Standardizing Health Plan Benefit Design: Opportunities and Implications for States

Sabrina Corlette, Georgetown University Center on Health Insurance Reforms

In 2019, the Washington legislature enacted a bill requiring insurers on the state’s health insurance exchange to offer plans with standardized benefit designs, beginning in 2021. Colorado and Maryland are considering similar requirements. As these and other states consider the option of standardized health plans, they can benefit from the experiences of California, the District of Columbia (D.C.), Connecticut, Massachusetts, New York, Oregon, and Vermont, all of which require insurers to offer standardized benefit designs. This expert perspective outlines benefits and risks of plan standardization, and raises critical questions that states will need to consider, and offers a decision roadmap for states implementing a standardized benefit design requirement.

Why Standardize? Improving the Consumer Experience with Affordable Care Act
Coverage

The Affordable Care Act (ACA) created health insurance exchanges
in every state to encourage insurers to compete based on price and quality. The
exchanges were required to maintain websites where consumers could make “apples
to apples” comparisons among health plans, and shop with confidence that
the plans available had been certified as meeting a minimum level of
comprehensiveness and quality. States were given the primary responsibility to
certify that participating health plans meet federal standards, as well as
given flexibility to set additional plan standards of their own, such as
requiring insurers to offer plans with standardized benefit designs.

The above-listed states have cited
several reasons for requiring insurers to offer standardized plans:

Improving the consumer enrollment experience

Federal law requires all individual market insurers to cover
a set of essential health benefits and offer plans that meet prescribed targets for coverage
generosity, known as “actuarial value” (AV). These AV levels are set at Bronze, Silver, Gold, and Platinum, with the Bronze level being the least generous and Platinum being the most generous. Yet
insurers retain considerable flexibility in how they design their plans to meet
these targets, and the ACA does not limit the number of plans they can offer at
each AV level. As a result, some consumers can face many hundreds of possible
plan options, leading to what economists call “choice
overload” and suboptimal enrollment decisions, or in some cases, a decision
not to enroll at all. Standardizing benefit designs can help streamline consumers’
shopping experience and ease the “apples-to-apples” plan comparisons envisioned
by the ACA.

Improving enrollees’ access to high-value services and prescription drugs

Furthermore, consumers in the exchanges tend to be extremely
price
sensitive, resulting in competitive pressure for insurers to set plan
premiums as low as possible. To do so, they often must increase plan deductibles
and other cost-sharing. The average Silver plan deductible in the exchanges was
$4,375
in 2019. Yet increasing enrollees’ cost-sharing at the point of service can
lead many to delay
or forego needed care. Consumers may also become disenchanted with their
exchange plans if they have to spend a considerable amount out-of-pocket before
their coverage kicks in. States have used standardized benefit designs to
require insurers to cover certain high-value services before the deductible,
such as primary and urgent care visits and prescription drugs.

Improving the affordability of coverage

The majority of people enrolled in coverage through the
exchanges receive premium tax credits (PTCs). The amount they receive to defray
the cost of their premium is pegged to the premium for the second lowest cost
Silver plan sold in their area. Under the ACA, Silver plans must have an AV of
70 percent, meaning that the plan covers 70 percent of the average enrollee’s
costs. However, federal rules allow insurers to market plans at the Silver
level if they come within a few percentage points of the 70 percent target.
Specifically, if the plan has an AV of anywhere between 66 and 72 percent,
federal rules deem it a Silver level plan. A 66 percent AV plan will have a
lower premium than a 72 percent AV plan. States can use standardized plan
designs to ensure that insurers offer plans at an AV level that will help
enrollees gain access to more generous and affordable coverage.

Standardization Can Come with Some Risks, Challenges for States

In spite of some of the clear benefits of implementing
standardized plan designs, the states that have done so have had to confront
some critical questions, including:

• What’s the right amount of choice? Insurer stakeholders have argued that restricting their ability to design plans will hinder innovation and reduce consumer choices. Of the seven states that have required standardized plans, six allow insurers to offer non-standardized plans, too. Only California requires insurers to offer all standardized plans, inside and outside the exchange.
• What tradeoffs might be required? The ACA requires plans to be offered at specified AV targets. Meeting those targets while reducing cost-sharing for high-value services requires increasing consumer cost-sharing for other services. How to choose which services must face higher cost-sharing can be difficult, and will affect different patient populations in different ways. For example, a plan design that works well for a diabetic may not work as well for someone with cancer or the survivor of a heart attack.
• What kind and level of state resources will be required? It’s one thing to develop a standardized plan policy, it’s another thing to implement it. Standardized plans require:
  • Staff and actuarial support to design plans that meet the AV targets, fit consumers’ needs, and satisfy relevant state policy goals.
  • Engagement with insurer, provider, and patient group stakeholders to garner support for the policy and provide input on plan designs and implementation.
  • Annual revisions to meet the AV targets, which are adjusted every year.
  • Website updates to help consumers easily and effectively find and compare standardized plans.
  • Consumer education to help consumers understand what standardized plans are, what they cover, and how to compare them.

Unfortunately, it can be difficult for states to assess the
benefits and risks of requiring standardized plans, in part because there is a
lack of data about how consumers shop for and compare plan options on the
exchange websites, how enrollees access and use services under standardized vs.
non-standardized plans, and whether standardized plans can improve consumer
satisfaction and encourage more to enroll in and maintain exchange coverage. However,
on a recent webinar
for State
Health & Value Strategies, state
officials from D.C., New York, and Massachusetts reported that requiring
standardized benefit designs can be a way to improve the consumer experience.

Leveraging Standardized Plans to Improve the Consumer Experience and a
Decision Roadmap for States

On the webinar, officials from the D.C., New York, and
Massachusetts exchanges discussed lessons they have learned since implementing
standardized benefit designs as well as improvements they are planning for the
future. For example, Massachusetts has used their standardized plans to improve
enrollees’ access to medication assisted treatment for opioid use disorders. The
state also has data suggesting that the standardized plans are helping
consumers make decisions less on brand-name and more on the plan features
important to them. New York requires insurers to offer Silver plans at no less
than 70 percent AV in order to keep deductibles as low as possible. D.C. is
making standardized plans a “major theme” in this year’s open enrollment
marketing and outreach campaign, highlighting for consumers the greater
availability of pre-deductible coverage. All three states are using
standardized plans to improve consumers’ shopping experiences and the value of
the coverage they ultimately purchase.

For states considering adopting a standardized benefit
design requirement, there are many important decisions that can help ensure the
state meets its policy goals. The decision roadmap below can be used to help
guide policymakers and key stakeholders in the process.

Standardized Plan
Designs: Decision Roadmap