Chapter 8: Health and Human Services
Reduce the Impact of Mandates on Health Insurance Costs
State health care mandates increase the cost of health insurance premiums, particularly for small businesses and individuals. Texas has a large number of mandates and needs a process to systematically review future mandates.
Insurance is one of the most heavily regulated industries in the US. The original reason for a mandate can arise from a variety of reasons, such as previous abuses, provider self-interest, current medical practice or highly publicized cases. State mandated benefits can add considerably to the cost of health insurance.
Mandated benefits can be classified into three groups: required coverage for specific providers or settings; required coverage for specific diseases, medical conditions, services or specific groups; and various types of optional coverage for an additional premium. A 1999 study by Baylor University economists estimated that Texas has as many as 63 mandates, depending on how they are counted (Exhibit 1). The Texas Department of Insurance (TDI) included more than 60 items in its January 1, 2000 list of “Texas Mandated Benefits/Offers/Coverages.”
Exhibit1 Texas Health Insurance Benefit Mandates Key:G= group health insurance policies I = individual health insurance policiesH= health maintenance organization plans Mandates for Specific Providers and Settings O= mandates must be offeredApplies to: Chemical Dependency Treatment Facilities G Crisis Stabilization Units and Residential Treatment Centers for Children and Adolescents G,H Direct Access to the Services of an Obstetrician or Gynecologist* G,I,H Psychiatric Day Treatment Facilities G,H Public Institutions I Practitioners ** Podiatrists G,I,H Optometrists G,I,H Chiropractors G,I,H Dentists G,I,H Audiologists G,I,H Speech-Language Pathologists G,I,H Master Social Workers G,I,H Dieticians G,I,H Professional Counselors G,I,H Psychologists G,I,H Marriage and Family Therapists G,I,H Chemical Dependency Counselors G,I,H Hearing Aid Fitters and Dispensers G,I,H Psychological Associates G,I,H Occupational Therapists G,I,H Physical Therapists G,I,H Advanced Practice Nurses G,I,H Physician Assistants G,I,H Mandates for Specific Diseases, Medical Conditions or Services Chemical Dependency (drug and alcohol) G Childhood Immunizations* G,I,H Diabetes* G,I,H Home Health O,G HIV, AIDS and HIV-Related Illnesses G,I In-vitro Fertilization O,G Mammography Screening G,I Mastectomy Hospital Stays* and Reconstructive Surgery G,I,H Maternity Benefits I Maternity Stay* G,I,H Mental Health O,G Oral Contraceptives G,H,I Phenylketonuria G,H Pre-Existing Conditions Upon Replacement G Pregnancy Benefits I Pregnancy Complications G,I Prostate Tests* G,I,H Serious Mental Illness* G Serious Mental Illness* S,O Speech and Hearing G,O Telemedicine G,H,I Temporomandibular Joint (TMJ) G,H,I Transplant Donors I Mandates Coverage of Specific Persons Adopted Children G,I Certain Grandchildren G,I Certain Students G,H Continuation of Coverage after Divorce I Continuation of Coverage for Certain Dependents G Continuation of Coverage Dring Labor Disputes G Handicapped Dependent G Newborn Children G,I,H * enacted in 1997 **The practitioner mandates may be counted together as a single mandate or they may be counted as separate mandates. Source: J. Allen Seward and James W. Henderson, "Report on the Cost of Health Care System Mandates," Baylor University, Waco, Texas. Study funded by the Texas Association of Business and Chambers of Commerce, January 1999.
Calculating the cost of mandates is more difficult than simply counting their number. Most mandates add little to the cost of health insurance, but some can add significant costs to policies. Expensive procedures used by very few people may have only a small impact on total costs. Others—drug and alcohol abuse counseling and treatment and mental health care, for example—can add significant costs because a large number of people use the services and the treatment period can be lengthy.
Milliman & Robertson, a Seattle-based international actuarial consulting firm, examined legislation in several states and found an Oklahoma bill that provided medically necessary dental care for certain people and would only add one cent per policy per month, while human leukocyte antigen testing in Rhode Island would only add 3 cents. But a mental illness provision in Wisconsin would cost $5 per person per month, and Kansas legislation requiring coverage for alcohol and mental disorders would increase costs by $7.47 per person per month, or about $90 a year.
