Putting a Price Tag on Health Insurance Benefits Presents a Daunting Task
Legislative Affairs Feature - January 2000
By Ken Ortolon
They encompass everything from treatment of chemical dependency and diabetes to childhood immunizations and in vitro fertilization. And the Texas business community has declared them employer enemy No. 1.
Now a joint committee of the Texas Legislature has launched a special study of mandated health insurance benefits to determine their effect on insurance premiums, whether they are worth the expense, and whether they contribute to the high number of uninsured people in the state.
That likely will be a tall order for the committee. Even those who support cost-benefit analyses of mandated benefits are unsure how to accomplish the task. So far, the parties involved can't even agree on what constitutes a mandate.
Yet, lawmakers say that in an era of rapidly rising health care costs they have to take a hard look at anything that might make coverage less affordable for Texas families.
"We have too many people in Texas without health insurance coverage and we need to find out why that's the case," said State Rep Pete Gallego (D-Alpine), sponsor of House Bill 1919, which authorized the interim study on mandates. "We need to figure out a way to make access to health insurance more affordable, particularly for small businesses, because the bulk of people in Texas -- certainly in rural districts like the one I represent -- work for small businesses."
Employers declare war
Representative Gallego's bill was a direct result of efforts by the Texas Association of Business and Chambers of Commerce (TABCC) to place a moratorium on new mandated benefits during the 76th session of the Texas Legislature last year. Even though TABCC President Bill Hammond says 25 out of 26 proposed mandates were defeated in 1999, his organization did not get its moratorium. Instead, lawmakers approved HB 1919.
The bill directs the Texas Joint Interim Committee on Health Care Mandates to determine if mandated benefits increase insurance premiums and the effect of any increased cost on insurance affordability and availability. The committee also is to look at what effect mandates have on improving and maintaining the health of Texans, determine whether existing mandates should be eliminated or revised, and recommend ways lawmakers can assess the cost and benefits of future proposed mandates.
The Texas Medical Association supports the broad concept of an evaluation process to determine the costs and benefits of mandated coverage. At the same time, TMA comes under frequent pressure to support mandates from specialty societies, health advocates, or consumer groups that propose them.
"It makes sense that if there were some way to carry out a cost-benefit analysis, we would want to look at how many people would benefit, what the costs would be, whether services are already available elsewhere, and whether any savings would be associated with the mandate because you minimize the potential for care in other areas," said TMA lobbyist Connie Barron.
Representative Gallego says he has not made up his mind about the cost versus benefit of mandates but thinks the issue merits lawmakers' attention. "There has to be some cost in providing the mandated benefits. The question is, does that mandated benefit really drive up the cost of providing insurance or does it not?" he said. "And, if it does drive up the cost of insurance, how much? Do we actually knock people out of the system every time we add a mandate?"
Mr Hammond, on the other hand, has no doubts. "We know for a fact that they [mandated benefits] drive up the cost of insurance. Nothing is free," he said. "And we know that when premiums go up, fewer Texans have insurance. It's harder and harder for employers to provide benefits for their employees."
TABCC says there are 63 mandates in Texas law, but that number is subject to interpretation. It depends on whether you include actual mandated benefits or items that health plans are required to offer but which purchasers can turn down, and laws that require the coverage of services provided either by a physician or another health care professional.
"If you ask consumers, there are only 30-something mandates," said Representative Gallego, who cochairs the joint committee with State Sen Jane Nelson (R-Flower Mound). "If you ask health insurance companies, there are 168."
A report prepared for TABCC by two Baylor University professors and presented to the legislature in January 1999 concluded that mandated benefits have a significant adverse effect on the cost of premiums and the number of uninsured. The study, conducted by J. Allen Seward, PhD, associate professor of insurance and finance, and economics professor James W. Henderson, PhD, estimated that each mandate increases the average premium by 4.5%. They also concluded that the number of uninsured rises somewhere between 0.2% and 0.6% for every 1% premium increase.
"Texas mandates concerning only mammography, complications from pregnancy, contraceptive services, coverage of newborn and handicapped children, and chemical dependency have been estimated to add slightly more than 17% to the cost of premiums," the report stated.
Consumers groups, however, take serious issue with the TABCC report, and they have actual claims paid data from the Texas Department of Insurance (TDI) to back them up.
"Most of the mandates were created for very legitimate purposes," said Lisa McGiffert, senior policy analyst for Consumers Union of the Southwest. "And we're not convinced mandates actually cost as much as people say they do."
