How Mandates Increase Costs and Reduce Access to Health Care Coverage
June 2002
Paying for health care coverage is one of the fast-rising costs facing businesses and families in Washington. At the same time health insurance is one of the most heavily regulated sectors of our state’s economy. These two trends are linked, with increasing state regulation playing a major role in driving up the cost and reducing the accessibility of health care coverage.
Nationwide, the number of uninsured is falling, dropping by nearly 600,000 people between 1999 and 2000, the latest year for which figures are available. By 2000, 38.7 million people, about 14 percent of the U.S. population, were without health care coverage throughout the year, down from a high of some 42 million in previous years.[1] Washington, however, is one of only eight states that is experiencing the opposite trend. The number of uninsured in our state is increasing, rising by an average of 1.4 percent in recent years. Today there are an estimated 794,000 people in Washington, or 13.7 percent of the population, who are without health insurance coverage.[2]
This disturbing trend raises the important question of why uninsured rates are increasing in Washington while they are falling nationwide. A key factor is the rising cost of health insurance in our state. Health care costs are rising for a number reasons which are clearly beyond the control of state policymakers, such as the use of new medical technologies, greater use of preventative and diagnostic services, rising litigation costs, an aging population, and market distortions introduced by the federal tax code. There is one key factor, however, which state policymakers directly control; the cost and impact of state-imposed mandates.
The role of state-imposed mandates as a factor in rising insurance costs is often overlooked in both media coverage and the broader public debate. Yet a significant body of research consistently finds that high levels of state-imposed mandates are associated with higher insurance costs and increased numbers of uninsured. Drawing on both national research and data specific to our state, this paper examines the connections between mandates and the affordability and availability of health insurance in Washington. Specifically, this study looks at:
Finally, this study presents practical recommendations for improving the way health insurance is regulated in Washington. These proposals are intended to show how trimming mandated requirements and adopting effective, consumer-based reforms can reduce the number of uninsured by making affordable, high-quality health coverage more readily available to those who need it most.
Health care mandates are laws that restrict and determine the provision of certain health care services. They are distinct from the many administrative rules the state places on the health insurance industry and which carry a significant cost of their own. The legal definition of a mandated health benefit is “coverage or offering required by law to be provided by a health carrier to: (a) Cover a specific health care service or services; (b) cover treatment of a specific condition or conditions; or (c) contract, pay, or reimburse specific categories of health care providers for specific services...”[3]
As they have been enacted over time, mandates imposed by the state tend to fall into four broad categories:
Mandates for specific services. These require that certain medical services be included in the benefit package of any health insurance policy sold in the state.
Mandates for offerings. These require insurance carriers to offer certain services, such as hospice and home health care, although insurance customers do not have to buy coverage for these services.
Mandates for access to providers. These require health care plans to cover the services of certain provider groups, such as chiropractors, podiatrists and optometrists.
Mandates for eligibility. These require health plans to cover certain patient populations, such as dependent children and former spouses.
In many cases insurance customers would choose these mandated services anyway, and to that extent mandates have little or no impact on the insurance market. Also, a number of individual mandates have little or no effect on the overall cost of health care because they are relevant to only a small patient population or only apply to uncommon medical procedures.
Taken together, however, mandates have a significant impact on the health insurance market. Because state-imposed mandates carry the force of law, they interfere directly in the normal voluntary relationship between buyer and seller. The presence of state-imposed mandates means insurance customers are forced to pay for coverage of a medical service that they may not otherwise choose. This leads inevitably to a “crowding out” effect, by which other types of health care coverage that customers would choose are not offered because insurers must offer the benefits mandated by the state instead.
State-imposed mandates do not prevent insurers from adding benefits, but they do prevent insurers from offering fewer benefits (in order to lower costs), or a different mix of benefits that better suits the needs of health care consumers. The result is a loss of flexibility and choice for all parties as they seek to reach a mutually beneficial agreement on price and product in the health care marketplace.
The expected return for this loss of choice is that, as a whole, mandated benefits serve the public interest. There is a common, though mistaken, belief that state-imposed mandates comprise incremental and progressive steps toward a single core benefits package. The history and character of mandates over the last 35 years indicates this is not the case. There is no “ideal” health benefits package that is promoting and guiding the enactment of state-imposed mandates. Instead, the large number of mandates in place today are variously the result of interest group pressures, occasional campaigns for reform, an individual medical tragedy, the influence of professional medical associations, the personal experiences or beliefs of legislators, and the haphazard nature of the political process over time.
Each time a proposed mandate was debated supporters made a sincere and heartfelt appeal to the vital treatment or medical advance that it was expected to bring to certain patient populations or to society in general. While the anticipated public benefit of each new mandate was openly considered and debated, the incremental cost of adding one more to the legal code was usually ignored.
As the number of mandates accumulated, three basic motivations, operating singly or in combination, tended to drive their enactment:
In the two latter cases, members of the group urging passage of a mandate were the most likely to benefit from its becoming law. Unlike a government entitlement program, the beneficiaries in these cases were not seeking access to payments from the public treasury. The costs they sought to avoid were not to be borne by taxpayers, but instead were incorporated into the permanent cost of doing business, and were passed on to insurance customers in the form of higher prices, restricted product choices or both.
Further, elected officials who argued for passage of a particular mandate often gained political support from organized activists, whether medical professionals or patient advocates, who were working for its passage. Meanwhile, the rapidly accumulating cost of mandates tended to remain hidden from the broader electorate.
