What Are They?
A coverage mandate is a legal requirement that dictates all health insurance policies sold in North Carolina must 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. 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, consumers cannot buy insurance that does not meet the state’s coverage mandates. As an indirect consequence, navigating the regulatory waters of a given state becomes more difficult for insurers, which in turn raises barriers to entry into the marketplace.
Insurance buyers pay for coverage mandates through higher insurance premiums. While some mandates do not affect the price of insurance by much, others are more costly. North Carolina has 46 mandates, which together have increased the price of health insurance an estimated 41 percent. Overall, two forms of mandates exist, those for private health insurance carriers and those that pertain to state Medicaid programs. We focus here on private insurance mandates. As regards the private insurance market, mandates differ according to whether they apply to benefits, providers or persons:
As of 2006, no two states required identical sets of coverage mandates, with the result that insurance providers cannot sell the same insurance policy to residents of different states. Accordingly 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, and thus also to increases in the number of uninsured persons.
In particular, 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.
The number of mandates imposed by each state varies considerably, from 14 mandates in Idaho to 63 in Minnesota. With 46 coverage mandates, North Carolina has nine more than the national average and is tied with Florida, Colorado and Maine as the 10th most mandate-heavy state in the country. In fact, in 2006, North Carolina was one of only 16 states that had 40 or more mandates. On average, these 16 states had the same uninsured rate as North Carolina. Those 16 states with the fewest mandates (Idaho having the least at 13) averaged 13.1 percent uninsured. North Carolina’s overall uninsured rate (as of 2004) was 15.7 percent. By comparison, Florida had 50 mandates and an uninsured rate of 19.9 percent; likewise, Tennessee had 38 mandates and an uninsured rate of 14.1 percent. By contrast, Iowa had 22 mandates and a lower uninsured rate of 9.5 percent. Still, the number and expense of North Carolina’s coverage mandates are similar to those in other Southeast states. Tennessee and Georgia, for instance, impose fewer, but more expensive, mandates while Florida (as of 2007) and Virginia impose 46 and 55 mandates respectively.
Coverage mandates are often defended under the rubric of consumer protection; the implication is that, without mandates, consumers would not be able to obtain a “necessary” level of insurance coverage. People often disagree, however, as to what types of coverage are necessary (e.g. chiropractors) with the result being that the implementation of new mandates is sometimes subject to undue influence by special interests. One thing is clear, however: by making insurance more expensive, mandates hurt those consumers who are priced out of the market altogether.
Similarly, coverage mandates are sometimes employed as a surreptitious means of driving healthcare policies that many people do not support. In 1999, for instance, North Carolina became one of the first states to require insurance coverage for contraceptives or “family planning services.” Although churches and related institutions are exempt from the mandate, the law discourages small business owners who object to contraception from offering health insurance to their employees.
Moreover, several of North Carolina’s mandates are either very expensive or are relatively rare. Consider that:
Proponents of coverage mandates argue that such laws are necessary in order to provide insurance coverage for consumers who cannot otherwise obtain certain medical services. They 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, for instance, instead of a doctor.
But even without mandates in place, insurance companies are not likely to offer policies that do not include preventative care and lower-cost service providers. That means such mandates would be offered without government intervention.
Many mandates, however, are inefficient and costly, and serve special interests more than the general public. Consider the following:
How Much Do They 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. Although the state considered legislation in 2007 that would have added mental health parity, 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 price.
A better alternative to coverage mandates is to deregulate the insurance market so that consumers can choose for themselves what type of coverage they think is necessary, much in the same way individual consumers can buy a car that has more options than the standard model. Lawmakers might also consider the following reforms being implemented in other states: