Coverage Mandates: Questions and Options

A coverage mandate is a legal requirement that dictates that all health insurance policies sold in North Carolina cover certain services, providers, and groups of people. Mandates are the result of laws passed by the General Assembly as a means of regulating the insurance market. Insurance buyers pay for coverage mandates through higher insurance premiums. While some mandates do not affect the price of insurance by very much, others are more costly. North Carolina has 46 mandates, which together have increased the price of health insurance an estimated 29 percent.

How Do Mandates Affect Insurance Plans?

An insurance provider is not allowed to register an insurance plan in North Carolina unless that plan meets all of the state’s coverage mandates. As a direct consequence, insurance buyers cannot buy insurance that does not meet the state’s coverage mandates.

The number of mandates imposed by each state varies considerably, from 14 mandates in Idaho to 63 in Minnesota. In the Southeast, North Carolina compares favorably to Tennessee and Georgia, which impose somewhat fewer, but more expensive, mandates,1 and Florida and Virginia, which impose 49 and 55 mandates respectively.

No two states, as of 2006, require identical sets of coverage mandates, so insurance providers cannot sell the same insurance policy to residents of different states.2 As a result, coverage mandates increase costs for insurance providers, who must tailor their plans to the individual mandates applicable in each state. By preventing interstate competition, mandates contribute to higher prices for consumers.

Whom Do Mandates Affect?

Mandates have a disproportionate impact on smaller businesses and individuals who purchase their own health insurance. Thanks to the Employment Retirement Income Security Act (ERISA), companies that self-insure, or provide their own health insurance plan to employees, are exempt from state mandates. Likewise, Medicaid is exempt, as is the Teachers and State Employees’ Comprehensive Major Medical Plan (State Health Plan). It should be noted, though, that the State Health Plan provides much of the coverage mandated of private insurers. The State Health Plan also includes some forms of coverage, for example mental health parity, that private insurers in North Carolina are not required to provide.

What Purpose Do Mandates Serve?

Some mandates were imposed due to consumer complaints that they could not obtain insurance coverage for needed medical services.3 Proponents of mandates also argue that mandated coverage for preventative care, such as routine mammograms, saves money in the long run by facilitating the early detection of serious diseases. Early detection and intervention can prevent more costly and invasive procedures down the road. Similarly, some mandates save money by allowing patients to see a less expensive provider – a nurse practitioner, instead of a doctor.

Moreover, even without mandates in place, insurance companies are unlikely to offer policies that do not include preventative care and lower-cost service providers. This means, however, that such mandates do not really increase the cost of insurance policies.

Still other mandates are inefficient and costly, and seem to serve special interests rather than the general public:

• North Carolina’s 46 coverage mandates require coverage for pastoral counselors, marriage therapists, drug abuse treatment, contraceptives, chiropractors, clinical trials, and cleft palate. Yet many consumers will never use all of these services, and some business owners would prefer not to provide coverage for them.
• Mandates are not necessarily aligned with medical research. One example is the frequency of certain diagnostic tests. The U.S. Preventive Services Task Force recommends women be screened for cervical cancer every three years for a 91 percent reduction in the incidence of invasive cervical cancer. Some states,4 however, require annual screening, which reduces the incidence of invasive cancer by two percentage points, but costs three times as much.5

How Much Do Mandates Cost?

The additional cost of coverage mandates varies. Some mandates add less than 1 percent to the cost of an insurance premium. Others – such as mental health parity and prescription drug coverage – add up to 10 percent. None of North Carolina’s mandates are estimated to add more than 5 percent to the cost of a policy. The cumulative effect of adding one mandate after another, however, can add up to a significant increase in cost.

• Although North Carolina has few expensive mandates, it imposes a total of 46 mandates, for an estimated cost of $41 per $100 premium for a health plan, or 29 percent of the cost of each premium.6 Thus while a policy that only provided catastrophic insurance would cost $300, the same policy, with 46 mandates, costs $423.
• The higher insurance costs due to coverage mandates may also affect the willingness of small businesses to purchase health insurance for their employees and of individuals to purchase insurance for themselves. Looking at states with many mandates, compared to those with few, there is a positive relationship between the number of mandates imposed by a state and the percentage of uninsured individuals in that state.7 In other words, mandates can price people out of the health insurance market, leaving them uninsured. When these individuals get emergency care, the bill is paid by taxpayers.

How Can North Carolina Make Health Insurance More Affordable?

It is unrealistic to expect that any state would eliminate all of its coverage mandates. But it is worth examining whether some mandates are really necessary. In North Carolina:

• Four of the most expensive mandates cover services provided by chiropractors, dentists, psychologists and social workers. These mandates alone add an estimated 10 percent to the premium cost of health insurance.
• Six of the rarest mandates, covered by 15 or fewer states, add about 3 percent to the cost of a premium: birthing centers/ midwives (6 states); bone mass measurement (15); cleft palate (14); marriage therapists (13); pastoral counselors (2); and pharmacists (5). North Carolina could also implement several cost-saving measures used by other states:
• Mandated offers. Some states mandate that insurance companies offer to cover certain benefits. This guarantees that the benefits are available, but the choice of whether to pay for the coverage is made by the individual. Virginia, for example, mandates that insurers offer coverage for bone marrow transplants, child health supervision services, and treatment for morbid obesity. There is some concern, however, that mandated offers will lead to adverse selection, driving up the cost of these benefits for purchasers who opt to include them.
• “Mandate Light” is a relatively new method employed by some states to ease the cost burden of state coverage mandates. As of 2006, eight states – including Arkansas, Florida, Georgia, and Kentucky – have introduced “flexible benefits” plans in which people can enroll at lower cost. The cost savings from these plans are usually reported to be less than 10 percent compared to full benefits plans, and enrollment to date has been low. If more states added mandate-light options, the market for these plans could become more competitive, driving down costs.
• Analysis of impact. At least 30 states require an analysis of the impact of existing or proposed mandates on health insurance premiums.8 Virginia and Maryland, for example, analyze the cost of all mandates.

ENDNOTES

1. Both states mandate mental health parity, which adds about 7.5 percent to the premium cost. North Carolina requires full parity for “mental illness and chemical dependency” benefits for members of the State Health Plan, but has no mandate for private insurance.
2. Council for Affordable Health Insurance (CAHI), Health Insurance Mandates in the States 2007.
3. Managed Health Care Improvement Task Force, January 2000, as cited in Helen H. Schauffler, PhD, “Politics Trumps Science, Rethinking State Mandated Benefits,” American Journal of Preventative Medicine, 2000:19(2).
4. North Carolina General Statutes direct insurers to follow the American Cancer Society guidelines, which recommend varied frequencies of screening depending on age group and past results. Younger women are screened annually.
5. Schauffler, op. cit.
6. Estimates are based on reports from the Council of Affordable Health Insurance (CAHI), which focuses on the national average. The costs of mandates also depend on other factors, such as the size of the state’s population (risk pool), the degree of competition between health plans, and the details of the mandate. In Virginia, for example, mammograms add an estimated $4.90 per $100 premium cost. CAHI estimates that the U.S. average is much lower: $.50 per $100 premium cost.
7. Sven R Larson, “The Health Care Choice Act: Restoring Competition in the Health Insurance Market,” Prosperitas, Center for Freedom and Prosperity, June 2006. http://www.freedomandprosperity.org/Papers/hc-choice/hc-choice.pdf.
8. Council for Affordable Health Insurance, op. cit.

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