State Taxes Typically Increase Insured Health Plans’ Costs

One of the most direct and quantifiable costs that insured health plans incur compared with self-funded health plans results from state premium taxes and other assessments paid by health insurers. Appendix II shows state assessments for guaranty funds and deductions from premium taxes. Appendix III shows state assessments for high-risk pools. Mandated Benefits Increase Health Insurance Costs but Magnitude Varies

The cost impact of mandated benefits varies because states differ in the number and type of benefits mandated. For small employers, who typically purchase fully insured health plans and are less likely to offer any health coverage, mandates may impose claims costs for benefits that they otherwise might not have covered. Similarly, a survey of Wisconsin insurers also found that “self-funded health plans provide at least as many of the mandated benefits as insured health plans and in some cases provide more generous coverage.” This result may partially be due to the tendency of large employers to both self-fund and offer more comprehensive benefits. State Solvency Standards’ Impact on Insurers’ Costs Is Limited

State solvency requirements add costs only to the extent that they exceed prudent industry practices a health insurance carrier would follow in the absence of state requirements. Most insurers have capital and surplus levels that exceed these minimum requirements. Specifically, state taxes on health insurers raise the costs of fully insured plans by about 2 percent in most states, with the actual level determined by state tax rate and type of health plan. In addition, the extent to which mandated benefits and solvency requirements raise costs differs by state, depending upon the scope of state laws.
Why GAO Did This Study

Pursuant to a congressional request, GAO provided information on the costs of state health insurance requirements, focusing on: (1) premium taxes on insured health plans; (2) mandated health benefits; (3) financial solvency standards; and (4) state health insurance reforms affecting small employers.

What GAO Found

GAO found that: (1) state health insurance regulation imposes requirements and costs on third-party health plans, but not on employers' self-funded health plans; (2) state premium taxes and other assessments for guaranty fund and high-risk pool fees, are the most direct and quantifiable costs on insured health plans; (3) the extent to which these requirements increase insured health plans' costs varies by state because of differences in the nature and scope of state regulation and plans' operating practices; (4) most states mandate that insurance policies cover certain benefits and providers that might not otherwise be covered; (5) costs are higher in states that mandate more costly benefits; (6) most self-funded health plans offer many of the same mandated benefits, but these plans would lose flexibility in offering uniform health plans across all states; (7) state solvency standards have a limited potential effect on plan costs, since most insurers maintain capital and surplus levels that exceed state minimum requirements and typically perform tasks similar to state reporting requirements; and (8) the cost implications of states' small employer health insurance reforms are unclear because of incomplete cost data and the difficulty of isolating the impact of such reforms.