A linchpin of the 2010 federal health law is the requirement that nearly everyone sign up for a health insurance plan – whether it’s Medicaid, other federally subsidized insurance, or private coverage. To make that easier to do, the law calls on states to set up health insurance exchanges where small businesses and individuals can choose the policies that best fit their needs at a price they can afford.

The exchanges are meant to be one-stop marketplaces, mostly websites, where customers will be able to shop for private health plans beginning in January 2014.

To make sure consumers don’t buy plans with inadequate coverage, the Affordable Care Act called on the U.S. Department of Health and Human Services to define a level of coverage for “essential benefits” that must be included under any small group or individual insurance policy inside or outside an exchange. The law also said states requiring insurance companies to provide a broader range of benefits than the national standard would have to make up the cost difference for those policies.

But on December 16, the Obama administration announced its intention to let states determine their own “essential benefits” for plans sold within their boundaries—rather than setting one national benefit standard. Secretary of Health and Human Services Kathleen Sebelius said the approach would “protect consumers and give states flexibility … to meet their unique needs.”

In this explainer, Stateline examines how the new approach will work:

How much freedom have states actually been given in setting benefit levels?

Not total freedom, by any means. The national health law lists 10 categories of health care that all insurance policies must cover: hospitalization, emergency care, out-patient services, maternity and newborn care, mental health and substance abuse services, prescription drugs, laboratory testing, preventive and wellness care, pediatric services (including dental and vision examinations), rehabilitative care and habilitative care such as services for children with developmental disabilities.

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By Matt McKillop and Christine Vestal, Special to Stateline

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