[Congressional Record Volume 142, Number 131 (Friday, September 20, 1996)]
[Senate]
[Page S11106]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




[[Page S11106]]



HEALTH INSURANCE REGULATION: VARYING STATE REQUIREMENTS AFFECT COST OF 
                               INSURANCE

 Mr. JEFFORDS. Mr. President, with the recent passage of the 
Health Insurance Portability and Accountability Act of 1996, and the 
possible enactment of several health benefit provisions, I'd like to 
draw my colleagues' attention to a recently completed GAO report that 
surveys similar State health insurance regulations and their impact on 
the cost of health insurance.
  I asked the GAO to examine the added costs associated with: First, 
premium taxes and other assessments; second, mandated health benefits; 
third, finanancial solvency standards; and fourth, State health 
insurance reforms affecting small employers. The report examines the 
impact of these requirements on the cost of insured health plans 
compared with the cost of self-funded health plans subject to the 
Employee Retirement Income Security Act of 1974 [ERISA].
  Although States regulate health insurance, the study indicates that 
State regulation does not directly affect 4 out of 10 people. ERISA 
preempts States from directly regulating employer provision of health 
plans, but it permits States to regulate health insurers. Of the 114 
million Americans with health coverage offered through a private 
employer in 1993, about 60 percent participated in insured health plans 
that are subject to State insurance regulation. However, for plans 
covering the remaining 40 percent, about 44 million people in 1993, the 
employer chose to self-fund and retain some financial risk for its 
health plan.
  Because self-funded health plans may not be deemed to be insurance, 
ERISA preempts them from State insurance regulation and premium 
taxation. Although ERISA includes fiduciary standards to protect 
employee benefit plan participants and beneficiaries from plan 
mismanagement, in other areas, such as solvency standards, no Federal 
requirements comparable to State requirements for health insurers exist 
for self-funded health plans.
  Most States mandate that insurance policies include certain benefits, 
such as mammography screening and mental health services, which raises 
claims costs to the extent that the benefits would not otherwise have 
been provided. In general, the report indicates that the costs are 
higher in States with more mandated benefits and in States that mandate 
more costly benefits.
  State financial solvency standards have limited potential effect on 
costs because many insurers already exceed the State minimum 
requirements. In addition, due to their recent enactment, the cost 
implications of small employer health insurance reforms, such as 
guaranteed issue, portability and rate restrictions, remain unclear.
  Mr. President, I feel this report provides useful information 
regarding the benefits associated with State health insurance 
regulation and their impact on the cost of health insurance. Further, 
it points out the lack of similar requirements for self-insured plans 
and that more and more small employers are self-funding their health 
plans. As we continue our efforts to ensure that all Americans have 
access to health care services, this report will help us better 
understand the experiences of the States and build upon them.
  I ask that the executive summary of the report be printed in the 
Record.
  The summary follows:

Health Insurance Regulation: Varying State Requirements Affect Cost of 
                               Insurance


                            RESULTS IN BRIEF

       State health insurance regulation imposes requirements on 
     health plans offered by insurers that employers' self-funded 
     health plans do not have. These requirements benefit 
     consumers; they also add costs to insured health plans. The 
     extent to which these requirements increase insured health 
     plans' costs compared with self-funded health plans' costs 
     varies by state. The cost impact depends on the nature and 
     scope of each state's regulations and on health plans' 
     typical operating practices.
       State premium taxes and other assessments are the most 
     direct and easily quantifiable cost that insured health plans 
     face. Premium taxes increase costs to commercial health 
     insurers by about 2 percent in most states. Other assessments 
     not only tend to be smaller than the premium tax but can 
     often be deducted from premium taxes. These include 
     assessments for guaranty funds that pay the claims of 
     insolvent plans and high-risk pools that provide coverage for 
     individuals unable to get private coverage because of 
     preexisting conditions.
       Most states mandate that insurance policies cover certain 
     benefits and types of providers, such as mammography 
     screening, mental health services, and chiropractors, which 
     raises claims costs to the extent that such benefits would 
     not otherwise have been covered. The cost effect varies due 
     to differences in state laws and employer practices. For 
     example, Virginia's mandated benefits accounted for about 12 
     percent of claims costs, according to a recent study. Earlier 
     studies estimated that mandated benefits represented 22 
     percent of claims in Maryland and 5 percent in Iowa. In 
     general, such cost estimates are higher in states with more 
     mandated benefits and in states that mandate more costly 
     benefits, such as mental health services and substance abuse 
     treatment. These cost estimates represent the potential costs 
     of mandated benefits to a health plan that does not 
     voluntarily offer these benefits. Because most self-funded 
     plans offer many of the mandated benefits, their additional 
     claims cost--were they required to comply--would not be as 
     high as the studies' estimates. If required to comply with 
     state mandates, however, self-funded plans would lose 
     flexibility in choosing what benefits to offer and in 
     offering a single, uniform health plan across states.
       State financial solvency standards have limited potential 
     effect on costs because many insurers exceed the state 
     minimum requirements and typically perform tasks like those 
     associated with the state financial reporting requirements. 
     Most insurers maintain higher levels of capital and surplus 
     than the minimum state requirements, indicating that the 
     effect of the capital and surplus requirements on health 
     insurance costs is generally minimal. Although states require 
     financial information and actuarial reports that in some 
     cases differ from the insurers' general business practices, 
     insurance executives indicated that the added administrative 
     cost of preparing these documents was marginal and that the 
     additional information was also valuable to the insurer.
       The cost implications of small employer health insurance 
     reforms, such as limits on preexisting condition exclusions 
     recently adopted in many states, remain unclear. The cost 
     information to date is mostly anecdotal and provides an 
     incomplete view of these reforms' effects. Moreover, the 
     rapid changes in health care markets, such as the continued 
     growth and evolution of managed care, make it difficult to 
     isolate the independent effect of the reforms.

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