The sense of hidden costs is heightened by the indirect way most people experience health care financing. Many employees think their health benefits are paid for with their employers’ money and are provided in addition to, not as part of, their own compensation. Because the financing system lacks transparency, health care coverage to most employees feels like it is free. Unlike other areas of our market-based economy, the consumers of health care services and the financers of those services are not the same people. Entirely apart from the health care consumer and the medical provider is a third party, the insurance carrier, who is actually paying the bills.
Since the full cost of medical services usually goes unnoticed by the consumer, the added cost of state-imposed mandates is likewise discounted in the minds of most people. For this reason when proposals to create new health care mandates are publicly debated the anticipated costs are not fully weighed against the possible benefits, as they are in other areas of public policy.
Hidden costs are real nonetheless, and by driving up prices they contribute significantly to reducing access to affordable health care coverage. This point was eloquently made by The Washington Post in a recent editorial. Commenting on national efforts to establish sweeping health insurance mandates the Post’s editors said, “If Congress gets into the giddy business of conferring additional benefits without having to pay, or pay much attention to, the cumulative cost, the danger is that even more people will end up with no insurance at all.”[4]
Regardless of the reasons they are enacted, there is a well-established body of research associating higher levels of state-imposed mandates with increased health insurance costs.
Nationwide there are over 1,500 state and federal health care mandates, the great majority of which have been enacted by the states. Some states have many more mandated benefits than others, and according to one comparative study discussed in a later section Washington has among the strictest in the nation.
Beginning with a single access-to-provider mandate in 1963 (for chiropody), the number of new mandates and enacted changes to existing mandates in Washington has now grown to 47.[5] A review of these finds two distinct periods of rapid growth in the number of new mandates and in changes to existing mandates. Between 1982 and 1990 the number of mandates tripled from 10 to 30, and from 1993 to 2001 their number increased a further 50 percent (see figure 1).
Such an extensive set of legal restrictions controlling what products can be offered to consumers would have substantial impact on any industry. It is therefore not surprising that mandates are shown to have a major impact on health insurance price and availability. A number of studies have found a clear link between the level of mandated benefits and a higher cost of health insurance.
An detailed analysis by Dr. Gail Jensen of Wayne University and Dr. Michael Morrisey of the University of Alabama measured some of the direct costs of mandated benefits:
“Among firms that offered health insurance, premiums were found to be 4% to 13% higher as a direct result of state mandated benefits. Several benefits, which many states have mandated, were found to be expensive. Chemical dependency treatment coverage increased a plan’s premium by 9% on average. Coverage for a psychiatric hospital stay increased it by 13%. Adding benefits for psychologists’ visits increased it by 12%, and adding benefits for routine dental services increased it by 15%.”[6]
Washington has mandates for chemical dependency and mental health treatments.[7]
In a comprehensive review of state regulation of health insurance conducted for the U.S. Congress, the General Accounting Office (GAO) found that insurance costs are consistently higher in states that impose a large number of mandates on insurers. The report noted that while consumers receive some targeted advantages, findings show there is no question that state insurance regulations “add costs to insured health plans.”[8]
Citing recent studies, GAO researchers found that while mandates invariably boost the overall cost of insurance claims, the amount of increase differs among states. In Maryland, for example, mandated benefits accounted for 22 percent of claims costs, while in Virginia they represented 12 percent of costs and in Iowa 5 percent.[9] The GAO concluded that, “In general, such cost estimates are higher in states with more mandated benefits and in states that mandate more costly benefits.”[10]
A recent study by PriceWaterhouseCoopers examined in detail the factors that make up health care spending and similarly found that state-imposed mandates play a major role in driving up health care costs. The study notes the aggregate impact mandates have over time, stating, “Each mandate adds its own cost, and collectively they have significantly increased health care costs.”[11] After noting examples of the estimated costs mandated benefits add to health coverage in various states, the study concluded that, “These estimates suggest that mandates have a huge overall impact on health care costs.”[12]
State-imposed mandates not only impact medical services, they impose higher administrative costs as well. The PriceWaterhouseCoopers study found that,
“In addition to mandated benefit requirements, states have also enacted numerous process and provider mandates. These mandates, which require coverage for specific types of providers and require plans to have specified processes in place, have contributed to the overall cost impact of mandates on health insurance premiums.”[13]
While the incremental cost of each additional state-imposed mandate may seem small, the cumulative effect over 35 years is enormous. The study found that over just one year, 2001 to 2002, “the contribution of mandates and government regulation is estimated to be about...15% of the overall [one year] increase, representing $10 billion of the overall increase in health premiums.”[14]
Further research indicates some mandates have a greater effect in driving up health insurance costs than others. A comprehensive study by The Urban Institute found that “required treatment for alcohol and drugs did reduce private coverage and increase overall uninsurance rates.”[15] The Urban Institute also pointed to the link between state-imposed mandates and a rising uninsured population, a connection discussed in a later section of this report:
“While most firms may not drop coverage because such a mandate is enacted, the mandate may contribute to higher premiums over time, and these higher premiums lead some people to drop their employer-sponsored or individual coverage.”[16]
A study prepared by the actuarial firm Milliman and Robertson for the National Center for Policy Analysis assessed the costs of the 12 most common state-imposed mandates. The analysis found that these mandates could increase the cost of family health insurance by as much as 30 percent.[17] The firm’s analysts also found that certain individual mandates, such as well child care, involve relatively small increased cost, adding as little as $35 a year to the price of a basic family health insurance policy.
