The Cost of Health Insurance Mandates in Washington
Victoria Craig Bunce and J.P. Wieske, Council for Affordable Health Insurance, February, 2005
As legislators debate whether to enact new health care mandates, it is important to know how much the state's current 48 legal mandates already add to the cost of health care coverage in Washington. The following recent study from the Council for Affordable Health Insurance discusses the overall impact of mandates and estimates how much each one increases the price Washington citizens must pay for health insurance. More information can be found in the Washington Policy Center study "How State Imposed Mandates Increase Costs and Reduce Access to Health Care Coverage,"
- Paul Guppy, Research Director.
(Health Insurance Mandates Chart Here)
A health insurance "mandate" is a requirement that an insurance company or health plan cover (or offer coverage for) common – but sometimes not so common – health care providers, benefits and patient populations. They include:
- Providers such as chiropractors and podiatrists, but also social workers and massage therapists.
- Benefits such as mammograms, well-child care and even drug and alcohol abuse treatment, but also acupuncture and hair prostheses (wigs);
- and populations such as adopted and non-custodial children.
For almost every health care product or service, there is someone who wants insurance to cover it so that those who sell the products and services get more business and those who use the products and services don't have to pay out of pocket for them.
The Impact of Mandates
While mandates make health insurance more comprehensive, they also make it more expensive because mandates require insurers to pay for care consumers previously funded out of their own pockets. Based on our analysis presented in this paper, mandated benefits currently increase the cost of basic health coverage from a little less than 20% to more than 50%, depending on the state. Mandating benefits is like saying to someone in the market for a new car, if you can't afford a Lexus loaded with options, you have to walk. Having that Lexus would be nice, as would having a health insurance policy that covers everything one might want, but drivers with less money can find many other affordable options; whereas when the price of health insurance soars, few other options exist.
According to the 1999 study, "Mandated Benefit Laws and Employer Sponsored Health Insurance," written by economists Gail Jensen and Michael Morrisey for the Health Insurance Association of America (HIAA), as many as one in four individuals who are without coverage are uninsured because of the cost of state health insurance mandates.
Why Is the Number of Mandates Growing?
Elected representatives find it difficult to oppose any legislation that promises enhanced care to potentially motivated voters. The sponsors of mandates know this fact of political life. As a result, government interference in and control of the health care system is steadily increasing. So too is the cost of health insurance.
By the late 1960s, state legislatures had passed only a handful of mandates benefits; today, the Council for Affordable Health Insurance (CAHI) has identified more than 1,800 mandated benefits and providers. More are on their way. In January 2004 alone, CAHI followed the introduction of 295 new mandates in states across the country. This number only increased as the legislative sessions progressed.
How do state legislators justify their actions? One way is to deny a mandate is a mandate. For example, legislators may claim that requiring health insurance to cover a type of provider – such as a chiropractor, podiatrist, midwife or naturopath – is not a mandate because they aren't requiring a particular therapy. But if insurance is required to cover the provider, it must pay for the services provided. There is no essential difference in requiring insurance to cover a chiropractor (a provider) or chiropractic care (the therapy).
Another way legislators justify their support is to assert the new mandate will cost little or nothing. Indeed, legislators and mandate’s supporters usually claim that mandating a new provider or benefit will save money. But with more than 1,800 mandate in force, we have overwhelming evidence: mandates virtually always cost money rather than save it.
CAHI's Mandated Benefits and Providers Chart
The Council for Affordable Health Insurance tracks the introduction and passage of health insurance mandates in every state. The information is broken down on a state-by-state basis into three categories: benefits, providers and covered populations. Boxes with a "Y" indicate that the state has passed that particular mandate. Totals for each state and mandate are also included. Thus anyone can easily determine how many mandates and which one each state has passed.
Mandates and Standard Coverage
Please note that the health care community would consider some of the mandates listed in the chart to be the typical and appropriate standard of care and/or treatment, and therefore would likely be included in many standard health insurance policies. The purpose of this chart is to tabulate the number of benefits mandated by the states and assess their impact on the cost of insurance – not to make judgments about which mandate should or should not be included in a health insurance policy.
Assessing the Cost of Mandates
In addition to listing the state mandated benefits, this chart provides a cost assessment of each one. CAHI's Actuarial Working Group on State Mandated Benefits analyzed company data and their experience and provided cost-range estimates — less than 1%, 1-3%, and 5-10% — if the mandate were added to a comprehensive family policy that did not include the coverage. However, mandate legislation differs from bill to bill and from state to state. For example, one state may require insurance to cover a limited number of chiropractor visits per year, while another state may require chiropractors to be covered equally with medical doctors. The second will have a greater impact on the cost of a health insurance policy than the first. It would be impossible to make a detailed assessment of the cost of each state’s mandates without evaluating each piece of legislation (more than 1,800) of them). Thus, the estimated cost level indicated in the chart is considered typical but may not apply to all variations of that mandate. Further, the additional cost of a mandate depends on the benefits of the policy to which it is attached. Example: A mental health mandate costs nothing if it is already covered, but can be very costly if added to a policy that doesn't cover it.
It is also important to note that mandated benefits may only apply to certain kinds of coverage. For example, a mandated benefit may exempt individual or small group coverage or may only apply to insurance companies that are domiciled in the state. As a result, some kinds of coverage are disproportionately affected and become less attractive to buyers (who now seek out alternatives to these high-cost plans). Finally, states may pass a mandate in one legislative session only to come back in a later session and either expand or reduce the original bill’s scope.
A Caution about Comparisons and Cost Estimates
Because mandates can drive up the cost of health insurance, it would be easy to assume that the states with the most mandates would also have the highest premiums. While that may be true in some states, it is not necessarily so. Some mandates have a much greater impact on the cost of health insurance than others. For example, mental health parity mandates, which require insurers to cover mental health care at the same levels as physical health care, have a much greater impact on the costs of premiums than would mandates for inexpensive procedures which few people need.
Warning: It may be tempting to think that since a particular mandate doesn't add much to the cost of a health insurance policy, there is no reason for legislators to oppose it. The result of this reasoning is that many states have 40, 50 or more mandates. Although one mandate may only increase the cost of a policy by 1%, 40 such mandates will price many people out of the market. It is the accumulated impact of dozens of mandates that makes health insurance inaccessible to people. Where health insurance may have been affordable, adding additional benefits to a comprehensive policy will price some people out of the health insurance market.
The Rest of the Story
The mandates enumerated here don't tell the whole story. States have other ways of adversely affecting the cost of health insurance. For example, several states have adopted legislation that requires health insurers to accept anyone who applies, regardless of their health status, known as "guarantee issue." Or they limit insurers' ability to price a policy to reflect accurately the risk an applicant brings to the pool, known as "community rating" or "modified community rating." Both guaranteed issue and community rating can have a devastating impact on the price of health insurance, especially as younger and healthier people cancel their coverage, leaving the pool small and sicker.
Thus, in the aggregate, mandates drive up the cost of health insurance. But determining the impact in a particular state requires careful analysis of each piece of mandate legislation, as well as other regulations that have been promulgates.