CMS Clarifies Application of Essential Benefits to Medicaid

by Rebecca Farley on November 21, 2012

Although HHS stated clearly that its proposed rule extends only to health plans sold in the individual, small group, and exchange markets, the Centers for Medicare and Medicaid Services (CMS) this week released a concurrent State Medicaid Directors Letter (SMDL) outlining how essential benefits will be applied to Medicaid. The letter states that the requirements outlined by HHS in its proposed rule will generally apply to Medicaid, with some modifications.

Under existing law, states may choose from among four types of health plans for Medicaid benchmark coverage: 1) The Standard Blue Cross/Blue Shield Preferred Provider Option offered through the Federal Employees Health Benefit program; 2) State employee coverage that is offered and generally available to state employees; 3) The commercial HMO with the largest insured commercial, non-Medicaid enrollment in the state; and 4) “Secretary-approved coverage,” which can include the traditional Medicaid state plan.

To determine an essential benefits package for Medicaid, the SMDL notes that states should first select one of the 4 types of Medicaid benchmark plans to use as a starting point. There is some overlap between the allowable Medicaid benchmarks and the exchange benchmarks; if the selected Medicaid benchmark is also an exchange benchmark and it meets the criteria laid out in the HHS proposed rule for essential benefits, then the Medicaid benchmark is also in compliance with the essential benefits rule. If the state selects a Medicaid benchmark that is not also an exchange benchmark, states must supplement the Medicaid benchmark benefits with the necessary categories of benefits drawn from one of the exchange benchmark options.

The SMDL states that the benefits supplementation process described in the HHS proposed rule will also apply to Medicaid benchmark plans that need to supplement their coverage to meet essential benefits criteria. However, CMS will issue separate rulemaking on how states should define habilitative services. The letter also notes that Section 1927 of the Social Security Act continues to govern how states may cover outpatient drugs, including having the flexibility to adopt prior authorization plans and other types of utilization management.

CMS will begin accepting Medicaid State Plan Amendments in 2013 for benchmark plan design for individuals who will be newly eligible for Medicaid in 2014.


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