Other mandates, however, were found to be far more expensive, adding as much as $175 a year to a basic family policy for infertility treatment, and up to $350 a year for mental health parity.[18] It was found the 12 mandates together could increase the cost of a family health insurance policy by as much as $700 to $1,050 annually. In commenting on these results health policy researcher Dr. Merrill Mathews noted that, “while mandates provide more options for those with health insurance, they also mean fewer people end up being insured.”[19]
Testimony presented to Congress in 1999 by the Director of the Congressional Budget Office (CBO) echoed these findings. CBO’s research found that “government regulation at both the state and federal levels can also increase the costs of health insurance and lead to higher premiums.”[20] The Director cited “mandates to cover specific benefits such as chiropractic services or minimum hospital stays for births” as examples of such high-cost insurance regulations.
CBO’s research also pointed to state regulations that limit the way health plans operate, listing mandated appeals procedures when benefits are denied and rules that reduce insurers’ ability to reject applicants with pre-existing conditions as examples.[21] This last-mentioned mandate was the central cause of the collapse of the individual insurance market in Washington a few years ago. The CBO Director cited taxes on health insurance premiums and limits on premiums charged to small firms as two further ways state regulations put upward pressure on health care costs.[22]
IV. State-Imposed Mandates Add to the Number of Uninsured
The preceding review of health policy research shows a pattern of higher costs associated with increases in state-imposed mandates. Additional review carries this analysis a step further, revealing a strong correlation between higher health coverage costs and increases in the uninsured population. A report by professors Frank A. Sloan and Christopher J. Conover of Duke University found that,
“...the higher the number of coverage requirements placed on plans, the higher the probability that an individual was uninsured, and the lower the probability of people having any private coverage, including group coverage. The probability that an adult was uninsured rose significantly with each mandate present.”[23]
The study found that 20 to 25 percent of the number of uninsured was due to the presence of state mandates.[24] These results confirm the rising trend revealed in a 1987 study by the National Center for Policy Analysis, which found that by the mid-1980s state-imposed mandates accounted for 14% of the uninsured population nationwide.[25]
Equally compelling is a study by researchers Melinda L. Schriver and Grace-Marie Arnett of the Galen Institute examining the relation between the number and extent of mandates and state uninsured populations. In the early 1990s legislators in 16 states enacted new regulations on the insurance market in an effort to expand health care coverage to the uninsured. Washington was one of these states. Many of these regulations were modeled on provisions of the failed national health care plan proposed by the Clinton Administration in 1993.
Based on the experiences of these 16 states, the Schriver/Arnett study sought important lessons about what does and does not work in health care policy. The study found a strong statistical link between the number of mandates in a state and that state’s uninsured population.
“In 1996, all 16 states experienced an average annual growth in their uninsured population eight times that of the other 34 [emphasis in original].”[26]
From 1990 to 1996, the number of uninsured citizens in the group of 16 high-mandate states increased by some 25 percent, compared to an increase of only 7 percent in other states. In 1996 alone the uninsured population raised an average of 8.14 percent in these 16 states, while other states experienced an increase of only 1.02 percent. Yet in 1990, before legislators in the group of 16 states initiated broad new mandates, the two groups of states had very close average rates of uninsured of 4.6 and 3.9 percent.[27]
According to this analysis the decision to impose more mandates appears to have had other detrimental effects:
The findings for Washington were even more striking. The percentage of Washington residents covered by individual insurance policies fell by 2.8 percent, while the overall number covered by private health plans dropped by 2.9 percent. At the same time, the number of uninsured residents in Washington increased by 1.3 percent.[28]
The authors concluded that the implications of excessive state regulation of health insurance are clear.
“It appears that these states actually ended up harming their citizens by increasing the regulation of their insurance markets, inadvertently squeezing more and more people out of the system. These data show that Americans are paying a high price for the mistakes of well-intentioned but flawed legislation,” and, “although the original intent of these state regulations was to increase access to insurance coverage and decrease the number of uninsured, the effect of these insurance market reforms was the exact opposite effect.”[29]
A study by William Custer at Georgia State University reached a similar conclusion. Custer found that guaranteed-issue mandates combined with forms of community rating in the small group market increased the likelihood that individuals will be uninsured from 13 percent to nearly 29 percent. In the individual market they increased the probability of being uninsured from 6 percent to 11 percent.[30] The study found that state imposed mandates for mental health coverage increased the chances of being uninsured by almost 6 percent.[31] The findings confirmed the link between increased regulation and higher numbers of uninsured.
“This report finds that key legislative and regulatory reforms aimed at improving access to health coverage have contributed to the number of uninsured Americans by increasing costs and making coverage less attractive.”[32]
The study by Drs. Jensen and Morrisey found “dramatic evidence that workers pay for the cost of mandates in the form of lower wages.”[33] The authors found that state-imposed mandates may account for as many as one in four Americans who are uninsured. “Mandates are not free,” they report, “They are paid for by workers and their dependents, who receive lower wages or lose coverage altogether.”[34]
To illustrate this point, the authors describe the chain of circumstances that links higher health care costs to loss of health insurance when new coverage is mandated by state regulation.
