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Feds to design health insurance for the masses

WASHINGTON — The federal government is taking on a crucial new role in the nation’s health care, designing a basic benefits package for millions of privately insured Americans. A framework for the Obama administration was released Thursday.

The report by independent experts from the Institute of Medicine lays out guidelines for deciding what to include in the new “essential benefits package,” how to keep it affordable for small businesses and taxpayers, and also scientifically up to date.

About 68 million Americans, many of them currently insured, ultimately would be affected by the new benefits package. That’s bigger than the number of seniors enrolled in Medicare.

The advisers recommended that the package be built on mid-tier health plans currently offered by small employers, expanded to include certain services such as mental health, and squeezed into a real-world budget.

They did not spell out a list of services to cover, but they did recommend that the government require evidence of cost effectiveness.

“In this day and age, when we are talking about fiscal responsibility, it’s a report that recognized that we have to take account of what we can afford while trying to make sure that people have adequate coverage,” said panel member Elizabeth McGlynn, director of Kaiser Permanente’s center for effectiveness and safety research.

Until now, designing benefits has been the job of insurers, employers and state officials. But the new health care law requires insurance companies to provide at least the federally approved package if they want to sell to small businesses, families and individuals through new state markets set to open in 2014.

Most existing workplace plans won’t be required to adopt the federal model, but employers and consumer advocates alike predict it will become the nation’s benchmark for health insurance over time.

With the nation divided over President Barack Obama’s health care overhaul law, and Republicans condemning it as a government takeover, the administration reacted cautiously to the recommendations.

Health and Human Services Secretary Kathleen Sebelius said in a statement that officials would hold “listening sessions” around the country before any final decisions are made, which could take months. The IOM panel recommended an extensive effort to engage the public.

“Before we put forward a proposal, it is critical that we hear from the American people,” Sebelius said. The law extends coverage to about 30 million uninsured people.

Actually, work on the benefits package is already well under way within the HHS department. On the outside, a huge lobbying campaign to shape the final package is about to take off.

Employer groups — particularly those representing low-wage industries — want to keep benefits fairly basic. Since the government is going to be subsidizing coverage for millions of people, a generous plan will drive up costs for taxpayers, they argue. But consumer and patient advocacy groups that helped pass the overhaul law want to make sure their priorities are included.

The health care law requires that essential benefits include outpatient, hospital, emergency, maternal, newborn and children’s care, prescription drugs, mental health and substance abuse treatment, rehabilitation, labs, prevention and wellness. But Congress gave the administration lots of leeway to determine the specifics.

In its 300-page report, the Institute of Medicine panel stressed that the package has to be affordable if Obama’s overhaul is going to stand the test of time.

The panel used the analogy of a shopper at the supermarket. One option is to fill up your cart with all the groceries you want, and find out the cost at the register.

“The other option is to walk into the store with a firm idea of what you can spend and to fill the cart carefully, with only enough food to fit within your budget,” the advisers said. “The committee recommends that (the administration) take the latter approach.”

The first option compares to what the government now does with Medicare and Medicaid — it pays all the bills. But the advisers said Obama’s plan should be on a budget.

The panel proposed a tough financial test. Few small employer plans currently offer comprehensive mental health coverage, for example. As such services are added, the total cost of the package should stay within a realistic budget target to be set by the administration. That would help keep premiums affordable.

“Without a budget, you could decide to live in a 10,000 square-foot house overlooking the ocean and drive a Jaguar,” McGlynn said.

The panel’s rough estimate put annual premiums for individual coverage under the plan at $5,500 to $7,000 in 2014, comparable to what employers pay now.

Interest groups will be poring over the recommendations.

“Moving forward, this is truly a lynchpin issue,” said Neil Trautwein, vice president for benefits policy at the National Retail Federation. “I think there will be a tug-of-war on this proposal.”

The Institute of Medicine is an independent organization advising the government on technical issues.