How should individuals who don't get insurance through an employer get affordable, quality insurance?

That is the question the landmark Patient Protection and Affordable Care Act, signed by President Barack Obama in March 2010, attempted to answer. It established state insurance exchanges that would allow individuals to comparison-shop among a broad range of private insurance offerings.

The law gave states nearly four years to set up their own independent exchanges, which have to open for business by January 2014.

But setting up a one-stop shop for health insurance was only one part of the solution.

Equally important is answering a vexing, politically charged question: What health benefits should insurance companies that participate in the state exchanges be required to cover?

Should pelvic and breast exams for women, for example, be "essential" benefits that all insurers in state exchanges should cover – or should they be optional? Chemotherapy for cancer? Hearing aids? Kidney transplants? Heart bypass surgery? On and on.

The law passed by Congress aimed to guarantee, for the first time, a minimum level of coverage for all Americans no matter where they live. So it required the Secretary of Health and Human Services to define an "essential health benefits" standard for all 50 state exchanges.

The Obama administration announced Dec. 16 that it would not provide states with a single, detailed list of services that must be included by insurers. Instead, states may choose among four "benchmark plans" offered by typical employers within their state. That gives states flexibility in defining their own "essential health benefits" package.

While a uniform national standard is preferable to avoid a race to the bottom, in the current political climate a state-based approach based on existing, familiar plans might help win needed public support. That's important, too, given our polarized political dynamic.

Under the Obama administration approach, states can choose their benchmark plan from among typical private employer plans offered in their state – such as the small-business plan with the largest enrollment or the largest HMO. Or they can choose among options offered in their state employee plan. Or they can choose among the most popular options in the Federal Employees Health Benefits Program.

In short, states don't have to build an "essential health benefits" standard from scratch.

Critics fear, however, that the Obama administration's state-based approach could lead to significant state-by-state variations, much like the differences between state Medicaid programs and the Children's Health Insurance Program.

The California Health Benefit Exchange Board, caught by surprise by the new federal direction, last Tuesday did a first look at plans that might serve as a benchmark. It found great variation and will be doing a more in-depth examination before making any decisions.

The Patient Protection and Affordable Care Act is clear that the "essential health benefits" package in the state exchanges has to offer coverage in 10 general categories – including preventive screenings and labs, hospital care, emergency services, maternity and infant care, prescription drugs, mental health and substance abuse treatment, rehab therapy, and dental and vision care for children.

In the end, the Obama administration's state-based approach will be successful only if the secretary reviews each state's essential health benefits package and holds each state accountable for coverage in each of the 10 categories.

With state exchanges starting up in 2014, we'll have to wait until 2015 to see how this approach works – and keep a watchful eye.

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