“The new coverage will raise the cost of insurance. The labor market will adjust to reflect the additional cost. Wages may be reduced to pay for the new benefit, or other, non-mandated benefits may be eliminated. In a smoothly functioning labor market, workers necessarily bear the cost in one form or another. The burden of the mandate to workers, then, is the cost of the coverage over and above what they were willing to pay for it in the absence of the mandate. It may be that workers will find the new insurance/wage package unattractive. This will lead them to look for an employer that does not offer the new coverage, or to find an employer that does not offer health insurance at all. This leads to the second consequence of mandates: Employees will have an incentive to seek out firms that do not offer coverage, or to drop coverage entirely, if the cost to them of the mandate is sufficiently high.”[35]
In its analysis for the House Education and Workforce Committee the Congressional Budget Office reached a similar conclusion about ways employers account for the increased cost of health insurance mandates.
“Employers might respond to such costs by reducing the generosity of insurance coverage, perhaps by raising cost-sharing requirements imposed on beneficiaries or by eliminating some benefits. Some employers might drop health coverage altogether. They might also reduce the generosity of other employee benefits or the size of wage increases.”[36]
Regardless just how employers respond, CBO found that “in general, higher premiums are likely to result in some loss of coverage,” and while congressional analysts recognized new mandates are intended to improve the value of health insurance to consumers, CBO concluded that “they could also raise insurance costs and exacerbate the problem of growing numbers of uninsured.”[37] CBO also found that the extent to which states impose mandates and other regulations on citizens seeking health insurance accounts in part for the differences in the number of uninsured residents in various states.
Over the last nine years the rising number of uninsured in Washington has roughly tracked with the increasing number of mandates. Since 1992 the number of mandates and enacted changes to existing mandates rose, as noted above, by more than 50 percent, increasing from 30 to 47. Over the same period the uninsured rate in Washington increased by almost a third, rising from 10.4 to 13.7 percent, as shown in figure 2.
Figure 2.
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The present situation in Washington is consistent with the findings in the studies summarized here. Our state has one of the highest levels of mandates and regulations placed on health insurance; it also has one of the highest uninsured rates in the country.
While state-imposed mandates tend to increase the cost of health insurance for all businesses, the burden falls particularly hard on small firms. Small businesses have a limited ability to spread risk or to accommodate higher administrative costs. They also lack the financial reserves and management expertise needed to absorb a higher cost of doing business. Cost-cutting strategies permitted under federal law and used regularly by large firms are often unavailable to smaller companies. As one study points out, “their small size makes it harder for them to self-insure and avoid costly state mandates and taxes.”[38]
Another reason state-imposed mandates fall more heavily on small businesses is that mandate costs are not evenly distributed throughout the state’s population. Under the 1974 Employee Retirement Income Security Act (ERISA), employees of companies that self-insure are not covered by state insurance regulations. Similarly, members of the military and participants in Medicare, Medicaid and the state’s own Basic Health Plan are exempt from state-imposed mandates.[39]
In Washington, about 13 percent of businesses, most of them large firms, come under ERISA.[40] In addition, about 239,000 people, or 4.1% of the state population, are covered by military health care. A further 638,000 (10.9%) are covered by Medicare, about 655,000 by Medicaid (11.2 %), and some 125,000 (2.1%) by the Basic Health Plan.[41] Together these groups comprise over a third of the state population, meaning only a portion of health care consumers are left to bear the full burden of mandate costs.
Consequently, a much smaller proportion of small businesses are able to offer even limited health care coverage for their workers than are larger firms. Based on a poll of its members, the National Federation of Independent Business (NFIB) reports that in 2002 just 68 percent of small businesses in Washington offer any level of health benefits to employees, and that only 48 percent offer benefits to all employees.[42] NFIB figures also show that health insurance premiums paid by Washington small businesses have risen an average of 20 percent over the last year.[43] Small business owners who do not provide health insurance for workers said that cost is the primary reason for their not doing so.[44]
The adverse impact of state-imposed mandates on small businesses is not new. A 1996 study by the General Accounting Office sums up the plight business owners face in adapting to state-imposed mandates.
“Employers that purchase health insurance may need to modify their plans to meet differences in state-mandated benefits. Furthermore, employers are concerned that, to the extent that they must comply with mandated benefits, they lose the flexibility to design the most cost-effective health benefit plan to meet their employees’ needs.”[45]
Current research confirms that this continues to be the case. Responses to a survey conducted by Washington Policy Center in late 2001 identified the cost and availability of health insurance as the number one concern of small business owners in the state. Survey results indicated high prices had already put health coverage out of reach of many small businesses, while owners who do provide it feared they may not be able to afford even basic coverage in the future. Similar concerns emerged from roundtable discussions with some survey respondents.
“Small business owners voiced particular concern about the way legal mandates drive up health coverage costs for small firms. The large number of state-imposed mandates means basic, low-cost health coverage is currently unavailable in Washington.”[46]
A national survey of small businesses conducted by the Kaiser Family Foundation found that 35% of small employers that now offer insurance say they are likely to increase the share of costs borne by employees in the next year. Twenty-seven percent said that if costs increased sharply they would likely discontinue offering health care coverage to their employees.[47] This survey data is consistent with the findings of the study conducted by Jensen and Morrisey: “The proliferation of mandated benefits has increased the cost of health insurance, disproportionately hurting employees who work for small businesses.”[48]
VI. Regulating Health Care as an “Essential of Life”
While it is well known that heavy state regulation reduces the efficient delivery and pricing of most products and services in the economy, some would argue that restrictive regulation of health insurance is justified because coverage for health services is an “essential of life.” The reasoning behind this justification is faulty for two reasons.
