SD15 - The Financial and Social Impact of Mandated Benefits and Mandated Providers

  • Published: 1990
  • Author: State Corporation Commission and Bureau of Insurance
  • Enabling Authority: Senate Joint Resolution 215 (Regular Session, 1989)

Executive Summary:
Senate Joint Resolution 215 directed the State Corporation Commission's (SCC) Bureau of Insurance, with the assistance of the Department of Health, to study the social and financial impact of mandated benefits and mandated providers. The study request was made as a result of the work of the joint subcommittee studying health care for all Virginians. The joint subcommittee began its work in 1988 and was continued through 1990. The joint subcommittee is interested in making health insurance more affordable for working Virginians and their families.

The joint subcommittee was concerned that the cost of mandated benefits may significantly increase the cost of health insurance, thereby causing more individuals to be without insurance. There was also concern that the existence and cost of mandates result in more employers becoming self-insured for health care. Self-insureds are exempt from Virginia's insurance laws, including mandated benefits, because of federal legislation.

In its effort to determine the nature and magnitude of the financial and social impact of mandated benefits, the Bureau of Insurance first reviewed available existing data. In order to obtain Virginia specific data, a survey was designed and forwarded to the top 100 insurers writing accident and sickness (health) insurance in the Commonwealth.

The results of the initial insurer survey were disappointing. Only 31 of the insurers returned the survey by the original due date, which was extended. None of the 31 returned surveys answered all of the questions. The Bureau of Insurance requested that the joint subcommittee grant an extension of the study deadline beyond the original due date, September 1, 1989, because of the limited and questionable data received from the surveys.

Another reason for the requested extension was that Blue Cross and Blue Shield of Virginia notified the Bureau of Insurance in late August that it had retained the firm of KPMG Peat Marwick to conduct an internal study to determine the cost of mandated benefits and providers. This study's results would be based upon actual claim data instead of the "circle of experts" approach utilized by Blue Cross and Blue Shield of Virginia in its response to the Bureau's initial survey. Given the inadequate response to the initial study, we felt that such results, from the largest writer of health coverage in Virginia, were worth the delay. Results of the KPMG Peat Marwick study were not provided to the Bureau of Insurance until October 27, 1989, supplemented by additional data provided in mid-November.

During the interim period, the survey instrument was revised and supplemented with additional information. The revised survey was mailed to 53 companies to give them the benefit of the extended deadline and more assistance in providing information. The results of the second survey were also disappointing, but provided at least some viable data upon which conclusions could be based.

Contrary to the impression insurers had previously given in appearances before the General Assembly, most insurers indicated that they do not price each mandate separately and do not know the premium cost associated with each mandate. The most reliable information that eventually was provided was generated after internal study or computer analysis that had not previously been conducted.

While it is difficult to reach firm conclusions on the financial impact of mandated benefits based on the companies' responses, it appears that the cost of Virginia's mandates for providers and benefits account for approximately 10% of the policy premium for individual coverage and almost 20% for group coverage. These figures should be viewed as a maximum attributable to mandates; no reduction in cost has been made because of the substitution of services that would have been provided in the absence of the mandates.

Virginia is not a heavy mandate state in terms of the number of mandates, in fact, many of the mandates required in Virginia were covered by the majority of insurers responding to our survey prior to the Virginia requirement. The cost of mandates that would not be included in a policy in the absence of mandates is approximately 10% of policy premium.

No irrefutable evidence was presented that confirms the belief that employers self-insure solely to avoid mandates. Other reasons for self-insuring include cash flow considerations, investment opportunities, and administrative costs.

The social impact of mandated benefits can generally be characterized as having four major effects. Mandates increase access to care, provide consumer protection, interfere with freedom of choice, and affect societal welfare.

The Bureau of Insurance and the Department of Health held a public meeting to obtain information from all interested parties on the subject of mandated benefits. A number of the speakers' comments focused on the increased access to care that results from mandated benefits and providers. Proponents of the mandates also addressed the problems, social and financial, of untreated mental and physical illnesses. A summary of the comments made at the meeting is contained in Section VII of this report.

The Bureau of Insurance believes that if the legislature desires more information about the costs of mandates, insurers should be required to collect and report, on a regular basis, information of the type requested on the insurer survey. A formal, independent evaluation procedure should also be put in place to separately evaluate the impact of each proposed mandate prior to passage and possibly to reevaluate present mandates.

There are advantages and disadvantages to mandated benefits and providers. Before any existing mandate is repealed, or before any new mandate is added, convincing data should be presented to verify that the particular mandate makes health insurance unaffordable.

An alternative is to allow the sale of a policy without the inclusion or offer of mandated benefits or specific reimbursement requirements. This type of policy should be clearly and distinctively labeled, and there should be full disclosure of its coverage and limitations. The applicant for coverage should also be given the option of purchasing coverage that includes or offers all mandates. Applicants could be required to note their choice in writing with the information retained in the insurer's files. Reporting requirements should also be included to allow the SCC or the General Assembly to monitor the effect of the sale of this type of policy.