Essential health benefits

What Are Essential Health Benefits?

Essential health benefits (EHBs) are a comprehensive set of healthcare services that certain health insurance plans are required to cover under the Affordable Care Act (ACA). They represent a fundamental component within the broader field of healthcare finance, aiming to ensure that individuals have access to a robust array of medical care. These benefits are designed to standardize the minimum level of coverage available in the individual market and small group market, preventing insurers from excluding critical services. All plans offered through the Health Insurance Marketplace must include these essential health benefits.²⁷,²⁶

History and Origin

The concept of essential health benefits emerged directly from the Patient Protection and Affordable Care Act (ACA), signed into law in 2010. Before the ACA, many health insurance plans in the individual market did not cover key services, often leaving policyholders exposed to significant costs for unexpected medical needs. For instance, in 2011, a substantial percentage of individual market enrollees lacked coverage for services such as maternity care, substance use treatment, mental health services, and prescription drugs.²⁵ The ACA sought to address these gaps by establishing a minimum federal standard for coverage. The law tasked the Secretary of Health and Human Services (HHS) with defining the specific services within ten broad categories that would constitute the essential health benefits.²⁴ This regulatory framework was intended to ensure that health plans provide adequate benefits to their enrollees, balancing comprehensive coverage with affordability.²³

Key Takeaways

• Essential health benefits are a set of ten statutorily defined categories of healthcare services that must be covered by certain health insurance plans.
• They were established by the Affordable Care Act (ACA) to standardize and ensure comprehensive coverage, particularly in the individual and small group markets.
• The ten categories include ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services, prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive and wellness services, and pediatric services.²²,²¹
• Health plans covering essential health benefits are generally prohibited from imposing annual or lifetime limits on these services.²⁰
• States play a role in defining the precise scope of essential health benefits by designating a "benchmark plan."¹⁹

Interpreting the Essential Health Benefits

While the Affordable Care Act outlines ten broad categories for essential health benefits, the specific services included within each category are determined at the state level through a "benchmark plan" system. Each state designates an existing health insurance plan to serve as its benchmark, and all other plans in that state's individual and small group markets must cover services "substantially equal" to those offered by the benchmark plan.¹⁸ This allows for some variation in the precise scope of EHBs from state to state.

For instance, a state's benchmark plan might specify a certain number of physical therapy visits covered under rehabilitative services, or the specific types of prescription drugs included in its formulary. Consumers evaluate health plans not only by the essential health benefits they offer but also by their actuarial value, which indicates the average percentage of healthcare expenses a plan will cover for a standard population.¹⁷ Higher actuarial value plans will typically have lower cost-sharing for the consumer, such as lower deductibles or copayments.

Hypothetical Example

Consider Maria, a self-employed graphic designer looking for health insurance. She is reviewing two plans on the Health Insurance Marketplace, both of which are required to cover essential health benefits.

Maria typically has good health but wants to ensure she's covered for potential emergencies and needs like preventive care. She compares Plan A, a Bronze plan, and Plan B, a Silver plan. Both plans cover the ten essential health benefit categories.

One day, Maria experiences a sudden illness requiring emergency room services and a short hospitalization, both of which fall under essential health benefits.

• Plan A (Bronze): Has a high deductible ($7,000) and a high coinsurance percentage (30%) after the deductible. Maria pays the full cost of the emergency visit and initial hospitalization until her deductible is met, and then 30% of the remaining costs until she reaches her out-of-pocket maximum.
• Plan B (Silver): Has a lower deductible ($3,000) and a lower coinsurance percentage (20%) after the deductible. Maria pays less upfront for her emergency services and hospitalization before the plan starts covering a larger share of the costs.

In both cases, the essential health benefits ensure that the services themselves are covered, but the financial impact on Maria depends on the plan's specific cost-sharing structure.