First, the realities of the economy make no distinction between things deemed “essentials of life” and any other product or service. The harmful impact of over-regulation on both is the same. Health insurance is no different than any other product or service in our economy and the quality, availability and price of it are determined by the same dynamic market forces. In fact, the more essential a product or service is to meeting basic human needs, the more important it is for policymakers not to place artificial restraints on it.
Second, the “essentials of life” argument for regulating health coverage overlooks the even more fundamental needs of life that are bountifully provided through vigorous competition in the free market. Food, clothing, housing and transportation are vital and immediate human needs. For the vast majority of Washington residents these needs are met through a vibrant system of private buying and selling. In these cases the government’s role is properly limited to protecting public safety, enforcing voluntary contracts and assisting the needy. Everyday experience shows that when the market is free to operate under minimal government oversight, the result is abundance, quality service and low price.
The more health care providers, consumers and insurers are permitted to communicate freely in a normally-functioning marketplace, using advertising, price signals and other means, the more society will be able to provide sufficient affordable health services to meet essential human needs. The opposite possibility, showing the disaster that can befall a segment of the economy because of too much regulation, was amply demonstrated by the breakdown of Washington’s individual insurance market.
In the late 1990s insurers – including Premera BlueCross, Regence BlueShield and Group Health – were forced to pull out of the individual health insurance market in Washington because of massive losses on the policies they had issued. In 36 of the state’s 39 counties individuals could not buy coverage at any price, and in the remaining three counties the price of an individual policy had skyrocketed beyond the reach of most people’s ability to pay.
Lawmakers, regulators and insurance officials agreed that a major factor in the market’s collapse was the state-imposed mandate on covering pre-existing medical conditions. Enacted in 1993, the mandate required insurance policies to provide full coverage to an enrollee within three months, regardless of prior medical history. In practice the period was so short that it had no effect in helping manage insurance risk or in controlling costs.
Many individuals saw no reason to buy health insurance until faced with illness or pregnancy. Once they no longer needed care they simply dropped their insurance coverage, expecting to pick it up again when they needed professional treatment. The mandate undermined the primary purpose of insurance; to manage risk by spreading the cost of those who need care at any given time among a larger pool of those who do not.
One proposal called for solving the problem one mandate had created by enacting an even stricter one: a price cap on premiums. The legislature recognized the futility of this approach and instead passed legislation to repeal the mandate that had caused the problem in the first place. Among other provisions, SB 6067 allowed new individual insurance policies to include waiting periods of up to nine months for coverage of pre-existing medical conditions. The bill, signed by Governor Locke in March 2000, has proved successful in restoring the availability of health care coverage to individuals in Washington.
Firm action by the legislature brought the individual insurance market back to life. The episode starkly demonstrates the damage state-imposed mandates can have when they drive the cost of health insurance to the point where it no longer makes sense for insurers to offer coverage at all.
Health care mandates apply only to insurance. One way citizens are avoiding the cost of mandates is to seek alternative ways of paying for routine health services without using insurance. One such method is SimpleCare.
SimpleCare was started in Washington in 1998 by the nonprofit American Association of Patients and Providers (AAPP) and it is now in operation nationwide.[49] SimpleCare is not insurance, so it is not subject to the myriad rules, mandates and regulations states impose on the insurance industry. It also avoids many of the non-government costs associated with managing an insurance policy, such as claim filings, prior approval requirements, procedural codes, formulary lists, closed plans, price controls and third parties coming between doctor and patient. SimpleCare reduces the usual number of insurance billing codes from 7,500 to three.
Consumers choosing SimpleCare pay the doctor’s fee with cash, check or credit card at the time of service. In return, SimpleCare providers often reduce their standard fees by 30 to 50 percent to plan members. The annual membership fee is $20 for individuals and $35 for families. Providers pay $50 a year to belong to the program. Provider members can be any medical professional or facility, including doctors, clinics, labs, specialists and pharmacists. Currently some 600 providers and over 3,000 patients are members.
The radical simplicity of the plan allows doctors to spend more time with patients and to provide better care. For example, instead of charging $79 for a ten-minute visit, one doctor charges his SimpleCare patients just $35, a 55 percent price cut.[50] Another doctor lowered his cost for an average office visit from $80 to $52, a 35 percent reduction.[51] By keeping the number of SimpleCare customers at about 30 percent of his total patient base, one doctor said he was able to free three clerical employees for other duties.[52]
The low membership fee makes SimpleCare affordable for employers, especially small businesses, as a way to help pay for employee health services not covered by insurance. SimpleCare also avoids the cost shifting that occurs among insurance customers; patients only pay for the medical services they use.
Naturally pay-as-you-go medicine is not adequate for serious illness, long hospital stays or expensive surgical procedures. Most SimpleCare customers carry affordable, high-deductible insurance policies to cover major medical expenses.
SimpleCare by itself is not a total solution to society’s health care financing needs, but for many it is an effective tool for controlling health care costs because it takes advantage of market competition. The plan empowers consumers to shop for medical care by price and quality of service, just as they do to meet the other basic needs of life. It creates a powerful incentive for providers to keep prices for routine services in line with what patients are willing to pay. The success of the SimpleCare model provides an important lesson for policymakers: market competition is a proven way to control health care costs.
