Insurance mandates and health care costs: requiring insurance companies to cover certain services has defendants and opponents.

Substance abuse and chemical dependency treatment. Colorectal cancer screening. Newborn testing for sickle-cell anemia. Is there a common thread?

These are three of the hundreds of health insurance benefits required by law. And they are the result of some 30 years of legislatures increasingly requiring insurance plans to either cover or offer specified benefits.

Today, state or federal laws mandate insurance coverage for more than 1,500 health services.

It's a dilemma. On the one band, lawmakers continue to adopt insurance mandates. On the other, they're eyeing, with increasing scrutiny, any and all factors that may contribute to rising health care costs. And they're specially looking at what role insurance mandates play, particularly on premiums.

Two trends are emerging.

First, a growing number of states no longer pass health insurance mandates without a fiscal impact study evaluating how they will increase insurers' costs. Second, a number of new laws are now on the books allowing insurers to sell cheaper policies that cover basic services, such as hospitalization, but not some of the required services.

Health insurance mandates affect the coverage benefits of more than 60 million people. Proponents of benefit mandates embrace them as useful tools for more comprehensive health care and consumer access to services. They claim that mandates improve patient care and protect people who work for small businesses from health insurance policies that have limited coverage. Opponents argue that mandates are a major cause of excess health care costs.

But whether the effect is costly to consumers remains debatable. There's evidence aplenty to support both sides of the argument.

PREVENTION A COST SAVER

One of the most compelling arguments in favor of mandates is that preventive services can save money through early detection of diseases. Researchers tout the cost effectiveness of preventive services, such as tobacco cessation treatment and colorectal cancer screening.

And yet many states pass health insurance mandates without such evidence. Only 15 states, for example, require coverage for colorectal cancer screening even though research finds it is highly effective at addressing the second leading cause of cancer deaths.

It's constituents who push legislators to expand health insurance mandates, not research.

"Consumers who have a condition or a disease or who need a service--and the coverage has been rejected by their insurance company--come to the legislature to ask that the benefit be added to the law," says Lisa McGiffert, a health policy analyst with the Southwestern Regional Office of Consumers Union.

In 2001 lawmakers heeded the call and enacted a record 65 such mandates. They passed at least 25 in 2002 and at least 23 in 2003. On top of that, many states are amending existing laws, and a slew of others are considering the issue.

PUTTING THE BRAKES ON MANDATES

While many lawmakers continue to embrace new mandates, others want to put the brakes on what they believe is a major contributor to runaway health care costs.

"I can't think of any mandate that I can support," says South Carolina Representative Daniel L. Tripp. "It adds another layer of cost to already astronomical health costs."

Studies back up his claims. The federal General Accounting Office (GAO) reported in 1996 that mandates accounted for up to 22 percent of average claims costs in Maryland--which has the most mandates among states--and 12 percent of claims in Virginia. An April 2002 study by PriceWaterhouseCoopers prepared for the American Association of Health Plans found that $10 billion of the $67 billion overall increase in health premiums between 2001 and 2002 was due to mandates and other government regulation.

But those figures don't tell the whole story for Wyoming Senator Charles Scott. "The amount that government regulations and mandates contribute to high insurance costs is exaggerated," he says. "In certain states, the requirements do contribute to cost. But in Wyoming--a state with only four health insurance mandates--they probably do not contribute much." Like other states, Wyoming has seen health insurance premiums skyrocket, particularly in the small group market where premiums have risen 27 percent.

Scott's search for the root causes of runaway health costs in his state led him to identify other culprits. "Wyoming does not," he says, "have managed care, which even with some of its problems, could still help control costs."

Another cost driver he points to is low Medicare reimbursement rates. "In Wyoming this becomes a major source of cost-shifting on to the private sector through increases in insurance premiums," he says.

ASSESSING COST EFFECTIVENESS

South Carolina Representative Tripp is so convinced that mandates are wrong, he sponsored a 2002 law establishing a task force to review the cost implications of state and federal health insurance mandates on premiums.

"Health insurance companies were leaving the state because of issues of profitability and regulation," Tripp says. "I know that costs go up every time a new mandate is enacted." Until the law was passed, "the legislature had no mechanism to measure it."

South Carolina is not alone. At least 29 states now require a fiscal review of any new health care mandate. At least five states also passed strict rules limiting or prohibiting any additional mandates.

