Summary

As concern about the affordability of health coverage has grown, the costs attributed to state regulation of health insurance have come under increasing scrutiny. State health insurance regulation is intended to protect consumers through oversight of health plans' financial solvency, monitoring of insurers' market conduct to prevent abuses, and mandated coverage for particular services. Although these measures do benefit consumers, they result in costs to insurers that are ultimately passed on to consumers in their premiums. These costs may influence an employer to self-fund its health plan--a move that avoids state insurance regulation. This report examines the costs associated with (1) premium taxes and other assessments, (2) mandated health benefits, (3) financial solvency standards, and (4) state health insurance reforms affecting small employers. GAO discusses the impact of these requirements on the costs of insured health plans compared with the cost of self-funded health plans.

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.