The problem of too many mandates has been recognized by a number of state legislatures. In 2001, seven states enacted laws to alleviate or at least study the costs of their mandated benefits. [53]
Arkansas
The Arkansas General Assembly passed the Health Insurance Consumer Choice Act in 2001. The new law allows insurers to offer a health plan that does not include most of the state’s mandated health benefits. Before choosing such a plan, consumers must first state in writing that they decline to pay for standard, full-mandates coverage.
Arkansas also passed the Small Employer Health Insurance Purchasing Group Act to allow employers with up to 100 workers to join a health insurance purchasing group (HIPG) as a way to offer health coverage to employees. To reduce costs HIPGs are allowed to offer plans that include some, all or none of the state’s currently mandated benefits.
The legislature also created an Advisory Commission on Mandated Health Insurance Benefits to report to policymakers on the cost and medical impacts of existing and newly proposed mandates. The Commission is to issue a report each December just prior to the annual legislative session.[54]
North Dakota
Last year the legislature in North Dakota passed a bill allowing insurers to offer low-cost, “no frills” health plans that are exempt from most existing state mandates and from any future mandates that became or will become effective after January 1, 2001.
The law includes a provision requested by the state Insurance Commissioner to require a cost-benefit analysis of existing state-imposed mandates, and of any health care mandates that are proposed in the future.[55]
North Carolina
Recognizing the growing complications that come with over-regulation, North Carolina’s legislature placed a moratorium on creating new mandated health benefits. Insurers are not required to issue policies with additional coverage requirements beyond those that will be in effect as of June 30, 2003. The state’s Legislative Research Commission is charged with conducting a cost-benefit analysis of mandated health benefits and is to report its findings to the legislature next year.
Hawaii, Louisiana, Texas and Vermont
The legislatures in these states established methods for measuring the costs and effects of mandated benefits on their citizens’ ability to buy health insurance. Hawaii created a “mandated health insurance review panel” to assess the costs of proposed mandates. Louisiana’s Department of Insurance is conducting a cost analysis of all state-imposed mandates and how they influence the price of insurance premiums. In Texas, health plans are now required to report the cost and use of mandated services to the state Insurance Commissioner. In Vermont, insurers are to report to the Insurance Commissioner by October 1, 2004 on the financial impact on insurance premiums of a new law that requires them to pay the routine medical costs of patients who participate in cancer clinical trials.
X. Recommendations for Consumer-Based Health Care Reform
As other states are doing, Washington policymakers should consider reversing the trend of enacting ever-tighter restrictions in an effort to make health insurance more accessible. Numerous studies show that this effort is counter-productive. Under the current system consumers are sometimes denied coverage they need and are often forced to pay for mandated coverage they do not need.
Rather than taking the traditional top-down approach, lawmakers should consider adopting consumer-based, patient-centered reforms. An important first step would be to reduce the number and complexity of state-imposed mandates. Alternatively, policymakers could follow the lead of other states and remove the legal ban on providing basic health insurance. If followed vigorously and with fidelity, both policies would lower costs, streamline administration and promote affordable and accessible health coverage in Washington state.
In a re-invigorated health insurance market consumers would be free to choose and pay for the coverage that works best for them. Insurance providers would have to adjust to the demands of consumers and the benefits to be provided under any given policy would be legally enforceable like normal contract agreements.
1. Legalize Basic Insurance
Basic health insurance is not legally available in Washington. The state code contains a “value” or “bare-bones” insurance provision dating from 1990, but it is not effective because of the debilitating limitations that are placed on it. It is available only to businesses with fewer than 25 employees, and it is subject to community rating and minimum participation requirements. The only factors that may be considered in setting rates are geographic location, family size, age and wellness activities.[56] A plan with so many regulatory requirements is clearly not “basic” insurance.
Effective reforms would legalize basic health insurance in Washington. Such insurance should be made available to individuals and to firms with up to at least 100 employees, should be exempt from mandates, and should allow pricing that reflects its actual value to consumers. A policy allowing true basic health insurance would confer the following advantages:
2. Adopt a Moratorium on New Mandates
Washington’s legislature should consider adopting a moratorium on the enactment of new mandated health benefits. A moratorium would create a much-needed “time-out” in the growth and complexity of health insurance regulations. This would give policymakers and the public the opportunity to learn more about the long-term impact of mandates on the price and availability of health care coverage. To aid this process, Washington could, like other states are doing, create an independent review commission to assess the costs and benefits of current mandates.
Health care mandates are intended to improve health coverage for Washingtonians while reducing the number of uninsured. A policy of steadily adding to the number of state-imposed mandates, however, is contributing to the opposite effect. A mandate may improve access to insurance for a limited population, but any gains are soon offset by increases in insurance costs, which then makes it more difficult for the marginally insurable to get the coverage they need.
For policymakers state-imposed mandates may seem “free” because they do not appear as line items in the annual budget. While a small number of mandates may have little or no impact, their cumulative cost over time, though hidden, is quite high. The cost appears in the form of rising premiums for health insurance and in the consequent increase in the number of Washington residents and business owners who cannot afford insurance.
Mandates also carry social costs. By their nature mandates force insurance consumers to pay for medical coverage they may not want, while denying them options they do want and would choose if available. In the current regulatory climate many decisions about health coverage are made by lawmakers through the political process, not by consumers, doctors and employers.
In economic terms these results are not surprising. As one report summed it up, “regulation of an industry drives up prices, restricts innovation, dries up competition, and forces businesses to cater to regulators, not consumers.”[57] Effective reform would move personal decisions about health care away from the political process and closer to the consumer. Fewer mandates, greater consumer choice and vigorous price competition among insurers is the most effective way to promote access to affordable, high-quality health care for all Washington citizens.
List of Washington State Health Care Mandates by Type, with Dates of Enactment and Subsequent Changes
Required Services:
Chemical dependency – 1974
Dependent child coverage from the moment of birth – 1974, 1984
Prohibition of benefit reduction based on existing coverage (Coordination of Benefits) – 1983
Reconstructive breast surgery – 1983
Mastectomy and lumpectomy – 1985
Basic Health Plan Benefits – 1987, 1993
Phenylketonuria (PKU – 1988
Neurodevelopmental therapy – 1989
Mammograms – 1989
Maternity care stays (Erin Act) – 1996
Newborn coverage for 21 Days (Erin Act) – 1996
Diabetes coverage – 1997
Emergency services to screen and stabilize – 1997
Long-term care hospital follow-up – 1999
Maternity and drugs in the individual market – 2000
General anesthesia for dental procedures – 2001
Required Offerings:
Home health and hospice – 1983
Mental health – 1983
Chiropractic care – 1983, 1986
Prenatal diagnosis of congenital defects – 1988
Temporomandibular joint disorders (TMJ) – 1989
Required Access to Providers:
Chiropody – 1963
Podiatry – 1983
Foot Care Services – 1983
Optometry – 1965
Chiropractic care – 1971
Psychological services – 1971
Registered nurses and advanced registered nurse practitioners – 1973
Denturist Services – 1995
Every Category of Provider
Women’s health care provider self referral – 1995
Chiropractic care, nonreferral access – 2000
Establishing Eligibility:
Dependent child coverage continued for incapacity – 1969, 1977, 1984
Dependent child coverage from moment of birth – 1974, 1984
Continuation of coverage for former spouse and dependents – 1980
Group conversion plan to be offered – 1984
Continuation of benefits – 1984
Coverage for adopted children – 1986
Guaranteed issue to new members of a group, and continuity of group contract coverage – 2000
Portability – 1995, 2000, 2001
Source: “Mandated Benefits in Washington State,” Policy Division, Washington State Office of Insurance Commissioner, January 10, 2002.
About the Author
Click here to read more about the author Paul Guppy.
Jon Lindeman and Donald Hamblock provided valuable assistance to this project as part of their work with Washington Policy Center’s internship program. Their contribution is greatly appreciated.
[1] “Health Insurance Coverage: 2000,” U.S. Census Bureau, Washington, D.C. September 2001, p. 1.
[2] ibid, p. 11, Table D, “Percent of People Without Health Insurance Coverage Throughout the Year by State (3-Year Average) 1998 to 2000.” The other states with rising numbers of uninsured are Alaska, Kansas, Nebraska, New Mexico, Ohio, Oklahoma and Vermont.
[3] RCW 48.47.010, (7), “Definitions.”
[4] The Washington Post, Washington, D.C., December 4, 2001. The editorial was commenting on proposed national mandates on private health insurance.
[5] “Mandated Benefits in Washington State,” Policy Division, Washington State Office of the Insurance Commissioner, Olympia, Washington, January 10, 2002. There is no agreed method for counting the number of mandated health care benefits enacted by a given state. Some methods include only medical services, while others count every regulation placed on the health insurance industry. Estimates for Washington range into the hundreds. This study uses figures reported by the Insurance Commissioner’s office as the most reliable method.
[6] “Mandated Benefit Laws and Employer-Sponsored Health Insurance,” by Gail A. Jensen, PhD, Wayne State University and Michael A. Morrisey, Ph.D., University of Alabama-Birmingham, Health Insurance Association of America, January 1999, p. 13.
[7] RCW 48.21.160, 48.21.180, 48.21.190, 48.21.195, 48.21.197, 48.44.240, 48.44.245, 48.46.350, 48.46.355 and RCW 48.21.240, 48.44.340, 48.46.290.
[8] “Health Insurance Regulations: Varying State Requirements Affect Cost of Insurance,” report HEHS-96-161, United States General Accounting Office, Washington, D.C., August 1996, p. 4.
[9] ibid.
[10] ibid.
[11] “The Factors Fueling Rising Healthcare Costs,” PriceWaterhouseCoopers, Washington, D.C., April 2002, p. 6.
[12] ibid, p. 7.
[13] ibid.
[14] ibid, p. 7 and p. 3, Table 1, “The Factors Driving Rising Costs in Healthcare Premiums (2001-2002).
[15] “Variations in the Uninsured, State- and County-Level Analysis,” by Jill A. Marsteller et al., The Urban Institute, Washington, D.C., June 11, 1998.
[16] ibid.
[17] “The Cost of Health Insurance Mandates,” actuarial analysis prepared by Milliman and Robertson for the National Center for Policy Analysis, Dallas, Texas, August 1997.
[18] ibid.
[19] “Mandates Increase Cost of Health Insurance by 30%,” National Center for Policy Analysis press release, Dallas, Texas, August 13, 1997.