Even supporters of insurance mandates recognize the value of determining cost effectiveness. Texas law requires the Department of Insurance to collect cost data from major insurance companies and report the results to the Legislature. The information provides details about the contribution of mandates to premium costs and the actual claims paid out for those covered benefits.

"This will be very helpful," says McGiffert. "We [at the consumers union] believe the data will show that many mandates do not contribute that much to cost."

BURDEN ON SMALL BUSINESSES

But some critics believe that these cost assessments do not go far enough. Critics of insurance mandates claim that most of the burden falls on small businesses. Self-insured employer health plans, which are often available in companies that employ 1,000 or more workers, are exempt from the mandates, as are Medicare and Medicaid.

Rising health care costs have hit the nation's S.8 million small businesses hardest. Businesses with 200 or fewer employees saw a 15 percent increase in health care costs this year, according to a report by Mercer Human Resource Consulting. Those with SO0 or more workers saw it jump 13.5 percent. This has forced some small business employers to shift a portion of their health insurance costs to their workers through higher deductibles and co-payments.

Others have had to drop health insurance altogether. A recent Kaiser Family Foundation study found that only 61 percent of small firms offered heath insurance benefits to their employees in 2002, down from 67 percent in 2000.

POLICIES WITHOUT MANDATES

One insurance option, called a "bare bones" or "mandate lite" policy, may benefit both small businesses and employees by making insurance more affordable and allowing more workers access to coverage. Legislators are revisiting this approach that had gained some momentum in the 1990s.

Since 2001, seven states have enacted bare bones insurance laws, and several others have considered such legislation. Congress is considering an initiative to establish association health plans, which, in its proposed form, exempts the plans from a variety of state insurance regulations--including mandates.

Colorado now allows insurance companies to offer small employers at least one plan that does not include coverage for mammography, prostate screening, hospitalization and general anesthesia for child dental care, alcoholism treatment, hospice care or mental illness.

The new law "trusts consumers to make important choices about their health care needs," says Senator Mark Hillman, sponsor. "While good arguments exist for consumers to choose mandated coverages--like prostate and mammography exams--there's no reason responsible adults shouldn't be able to choose to pay for those coverages apart from the insurance company. After all, if a prostate exam costs $100, your insurance company will simply add $100--plus interest and overhead--to your premium," says Hillman.

For those who want mandated coverages, Hillman points out that all of Colorado's existing mandates continue to apply to the dozens of other policies offered by every insurance company. "While everyone would like to see insurance prices go down, the more immediate goal is to stabilize costs and offer consumers choice. We've taken an important step in that direction," he says.

But McGiffert says there is a downside to these policies. "If you cut out certain benefits, the needs don't go away," she says. "These models hurt people with low incomes or lots of health care needs. More people might be able to afford insurance with bare bones coverage policies, but they won't be able to afford the services not covered by their plans." she says.

A LONG WAY TO GO

Whether the benefits of health insurance mandates outweigh the costs will continue to be debated. But most policymakers agree that this is just one piece of the much larger picture of health care reform. Finding solutions to curb double-digit increases in health insurance premiums is paramount. But there effectiveness will depend on how lawmakers rein in other escalating health costs and make innovative changes to our increasingly strained health care system.

HOW MUCH MORE DOES IT COST?
(ESTIMATED ADDITIONAL COSTS FOR CERTAIN BENEFITS, 1997)

Benefit                        Percentage Increase    Dollar Increase

Minimum maternity stay                 <1%                  <$35
Speech therapy                         <1%                  <$35
Drug abuse treatment                   <1%                  <$35
Mammography screening                  <1%                  <$35
Well child care                        <1%                  <$35
Podiatry                               <1%                  <$35
Papanicolaou (Pap) smears              <1%                  <$35
Vision exams                        1% to 3%              $35-$105
Chiropractic treatment              1% to 3%              $35-$105
Alcoholism treatment                1% to 3%              $35-$105
Infertility treatment               3% to 5%             $105-$175
Mental health care                  5% to 10%            $175-$350
Total                              15% to 30%           $525-$1,050

Note: Estimates based on a standard family policy without mandates
costing $3,500 per year.

Source: National Center for Policy Analysis and Milliman & Robertson.

Stephanie Wasserman is NCSL's expert on public health policy.