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Complying With State and Federal Regulations on Essential Drug Benefits: Implementing the Affordable Care Act

Published Online: February 20, 2014
Joshua P. Cohen, PhD; Abigail Felix, BA; and Magdalini Vasiadi, PhD
Objectives: To examine health plan compliance with essential drug benefit regulations in California and Massachusetts and at the federal level.

Study Design: Health plan formulary review and analysis.

Methods: We analyzed formularies from the 3 largest small group plans in California and Massachusetts, including each state’s benchmark plan. With respect to both federal and state regulations, for each health plan, we examined whether the drug was covered, the designated patient cost sharing tier of the drug, and which conditions of reimbursement were applied to the drug.

Results: Most drugs included in state and federal mandates are covered by both benchmark and non-benchmark plans. However, health plans are not fully compliant with state and federal regulations. Significant differences among plans relate more to cost sharing and conditions of reimbursement, such as prior authorization, step edits, and quantity limits, than to drug coverage.

Conclusions/Policy Implications: Because health plans in California and Massachusetts are not fully compliant with state and federal mandates, they will have to adjust their formularies to meet minimum requirements. State policy makers need to balance competing aims of comprehensiveness of coverage and drug affordability. They must consider: (1) choice of benchmark plan —choice of a more generous benchmark plan implies less leverage for negotiating lower prices; and (2) breadth of state mandates which, if they exceed federal mandates, must be paid for by the states.

Am J Manag Care. 2014;20(2):153-158
States have long been laboratories of healthcare reform.1 For example, in lieu of a universal prescription drug benefit for Medicare beneficiaries, in the late 1990s, dozens of states established prescription drug assistance programs.2,3 These programs provided impetus for passage of the Medicare Prescription Drug, Improvement and Modernization Act in 2003. More recently, establishment of the Patient Protection and Affordable Care Act (ACA) reflected ongoing reforms at the state level, and, in particular, Massachusetts.4,5

Under the ACA, states have primary responsibility for the expansion of Medicaid to reduce the numbers of uninsured, and the creation of health insurance exchanges in 2014. A health insurance exchange is a collection of government-regulated healthcare plans from which individuals may purchase health insurance eligible for federal subsidies. These exchanges will be subject to minimum (ie, essential) requirements regarding health benefits design.

There are 3 fundamental questions associated with regulations on essential health benefit design: (1) How will essential benefits be defined? (2) At what level of government—state versus federal—will benefits be regulated? And finally (3) Which benefits can society afford to provide? 6,7 In this paper, we will address the first 2 questions. Our study examines state-level implementation of ACA as it pertains to design of an essential drug benefit. Specifically, our focus will be on ACA implementation by California and Massachusetts. California has the eighth-highest percentage of uninsured in the nation and the largest total number of uninsured at 6.9 million.8,9 The state has long played a major role in supplying and regulating health insurance. Medicaid expansion may be particularly challenging to California, given the complexity of its budgetary situation. Massachusetts has the lowest uninsured rate at 4%, in part because Massachusetts implemented comprehensive healthcare reform in 2006.5 Eliminating potentially duplicative regulations may pose a special challenge to Massachusetts.

State regulators must identify a benchmark plan with which to anchor an essential benefits package. “The Secretary [of HHS] shall ensure that the scope of the essential health benefits is equal to the scope of benefits provided under a typical employer plan, as determined by the Secretary.” 10 The latest bulletin from the Department of Health and Human Services (HHS) implies broader coverage of prescription drugs, as it would require coverage of either at least 1 drug in each therapeutic class as defined by the United States Pharmacopeia (USP), or the number of drugs that the benchmark plan offers—whichever is more.11,12 Therefore, benefits included in the benchmark health plans become the de facto essential health benefits package. Accordingly, the benchmark chosen by the state directly impacts what must be covered on outpatient formularies in the nongroup and fully insured small-group markets.

California recommended Kaiser Foundation Health Plan Health Maintenance Organization as its benchmark plan.11 Massachusetts recommended Blue Cross and Blue Shield of Massachusetts Health Maintenance Organization Blue.11 Twenty-five states submitted essential health benefit benchmark plans. The other 25 did not make a selection. HHS assigned the state’s “largest small-group plan.” At least 30 states have Blues plans as benchmarks, while 2 have Kaiser plans as benchmarks.

In this paper, we identify differences in state regulations in California and Massachusetts as they relate to essential pharmaceutical benefits (ie, which drugs health plans are required to cover). Subsequently, we assess whether benchmark and other plans are in compliance with specific state regulations or mandates on prescription drug coverage. We then examine state implementation of ACA provisions as they relate to essential pharmaceutical benefits. In this context, we analyze plan coverage of drugs in therapeutic categories and pharmacologic classes included in the USP model formulary guidelines for outpatient drug coverage under Medicare Part D. Currently, the closest thing federal policy makers have to an evidence-based approach to a therapeutic classification system is the set of USP model formulary guidelines. We will determine whether plans meet the 1-per-class minimum requirement. Further, we will assess coverage of drugs in the 6 so-called protected drug classes, in which “all or substantially all” drugs must be offered to Medicare Part D beneficiaries. Protected class regulations are not included in current essential health benefit regulations. However, there is concern among some stakeholders— patient advocacy groups, physicians, the biopharmaceutical industry—that there will be inadequate access to what are perceived of as necessary medications if the protected class provision is not instituted.13 

METHODS

In order to examine health plan compliance with state and federal regulations on essential drug benefits, we analyzed formularies from the 3 largest small-group plans from each state; 1 of each set of 3 is the state’s selected benchmark plan. We retrieved data directly from the health plans. Plans sometimes devise multiple formularies to suit different beneficiary needs and preferences. Per plan, we examined the formulary associated with the largest number of covered lives.

To compile as comprehensive a drug list as possible, we identified therapeutic categories and pharmacologic classes of drugs contained in the USP Model Guidelines.12 The guidelines include generic names for some (not all) drugs in each category and class. We supplemented our tally of drugs by analyzing the Blue Cross Blue Shield’s Federal Employee Plan formulary.14 The total number of drugs we reviewed coverage of was 310, across 10 broad therapeutic categories: 22 anticonvulsants, 24 antidepressants, 123 antineoplastics, 19 antipsychotics, 30 antiretrovirals, 33 immunosuppressants, 34 antidiabetics, 12 contraceptives, 3 smoking cessation products, and 10 calcium regulators.

PDF is available on the last page.

Issue: February 2014
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