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Affecting Coverage Offered by Small Business' which was released on 
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Report to Congressional Requester:

United States General Accounting Office:

GAO:

September 2003:

Private Health Insurance:

Federal and State Requirements Affecting Coverage Offered by Small 
Businesses:

Small Business Health Coverage Requirements:

GAO-03-1133:

GAO Highlights:

Highlights of GAO-03-1133, a report to the Ranking Minority Member, 
Subcommittee on Oversight of Government Management, the Federal 
Workforce, and the District of Columbia, Committee on Governmental 
Affairs, U.S. Senate 

Why GAO Did This Study:

Most employees in the U.S. have health coverage through employers. 
Small businesses with fewer than 50 employees, however, are less 
likely to offer coverage than larger businesses. Many say they cannot 
afford it. When they do provide coverage, small businesses typically 
purchase insurance policies, while larger businesses are more likely 
to use their own funds to pay for some of their employees’ health 
care, a practice known as self-funding. 

One proposal to make health coverage more affordable for small 
businesses would establish Association Health Plans (AHP), which could 
offer coverage to small businesses subject to different federal and 
state requirements than currently exist. In light of this proposal, 
GAO was asked to summarize current federal and state requirements for 
health coverage offered by small businesses, including mandated 
benefits, premium-setting requirements, and requirements regarding 
availability of coverage.

To identify these requirements, GAO reviewed federal and selected 
states’ laws and literature from the Department of Labor (DOL), 
National Association of Insurance Commissioners (NAIC), and other 
sources. For further detail on some states’ insurance requirements, 
GAO reviewed 8 states with a range in the number of mandated benefits 
and 4 states with different types of premium-setting requirements.

What GAO Found:

Federal law does not require private employers of any size to offer 
health coverage, nor does it require those that do offer coverage to 
include specific benefits. However, employers choosing to offer mental 
health, mastectomy, and maternity benefits generally must meet certain 
federal requirements. States, which have primary responsibility for 
regulating insurers, require health insurance policies offered by 
businesses of any size to include certain benefits, but the number, 
type, and scope of these requirements vary substantially among states. 
For example, 7 states each had 30 or more benefit mandates, while 5 
states each had fewer than 10 benefit mandates. 

Federal requirements for premiums prohibit variation among similarly 
situated individuals in an employer group for businesses of any size 
based on health status, and these requirements apply whether the 
employer purchases health insurance or self-funds the health coverage. 
State requirements that limit premium variation among small businesses 
apply only to insurers, therefore affecting only employers that 
purchase health coverage from insurers. State requirements varied 
widely in the extent to which they restricted the amount that premiums 
may vary among small businesses and in the characteristics of the 
groups that may be used to set premiums. Differences among states in 
whether and how factors such as age, gender, and health status are 
considered can affect the extent to which small businesses with 
employees having higher risk factors pay more for coverage. For 
example, a small business with older, higher-risk employees and 
dependents in Texas could have been charged nearly four times as much 
as a small business of the same size with younger, healthier employees 
and dependents. In New York, the two small businesses would have been 
charged the same premium. Most states also had restrictions on how 
premiums may be adjusted at renewal.

Federal laws require insurers selling coverage to small businesses to 
make all policies available and require that employers offer 
continuation of health coverage for a period of time for certain 
individuals who otherwise would lose group coverage. All but one state 
had laws that conformed with federal requirements for small 
businesses, and some states’ requirements exceeded the federal 
minimums. For example, 39 states extended the federal continuation of 
coverage requirements to policies covering groups with fewer than 20 
employees. 

The DOL, NAIC, and 10 states provided technical comments on a draft of 
this report, which were incorporated as appropriate. NAIC also 
provided written comments emphasizing, among other things, the 
importance of states’ consumer protections. 

www.gao.gov/cgi-bin/getrpt?GAO-03-1133.