While the impact of any one mandate may be imperceptible, the cumulative impact of dozens can significantly affect costs, and most states now have between 30 and 40 mandates. Mandated benefits in Virginia accounted for 21 percent of claims; in Maryland, 11 to 22 percent; and in Massachusetts, 13 percent. These costs may overstate the premium cost of mandates, however, because it is likely that some coverages would have been provided anyway in company policies. Still, an analysis by Milliman & Robertson found that 12 of the most common mandates could drive up the cost of a very basic health insurance policy by as much as 15 to 30 percent.
Recent testimony before an interim Texas legislative committee on mandates revealed that actuaries usually do not estimate the cost of individual mandates in advance, unless they are expected to significantly increase costs. The impact of mandates would be felt as part of the increased expenditures factored into premiums for the coming year. It may take several years for mandated options to be used enough to have an impact. Insurance companies usually make no effort to separate the cost of mandates from other factors affecting medical inflation.
Estimates on the cost of mandates vary, but all estimates admit some additional cost, including social costs. A Health Insurance Association of America report by Gail Jensen and Michael Morrisey, for example, estimates between 20 percent and 25 percent of uninsured people lack coverage because of mandates. (It should be noted that their estimates include the impact of federal mandates, which are beyond state control.)
Jensen and Morrisey also argue that mandates have priced some small firms out of the group market altogether. Their findings show that, for firms with fewer than 50 employees, each additional mandate for the period from 1989 to 1995 significantly lowered the probability of those firms offering health insurance. Almost one in five small businesses that do not offer health insurance would do so if not for the effect of mandates.
In Texas, the Baylor study, referenced in Exhibit 1, estimated that mandates add slightly more than 17 percent to the cost of premiums and that wages for employees with traditional insurance coverage are 3 percent lower than they would be without mandates. The study also notes that, if national patterns hold in Texas, some 275,000 Texans are uninsured and an estimated 18 percent of Texas firms have chosen to self-insure because of mandates. TDI contracted with Milliman & Robertson for an interim report on 13 mandates, and found that they account for an estimated 7.6 percent of premium costs for large group health insurance and 6.4 percent of premium costs for small group health insurance.
Some of the variation in total costs among the different studies is due to what is counted as a mandate and the quality and amount of the data examined. Also, some studies count the total cost while others make an effort to identify marginal costs; the latter assume that some mandates would be included under most policies and try to identify the cost of the additional mandates.
Other States’ Experiences
Seventeen states enacted laws to evaluate the impact of health insurance mandates between 1984 and 1992. Another 13 required studies of mandated benefits starting in 1998. Seven states have adopted legislation requiring some type of impact statement before any new mandate can be adopted. Legislators in these states use the studies to debate whether to approve or modify new mandates.
The Maryland Health Care Access and Cost Commission, for example, hired a firm that specializes in health care financial estimates to study the financial, social, and medical costs of a series of mandates. The Texas Teacher’s Retirement System (TRS) also contracted with a consulting firm specializing in this kind of analysis to estimate the costs of proposed legislative changes, including health insurance mandates.
Consultants such as these analyze the full and marginal financial costs of mandates. They also examine social costs, including:
- the extent to which the service is generally used by a significant portion of the population.
- the extent to which insurance coverage already is generally available for the service.
- the extent to which inadequate coverage results in people avoiding necessary treatments.
- the level of public demand for the service.
- the level of support for inclusion of this coverage in group contracts.
Finally, a medical impact analysis considers whether the medical community recognizes the treatment procedures as safe and effective.
Clinical Implications of Mandates
A TDI report notes that mandates are sometimes made in response to the insurance industry’s failure to meet marketplace needs. In the past, some insurers classified preventive health care, such as mammography screening, children’s immunizations, and annual physicals, as not “medically necessary” and therefore chose not to cover them. States then passed mandates to require coverage for such procedures.
On the other hand, mandates may reduce the options medical practitioners have to treat people. A mandate can require a particular procedure that may be cutting edge now, but which science or technology may surpass in the future. The mandate freezes the procedure at a level that can restrict the practice of medicine later.
