning in 2014, every new insurance policy sold in the individual and small group insurance market must cover a core set of essential health benefits (EHBs), which will be defined by HHS. The law says EHBs must include prescription drug coverage, but otherwise delegates to HHS any further requirements related to formulary breadth or cost sharing.

HHS in turn has given states significant flexibility to establish benefit standards. In a pre-regulatory bulletin issued in December 2011, the department directed states to choose a benchmark from among the largest small group plans, state employee plans, federal employee health plans or HMOs available in the state. The state benchmarks will set the standards for 2014 and 2015. HHS will then evaluate the success of that approach and make changes as needed.

The HHS bulletin also signaled a willingness to permit very restrictive formularies, requiring only that plans cover one drug per class (Also see "HHS Essential Health Benefits Standard Would Allow Plans To Cover One Drug Per Category" - Pink Sheet, 16 Dec, 2011.). Drug industry stakeholders and patient groups are lobbying for a higher standard. One alternative is that HHS could require that plans cover at least two drugs per class, as is the case in the Medicare Part D program. Or the department could mandate that benefits be “substantially equal” to the benchmark plan.

HHS originally requested that states submit their benchmark plans for review by Oct. 1, but the department has more recently indicated it will be flexible with the deadline. The benchmark plans must be approved by HHS before they are adopted. If no benchmark is selected, HHS will assign a default plan, which is the largest small group plan in the state.

Selection of the benchmarks is an important step toward implementing the essential health benefit standards as required by the ACA. For drug companies, the selection offers greater visibility into the drug coverage that will be mandated for individual and small group plans in the states.

The market that will be governed by the essential health benefit rules is substantial. The Congressional Budget Office projects nine million individuals will purchase health insurance through state-operated exchanges (also created under ACA) in 2014, increasing to 25 million by 2022. Plans sold outside the exchanges also will be subject to the EHB requirements unless they are grandfathered. Under the law, plans already in existence when the ACA was signed in March 2010 are exempted from the requirements until they are revised, such as through changes in premiums or benefits.

Pearson noted in an interview that although there is variation in the breadth of formularies among the benchmark plans selected, for the most part they are reasonably broad, and in many cases more than half of the drugs in a specific class are covered.

Most Benchmarks Are Small Group Plans

Most of the benchmark plans selected so far have been small group plans, based on research by Avalere and State Refor(u)m, an online network for health reform implementation (www.statereforum.org) developed by the National Academy for State Health Policy.

States may view the choice of a small group plan as the easiest route to take because such plans are regulated by the state and already include state-mandated benefits. If states select an employee plan, which is not necessarily regulated by states, they may incur additional costs because the mandated benefits might have to be added.

Formulary breadth is only part of the access scenario for drugs covered by exchange plans. Formulary edits, cost-sharing and other issues are also important.

HHS is not expected to address formulary edits in its EHB rules, so that responsibility will fall to states. The department said in a rule issued in July it will not evaluate utilization management tools such as step therapy or prior authorization when it reviews the state benchmark plans (Also see "Essential Health Benefits And Drug Formularies, In Brief" - Pink Sheet, 23 Jul, 2012.). HHS’ consideration of formulary edits had been opposed by insurers but supported by drug firms interested in greater transparency on drug access limits.

In recent months, the Pharmaceutical Research and Manufacturers of America has been pushing states to establish the kind of oversight of formulary edits and other drug access protections that exist in the Part D program.

One example is requiring that plans’ independent pharmacy and therapeutics committees have processes in place to review formulary edits and to ensure that newly approved treatments and indications be added to formularies in a timely manner. PhRMA also has urged review of formulary tiering and establishment of an exception and appeals process for when a drug is excluded from a plan’s formulary or placed on a higher cost-sharing tier.

PhRMA additionally has advocated that states ensure formularies include a broad range of treatment options for conditions that “disproportionately affect vulnerable individuals,” such as patients with mental illness, HIV/AIDS and cancer. HHS said in its December bulletin that it would not establish a “protected classes” policy in its EHB rules. In Part D, formularies are required to include “all or substantially all” drugs in six classes: anticonvulsants, antidepressants, antipsychotics, antiretrovirals, antineoplastics and immunosuppressants to prevent organ transplant rejections.

Because the individual plan market, in particular, is very price sensitive – since there is no contribution from employers – drug companies will face increased pricing pressure from those plans, Pearson noted. Issues around cost-sharing in the exchange plans are still to be determined but could be particularly challenging. For example, she pointed out that some plans offered in the state of Massachusetts require 50% coinsurance on all branded drugs.

HHS is expected to address cost sharing and access issues in its upcoming rules on EHBs. Stakeholders are anticipating a rule will be released after the November elections, given the political sensitivity surrounding the ACA.