Practical Applications

Essential health benefits underpin the design and regulation of health insurance products in the United States, particularly within the Affordable Care Act's framework. They are fundamental to how coverage is structured and sold in the individual and small group markets, including through government-run exchanges like HealthCare.gov.¹⁶

These benefits play a crucial role in:

• Standardizing Coverage: By mandating coverage for these services, EHBs ensure a baseline of comprehensive care, preventing insurers from offering plans that might appear affordable but exclude vital services. This helps consumers compare plans on a more equitable basis.
• Consumer Protection: The EHB requirement, alongside the prohibition on annual and lifetime limits for these benefits, protects individuals from catastrophic healthcare costs, ensuring that even severe or chronic conditions do not lead to unlimited financial burdens.¹⁵,¹⁴
• Regulatory Compliance: Insurance companies offering non-grandfathered plans in the individual and small group markets must comply with EHB requirements, as well as the associated limits on out-of-pocket spending.¹³ The Centers for Medicare & Medicaid Services (CMS) periodically releases guidance, such as the HHS Notice of Benefit and Payment Parameters for 2025, which updates and clarifies policies related to EHBs and other aspects of health plan operations.¹²,¹¹
• Medicaid Expansion: States that expanded Medicaid under the ACA are also required to provide essential health benefits to newly eligible beneficiaries, broadening access to comprehensive care for lower-income populations.¹⁰,⁹

Limitations and Criticisms

Despite their role in expanding access to comprehensive care, essential health benefits have faced limitations and criticisms. One common argument centers on the increased cost of health insurance premiums. Critics contend that requiring a broad range of services unnecessarily raises costs for individuals who may not need all the mandated benefits.⁸ However, proponents argue that allowing plans to exclude benefits would lead to thousands of dollars in new out-of-pocket expenses for those who eventually need these services, potentially resulting in unmet medical needs.⁷

Another area of discussion involves state flexibility. While states define the specific scope of EHBs through benchmark plans, some argue that this flexibility can lead to inconsistencies in coverage across states. For instance, the exact details of "rehabilitative and habilitative services" might vary, potentially affecting care for individuals with specific needs like developmental disabilities.⁶ There have also been policy discussions and proposals regarding allowing states to waive or modify EHB requirements, which could weaken the ACA's consumer protections and potentially impact coverage for large employer plans nationwide.⁵ Balancing the desire for comprehensive coverage with concerns about affordability and state autonomy remains an ongoing challenge in healthcare policy.

Essential Health Benefits vs. Minimum Essential Coverage

It is important to distinguish between Essential Health Benefits (EHBs) and Minimum Essential Coverage (MEC). While both terms relate to health insurance under the Affordable Care Act, they refer to different aspects of coverage.

Essential Health Benefits are the ten categories of services that certain qualified health plans must cover. They dictate the scope of benefits offered by a plan. This means that if a plan is required to cover EHBs, it must include services such as hospitalization, prescription drugs, and maternity care.

Minimum Essential Coverage, on the other hand, refers to the minimum level of coverage an individual needs to meet the ACA's individual mandate (though the federal penalty for not having MEC was repealed in 2019). MEC is a broader, lower threshold that signifies a type of health coverage that qualifies as "adequate" under the law. Many forms of coverage can qualify as MEC, even if they do not provide the comprehensive essential health benefits. For example, some government-sponsored programs or employer-sponsored plans might meet MEC requirements without strictly adhering to the EHB categories if they are exempt from EHB mandates (such as grandfathered plans or certain large employer plans). Essentially, EHBs define what services are covered in specific plan types, while MEC defines a basic level of qualifying coverage.

FAQs

What are the 10 categories of essential health benefits?

The ten categories are: ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services (including behavioral health treatment), prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive and wellness services and chronic disease management, and pediatric services (including oral and vision care).⁴,³

Do all health insurance plans cover essential health benefits?

No. Essential health benefits are required for non-grandfathered health insurance plans sold in the individual and small group markets, both on and off the Health Insurance Marketplace. Large group health plans and self-insured plans, while subject to other ACA provisions like the out-of-pocket maximum, are generally not mandated to cover EHBs in the same way.,²

How do essential health benefits protect consumers?

EHBs protect consumers by ensuring that plans cover a broad range of necessary medical services, preventing insurers from excluding common and critical treatments. They also typically prohibit annual and lifetime limits on these covered services, which protects individuals from accumulating unlimited medical debt due to serious illness or injury. This ensures that even individuals with pre-existing conditions can access comprehensive care.

Can states define their own essential health benefits?

States play a significant role in defining the specifics of essential health benefits within the federal guidelines. Each state selects a "benchmark plan" that sets the standard for the specific services and scope of benefits to be covered within the ten broad categories. This allows for some state-level variation in how EHBs are implemented.¹