Defining essential health benefits poses a basic conflict. On one hand, everyone wants broad coverage; on the other, the broader the coverage, the more expensive policies will be — pushing government spending up (because government pays for the subsidies) and wages down (because employers will shift compensation from wages to fringe benefits).
Sebelius ducked this question by requiring each state to define essential health benefits based on existing policies in that state. Almost no one anticipated this. The ACA does not suggest it. Sebelius asked for advice from the nonpartisan Institute of Medicine. Its report talks of a national standard for essential health benefits, although it also notes that the ACA allows the secretary to provide state-by-state waivers beginning in 2017.
Politically, Sebelius’s decision is a masterstroke. One Republican criticism of Obamacare is that it imposes a “one-size-fits-all” straitjacket on health care. Mitt Romney — the ex-governor of Massachusetts and author of that state’s universal health insurance plan — has made this point repeatedly. President Obama can now retort: “No, we’ve left crucial decisions to the states.” He can also argue that Washington isn’t dictating “how medicine should be practiced.”
More generally, Sebelius has muddled the health-care debate by splintering the argument over essential health benefits into 51state-level debates immersed in highly technical issues. Under her approach, states must base their essential-healthbenefits package on any one of 10 existing insurance plans. The choices include, for example, “the largest plan by enrollment in any of the three largest small group insurance products in the state’s small group market.” Got it? This isn’t likely to engage the masses.
It’s shrewd politics, but is it good policy? Administration officials make three arguments. First, the president has emphasized that the ACA is a federal-state partnership; delegating these choices to states reflects that. Second, basing a state’s essential health benefits on their existing insurance plans would minimize disruption. And finally, priorities vary by states. “Coverage that works in Florida may not work in Nebraska,” said Sebelius.
To which, there are reasonable objections. Medicare — the government’s largest health program — is national. The uniformity allows economies of scale. If Medicare, hypothetically, varied by state, its already huge costs would almost certainly be higher. The advantages of using existing plans may also be exaggerated, because the ACA mandates that some benefits not routinely included in most plans — eye care and dentistry for children, and mental health and substance abuse — be covered.
The larger problem is that Sebelius doesn’t deal with exploding health-care spending. She ignored the report from the Institute of Medicine, which recommended that she define the essential-health-benefits package in a way that puts a ceiling on its costs. Sebelius delegated that unpopular choice to the states.
They will face conflicting pressures. The more coverage they include, the greater the subsidies from the federal government for the poor and near-poor who qualify for aid. It will be tempting to exploit the open-ended nature of these subsidies. The catch is that the millions of workers whose coverage isn’t subsidized will feel the squeeze on their wages intensify, while their employers may be put at a disadvantage with less generous states.
The reality is that states can’t cure uncontrolled health costs. It’s a national problem that only the national government can solve. That’s why Sebelius’s approach is dubious. If spending continues unchecked, the Institute of Medicine warned, there will inevitably be cutbacks in health insurance coverage as government costs and private premiums become increasingly oppressive and intolerable.