[20] “Health Care Costs and Insurance Coverage,” testimony by Dan L. Crippen, Director, Congressional Budget Office, before the Committee on Education and Workforce, United States House of Representatives, Washington, D.C., June 11, 1999.
[21] ibid.
[22] ibid.
[23] “Effects of State Reforms on Health Insurance Coverage of Adults,” by Frank A. Sloan and Christopher J. Conover, Inquiry 35, No. 3, Fall 1998, pp. 280 – 293.
[24] ibid.
[25] See “Freedom of Choice in Health Insurance,” by John C. Goodman, and Gerald L. Musgrave, The National Center for Policy Analysis, Dallas, Texas, November 1987.
[26] “Uninsured Rates Rise Dramatically in States with Strictest Health Insurance Regulations,” by Melinda L. Schriver and Grace-Marie Arnett, The Galen Institute, Alexandria, Virginia, published in The Heritage Foundation Backgrounder, No 1211, August 1998.
[27] ibid.
[28] ibid, p. 16, Table 8, “Non-Elderly Population Health Insurance Coverage Status: 16 Study States Before and After Small-Employer and Individual Insurance Market Reforms.”
[29] ibid, pp. 2 and 15.
[30] ibid.
[31] ibid.
[32] “Health Insurance Coverage and the Uninsured,” by William S. Custer, Center for Risk Management and Insurance Research, Georgia State University, p. 4.
[33] “Mandated Benefit Laws and Employer-Sponsored Health Insurance,” by Gail A. Jensen, PhD, Wayne State University and Michael A. Morrisey, Ph.D., University of Alabama-Birmingham, Health Insurance Association of America, January 1999.
[34] ibid.
[35] ibid, pp. 9-10.
[36] “Health Care Costs and Insurance Coverage,” testimony of Dan L. Crippen, Director, Congressional Budget Office, before the Committee on Education and Workforce, United States House of Representatives, Washington, D.C., June 11, 1999.
[37] ibid.
[38] “Health Insurance Coverage and the Uninsured,” by William S. Custer, Ph.D., Center for Risk Management and Insurance Research, Georgia State University.
[39] The Basic Health Plan has its own requirements laid out in RCW 70.47.060(1) and it must comply with the “Chiropratic Care Nonreferral Access” mandate. See “Mandated Benefits in Washington State,” Policy Division, Washington State Office of the Insurance Commissioner, January 10, 2002.
[40] “Employer-Sponsored Health Insurance, State and National Estimates,” Table 7, “Percent of private establishments offering one or more major health plans that self-insure,” DHHS Publication No. (PHS) 98-1017, National Center for Health Statistics, Centers for Disease Control and Prevention, Hyattsville, Maryland, December 1997.
[41] “Health Insurance Coverage Status and Type of Coverage by State, All People, 1987–2000,” Table HI-4, Income Statistics Branch, U.S. Census Bureau, Washington, D.C., at http://www.census.gov/hhes/hlthins/ historic/hihistt4.html.
[42] “Small Business and Health Insurance,” Carolyn Logue, National Federation of Independent Business, Olympia, Washington, April 22, 2002.
[43] ibid.
[44] ibid.
[45] “Health Insurance Regulation: Varying State Requirements Affect Cost of Insurance,” report HEHS-96-161, United States General Accounting Office, Washington, D.C., August 1996, p. 14.
[46] “The Small Business Climate in Washington State,” by Eric Montague, Washington Policy Center, Seattle, Washington, March 2002, p. 7, available at www.washingtonpolicy.org.
[47] “National Survey of Small Businesses,” The Kaiser Family Foundation, April 2002, at www.kff.org/ content/2002/20020402a/.
[48] “Mandated Benefit Laws and Employer-Sponsored Health Insurance,” by Gail A. Jensen, PhD, Wayne State University and Michael A. Morrisey, Ph.D., University of Alabama-Birmingham, Health Insurance Association of America, January 1999, p. 2.
[49] For more on the organization see www.simplecare.com.
[50] “Docs see profit in avoiding insurers,” by Peter Neurath, Puget Sound Business Journal, Seattle, Washington, October 12, 2001.
[51] “Cut-rate medical care plan proves popular with doctors and patients,” by Tim Christie, The Register-Guard, Eugene, Oregon, October 5, 2001.
[52] SimpleCare Offers Discounts for Paying Cash,” by John Carroll, Nashville Medical News, Nashville, Tennessee, January 2001.
[53] “State Legislative Health Care and Insurance Issues, 2001 Survey of Plans,” Office of Policy and Representation, Blue Cross and Blue Shield Association, Washington, D.C., December 2001.
[54] These laws were introduced in the 2001 session as Act 924, Act 925 and Act 1730, the Arkansas Insurance Department, Little Rock, Arkansas, at www.state.ar.us/insurance/.
[55] House Bill 1226, “An Act...relating to providing basic health insurance coverage for individuals and small employers,” Fifty-seventh Legislative Assembly of North Dakota, enacted April 13, 2001.
[56] RCW 48.44.023 (b), “Mandatory offering providing basic health plan benefits for employers with fewer than twenty-five employees – Exemption from statutory requirements – Premium rates – Requirements for providing coverage for small employers.”
[57] “Rising Costs, Reduced Access: How Regulation Harms Health Consumers and the Uninsured,” by Grace-Marie Arnett, The Heritage Foundation Backgrounder, No. 1307, July, 20, 1999, p. 3.