- State law should be amended to require an analysis of the impact of proposed health insurance mandates before they become a part of legislation.
The Legislative Budget Board (LBB) should be responsible for these analyses and may contract with specialized consulting firms to complete them. The reports would provide information to legislators on the cost and need of mandates, similar to that provided by the Maryland study. Legislators then could use this information to modify legislation as well as to decide whether to support or oppose it.
- State law should be amended to give all new health insurance mandates a six-year “sunset” date.
Every six years, health care mandates would come up for review to ensure they still make sense in light of current medical practice. The LBB also would be responsible for these reviews.
Several consulting firms have established databases for estimating the impact of mandates on health insurance costs for insurance firms, self-insured companies, and others. Based on the experience of one firm, the average cost of reviewing a mandate in Texas is about $15,000. The length of time needed to complete such a review depends on the nature of the mandate, and could range from 48 hours to 30 days. Contracting with a firm that is experienced in estimating the costs of mandates, however, should reduce the time and the expense needed for such studies.
During the 1999 legislative session, around 30 mandates were introduced, with about half having sufficient legislative activity, such as a hearing, to warrant an estimate. Assuming a similar number of bills in future sessions, studies of prospective mandates would cost approximately $225,000 each legislative session.
No methodology can cover all the factors that might be involved in deciding whether or not to enact a mandate or forecasting the complex medical issues that might result. Well done and timely studies, however, can provide legislators with the best available information they can use to make difficult choices to balance affordability of insurance and with public health needs. To the extent additional costs are not added to insurance premiums, health insurance would be made more affordable for businesses and individuals.
FiscalYear Savings/(Cost)to the General Revenue Fund 2002 0 2003 ($225,000) 2004 0 2005 ($225,000) 2006 0
[1 ] Texas Association of Business and Chambers of Commerce, Report on the Cost of Health Care System Mandates, by J. Allen Seward and James W. Henderson, Baylor University (Austin, Texas, January 1999), p. 25.
[2 ] Texas Association of Business and Chambers of Commerce, Report on the Cost of Health Care System Mandates, pp. 5-6.
[3 ] Texas Department of Insurance, “Accident & Health Insurance: Texas Mandated Benefits/Offers/Coverages,” Austin, Texas, January 1, 2000.
 Telephone interview with Richard H. Hauboldt, consulting actuary, Milliman and Robertson, Milwaukee, Wisconsin, November 13, 2000.
[5 ] Health Insurance Association of America, “Mandated Benefit Laws and Employer-Sponsored Health Insurance,” by Gail A. Jensen and Michael A. Morrisey, January 1999 (http://www.hiaa.org/news/news-state/jensen.htm). (Internet document.)
 National Center for Policy Analysis, “The Cost of Health Insurance Mandates,” by John C. Goodman and Merrill Matthews Jr., August 13, 1997 (http://www.ncpa.org./ba/ba237.html). (Internet document.)
[7 ] Testimony of Kathy Cole, pricing actuary at Blue Cross and Blue Shield of Texas, before the Texas Legislature Joint Interim Committee on Health Care Mandates, Austin, Texas, June 2, 2000.
[8 ] Health Insurance Association of America, “Mandated Benefit Laws and Employer-Sponsored Health Insurance.”
[9 ] Texas Association of Business and Chambers of Commerce, Report on the Cost of Health Care System Mandates, p. 5.
 Texas Department of Insurance, Cost Impact Study of Mandated Benefits in Texas, Report # 1, by Milliman & Robertson Inc. (Austin, Texas, July 21, 2000). (Consultant study).
 Texas Association of Business and Chambers of Commerce, Report on the Cost of Health Care System Mandates, pp. 39-40.
[12 ] Maryland Health Care Access and Cost Commission, Mandated Health Insurance Services Evaluation, by William M. Mercer Inc. (Baltimore, Maryland, December 15, 1998), pp. 1-50.
[13 ] Texas Department of Insurance, Health Insurance Regulation in Texas: The Impact of Mandated Health Benefits (Austin, Texas, December 1998), pp. 25-27.
 Texas Association of Business and Chambers of Commerce, Report on the Cost of Health Care System Mandates, p. 38.