Indeed, TDI data on actual claims paid, which was presented to the joint committee at its first meeting in November, seem to back up the consumer position. TDI looked at actual claims data reported by health plans for 17 different mandated coverages, including chemical dependency, mammography screening, and pregnancy complications, and found that they accounted for only 4.42% of the claims paid by insurance companies in 1998. The companies involved in the report represented 70% of the group health insurance market in Texas, says Dianne Longley, insurance director in the Life-Health Group at TDI.
TDI does not take positions on whether mandated benefits are worthwhile, but a report prepared by the agency in December 1998 presented far different conclusions than the TABCC study. Not only did the TDI report conclude that the cost of mandated benefits was not as high as the TABCC study indicated, it also concluded that factors other than mandates were mainly responsible for increasing uninsured rates.
"There does not appear to be any correlation between premium costs and uninsured rates, or between prevalence of mandated benefits and uninsured rates (ie, states with a high number of mandated benefits do not have higher uninsured rates than states with a low number of mandates)," the report stated.
What may be even more telling is that TDI found that most self-funded health plans, which are exempt from state mandates under the federal Employee Retirement Income Security Act of 1974, offer most of the mandates to employees even though they don't have to. And, a more basic health insurance plan designed for small employers, which frees insurers from many of the state mandates, has proved to be incredibly unpopular with those employers.
Ms Longley says the self-funded plans continue to include the mandates for two reasons. "A lot of these employers that are self funding have found that they want these mandates and they are willing to pay the additional cost because they perceive them as being valuable benefits," she said. "The other side is, how much do they cost? If you're talking about 5% for a benefit that's very popular among your employees and that you see as having some value, an employer might be willing to spend 5% more to get all these benefits. If we're talking about a 25% or 30% increase in cost, they may think twice about that."
Getting a grip on cost
The committee's major problem is devising a mechanism to determine what a benefit will cost before it is put in place. It has been tried once before.
In 1993, lawmakers created the Mandated Benefits Review Panel to look at proposed mandates and determine their costs and benefits. The panel operated during the 1995 and 1997 sessions but then was disbanded.
"What ended up happening was that it [the review process] was very costly, and every time the panel was asked to rule on something the ruling was, 'There's no way to know, and it requires further study,'" Ms Barron said.
Ms Longley says the review panel had very good members but lacked hard data, particularly about newer treatments being mandated.
Ironically, Ms McGiffert says, TABCC helped kill that review panel even though it is now pushing for another review mechanism.
Ms Longley says it is much easier to judge a mandate after it has been in place for a few years. And the upcoming creation of a standard for electronic transmission of health insurance claims by the federal government will help develop a database upon which to determine actual cost information.
"If we know how much a treatment costs because we have a database out there that gives us that information and we can find out from the medical literature the incidence rate for that illness or that treatment, then we can do the math," she said. "If 100 people are going to have this treatment in a year and it's going to cost $100,000, then we can determine what we should expect to pay for that benefit."
That type of data exists now for some of the current mandates and has shown that some mandates actually save money in the long run, most notably, those for childhood immunizations and mammography screening.
"It's much more cost effective to catch cancer in a woman at stage 1 through a mammogram than it is to catch it at stage 3 or stage 4 in a woman who didn't get a mammogram because her insurance wouldn't pay for it," Ms Longley said. "The mandate for childhood immunizations is another one. In every study that's ever been done, it's been proven to be cost effective."
Who's setting the prices?
TABCC's efforts to free employers from what it considers pricey mandates may have opened a can of worms for the health plans, which have been the business association's allies in recent legislative efforts to oppose managed care reforms.
Based on questions from the committee at the November hearings, Ms Barron says the committee might want to examine how insurers price what they charge for mandated benefits. And, based on TDI data, it may have good reason to do so.
While Ms Longley says many insurers seem to set premium increases resulting from mandated benefits to correlate with the actual cost of claims paid for those services, others do not. She cited a recent report from one company that it charged $132 per year per beneficiary to cover mandated podiatry services. The company reported paying $185,000 in claims for that year. Yet, multiplying $132 times the number of covered beneficiaries indicated that the company collected nearly $7 million in additional premium dollars, she says.
"The health plans were supportive of this study," Ms Barron said, "but they may end up getting a little more than they bargained for if the committee goes in the direction of health plan underwriting guidelines and premium pricing."
Ken Ortolon can be reached at (800) 880-1300, ext 1392, or (512) 370-1392; or by email at Ken Ortolon.
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