Essential Health Benefits: Balancing Coverage and Cost - AOTA Analysis of the Institute of Medicine Report

The Institute of Medicine (IOM) on October 7, 2011, released a report to the public entitled Essential Health Benefits: Balancing Coverage and Cost. The report makes recommendations to the Department of Health & Human Services (HHS) on how to determine the types of services and care that will be included in state-based health insurance exchanges, which are required by health care reform legislation to provide low-cost, high-quality care to Americans by 2014. 

Health Care Reform

The Patient Protection and Affordable Care Act of 2010 (ACA) requires that everyone in the United States have health insurance beginning in 2014. To facilitate this, the ACA also calls for the establishment of state-run health insurance purchasing “exchanges” to help improve insurance access, choice, cost, and coverage. Qualified insurance plans participating in these exchanges are required by the ACA to cover, at a minimum, a package of “essential health benefits.”

Essential Health Benefits

This package includes 10 general categories of diagnostic, preventive, and therapeutic services: ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services (including behavioral health treatment), prescription drugs, laboratory services, preventative and wellness services and chronic disease management, and pediatric services. Notably, rehabilitation and habilitation services and devices are also considered essential benefits under ACA §1302, due in large part to the advocacy efforts of AOTA and our coalition partners.

HHS, the federal agency tasked with fine tuning the essential benefits package, has yet to determine how rehabilitation and habilitation services will be defined (i.e., what type of care will be covered, under what circumstances, and by what provider types).

IOM Report 

HHS sought input from the IOM, and on October 7, 2011, the IOM released a report, Essential Health Benefits: Balancing Coverage and Cost, that recommends criteria and methods for determining what types of services and care constitute essential health benefits and the process for regular updates. We expect that the report will greatly influence the regulations issued by HHS and ultimately the types of care available to the public under the exchanges.

With its report, IOM focused on striking a balance between the affordability of coverage and the comprehensiveness of coverage. In doing so, IOM warned policymakers against the extensive coverage of specialized, costly services that would make plans unaffordable and run counter to the purposes of the ACA. IOM also recommended that HHS focus on using resources judiciously, consider the population’s health needs as a whole, involve the public in determining coverage priorities, cover only medically necessary services, allow for flexibility and state-specific variations to definitions of essential health benefits, and regularly update the package while considering costs of the plan and rates of medical inflation.

IOM also set forth specific criteria for the HHS to use in defining the essential health benefits package.

Overall Criteria:

  • Be affordable for consumers, employers, and taxpayers.
  • Maximize the number of people with insurance coverage.
  • Protect the most vulnerable by addressing the particular needs of those patients and populations.
  • Encourage better care practices by promoting the right care to the right patient in the right setting at the right time.
  • Advance stewardship of resources by focusing on high-value services and reducing use of low-value services. Value is defined as outcomes relative to cost.
  • Address the medical concerns of greatest importance to enrollees in Essential Health Benefits–related plans, as identified through a public deliberative process.
  • Protect against the greatest financial risks due to catastrophic events or illnesses.

Criteria for Specific Service/Devices/Drugs in the Package:

  • Safe—expected benefits should be greater than expected harms. 
  • Medically effective and supported by sufficient evidence.
  • Demonstrate meaningful improvement in outcomes over current effective services/treatments.
  • Must be a medical service, not serving primarily a social or educational function.
  • Cost effectiveness, so that the health gain is sufficient to justify the additional cost to taxpayers and consumers.

Although it is important and encouraging that the ACA requires the inclusion of rehabilitation and habilitation services, AOTA does have concerns with some aspects of the IOM report. We are concerned by the fact that IOM used a small employer plan, with more limited coverage than typical large employer plans, as the basis for its analysis. Most private insurance plans now cover occupational therapy services. We are also wary of the report’s focus on medical necessity and its emphasis on quantitative, evidence-based care. These criteria do not always account for the benefits and cost-saving aspects of occupational therapy services, particularly services for the chronically ill and other patient populations for which there is limited research.

AOTA is awaiting proposed regulations from HHS on the essential health benefits package for the exchanges, and we will provide formal comments at that time. AOTA will also aid state occupational therapy associations with local advocacy efforts as health care reform legislation is implemented. Please send your thoughts and questions to the Reimbursement and Regulatory Policy Department at

—Jennifer Hitchon, JD, MHA, is AOTA’s regulatory counsel. She can be reached at

For More Information

IOM Report: Essential Health Benefits: Balancing Coverage and Cost (October 7, 2011)

IOM Report Brief

IOM Report Criteria

Audio from the IOM Public Release Briefing

About the IOM

Kaiser Family Foundation: Questions About Essential Health Benefits(October 18, 2011)