Advisers Suggest Less Generous Health Plans

Health plans sold to the uninsured shouldn’t cover more benefits than the typical program offered by small business when provisions of the health-care law take effect, advisers said in a report for the Obama administration.

The U.S. Institute of Medicine’s recommendation favors business groups and insurers who have sought a narrow package of required benefits because of concerns the plans would be too costly, said Neil Trautwein, vice president for the National Retail Federation. The U.S. should limit premiums to levels no higher than what small businesses pay on average and choose benefits “within the context of financial constraints,” according to the 297-page report released yesterday.

Small businesses tend to offer less generous medical benefits than larger companies. Trade groups for companies such as Caterpillar Inc. (CAT) and Macy’s Inc. (M) have lobbied against a broad package of benefits, saying workers may drop their employers’ plans when provisions of the law take effect in 2014.

The recommendation “is the appropriate tack to take since the objective is to cover everyone with at least basic benefits,” Trautwein said in a telephone interview.

The issue has pitted businesses against patient advocacy groups such as the American Cancer Society, which argues for robust coverage. The law required insurance plans to cover 10 broad categories of care, including hospitalization, mental health and pediatrics starting in 2014 and left details to Obama’s health secretary, Kathleen Sebelius. Sebelius asked the Institute of Medicine, a nonprofit that advises the U.S. on health issues, to recommend a way to select the benefits that should be included in the plans.

Employer lobby groups argue that a generous package of benefits would cause workers to desert plans offered by companies, forcing employers to pay fines and raise premiums as the number of people covered by their health plans dwindles.

Small Business Standard

The institute said Sebelius should start with a package of benefits that mirrors what small businesses offer their employees. She should set a “premium target” for the benefits that equals what small businesses would pay, on average, in 2014, according to the report. Then she can select benefits to meet the target, a process the institute likened to shopping for groceries under a budget.

“If the package of essential health benefits gets too comprehensive it quickly becomes unaffordable,” said John Ball, chairman of the institute committee that wrote the report, said in a telephone interview. Ball has been a hospital administrator and was an aide to former President Jimmy Carter.

Effect on Disabled

Modeling the benefits on health plans offered by small companies may leave services important to people with disabilities uncovered, said Peter Thomas, a lawyer at Powers, Pyles, Sutter & Verville in Washington who co-chairs the health task force of the Consortium for Citizens with Disabilities, an advocacy group.

“It’s clear that a large employer plan would be of greater assistance” to disabled people or the chronically ill, he said in a telephone interview.

Congressional staff who helped write the health law told Ball’s committee that they intended the benefits to be based on large-employer plans, and the committee’s recommendation “stands in stark contrast” to that testimony, Thomas said.

The decision to base benefits on small-employer plans “is an important step toward maintaining affordability” said Karen Ignagni, president and CEO of America’s Health Insurance Plans, a Washington trade group, in a statement.

Public Meetings

The government will soon issue a list of required benefits, Sebelius said in a statement yesterday. Her department will first hold meetings nationwide to take public comment on the issue, another of the institute’s recommendations, she said.

“These conversations will help us ensure that every American can access quality, affordable health coverage they can rely on,” Sebelius, secretary of the U.S. Department of Health and Human Services, said in the statement.

The meetings could become a “feeding frenzy process,” Trautwein said, by people who want coverage of specific conditions and services.

“I applaud them for the intent and worry about what happens in reality,” he said. Sebelius could try to “shove the kitchen sink” into the benefits package regardless of the limit on premiums.

To contact the reporter on this story: Alex Wayne in Washington at awayne3@bloomberg.net.

To contact the editor responsible for this story: Adriel Bettelheim in Washington at abettelheim@bloomberg.net.

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