To view the full product, including the scope and methodology, click 
on the link above. For more information, contact Kathryn G. Allen at 
(202) 512-7118.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

Health Benefit Requirements:

Premium Requirements:

Requirements for Availability of Health Coverage:

Patient Protection Requirements Regarding Appeals of Denied Claims and 
Access to Certain Health Care Services:

Fiduciary and Financial Requirements:

Comments from External Reviewers:

Appendix I: State-Mandated Benefits for the Small Group Health 
Insurance Market in Eight States:

Appendix II: Estimated Costs of State-Mandated Benefits:

Appendix III: State Premium Requirements:

Appendix IV: States Exceeding Federal Availability of Coverage 
Requirements:

Appendix V: State External Review Programs and Patient Protections for 
Access to Health Care Providers:

Appendix VI: State Financial Requirements:

Related GAO Products:

Tables:

Table 1: Number of States with Premium-Setting Requirements for the 
Small Group Market, by Type of Rating, 2003:

Table 2: Average Annual per Enrollee Premium Quotations for Three 
Hypothetical Small Business Groups, with Increasing Risk 
Characteristics, in Selected Localities, 2000:

Table 3: Health Care Benefit and Provider Mandates Applicable to the 
Small Group Market in Eight States, 2003:

Table 4: Variation in Scope of Selected Mandates for Small Group Market 
in Selected States:

Table 5: State Premium Requirements:

Table 6: Selected Availability of Coverage Protections, by State:

Table 7: Claims Denials Eligible for Review and Individual 
Accessibility to State External Review Programs:

Table 8: Independence of Reviewer and Time Limits on Completion of 
Review Process for State External Review Programs:

Table 9: Selected Patient Protections, by State, 2003:

Table 10: State Financial Requirements:

Figures:

Figure 1: Number of Benefit and Provider Mandates for Small Group, 
Large Group, and Individual Insurance Markets, by State, 2002:

Figure 2: Frequency of State Benefit Mandates for Small Group, Large 
Group, and Individual Insurance Markets, 2002:

Abbreviations:

AHP: Association Health Plan:  

BCBSA: Blue Cross Blue Shield Association:  

CBO: Congressional Budget Office:  

CMS: Centers for Medicare & Medicaid Services:  

COBRA: Consolidated Omnibus Budget Reconciliation Act of 1985:  

DOL: Department of Labor:  

DSM: Diagnostic and Statistical Manual of Mental Disorders:  

ER: emergency room 

ERISA: Employee Retirement Income Security Act of 1974:  

HIPAA: Health Insurance Portability and Accountability Act of 1996:  

HIV: human immunodeficiency virus:  

NAIC: National Association of Insurance Commissioners:  

HMO: health maintenance organization:  

ICD: International Classification of Diseases:  

OB/GYN: obstetrician/gynecologist 

PKU: phenylketonuria 

PPO: preferred provider organization:  

RBC: risk-based capital:

United States General Accounting Office:

Washington, DC 20548:

September 30, 2003:

The Honorable Richard J. Durbin 
Ranking Minority Member 
Subcommittee on Oversight of Government Management, the Federal 
Workforce, and the District of Columbia 
Committee on Governmental Affairs 
United States Senate:

Dear Senator Durbin:

Nearly three-fourths of employed individuals in the United States have 
health coverage that many employers offer voluntarily as an employee 
benefit. Many employees without coverage are employed by small 
businesses. In 2001, small businesses with fewer than 50 employees were 
about half as likely to offer health coverage to their employees than 
were larger businesses. The reason small businesses most often gave for 
not offering coverage is the high cost, which makes it difficult for 
small businesses to afford it. A key distinction between how small and 
larger businesses provide health coverage to their employees is that 
small businesses typically purchase health insurance policies sold by 
insurers,[Footnote 1] while larger businesses are more likely to set 
aside their own funds to pay directly for at least some of their 
employees' health care, a practice referred to as self-funding a plan. 
This distinction between purchasing health insurance policies and self-
funding a plan affects which federal and state requirements the health 
coverage is subject to. All private employer-sponsored health coverage, 
regardless of whether it is a purchased health insurance policy or a 
self-funded plan, is subject to certain federal requirements, such as 
fiduciary obligations that require assets related to the health 
coverage to be managed prudently. Health coverage that is purchased 
from an insurer is subject to state regulatory requirements, which can 
include mandating coverage of certain benefits and providers and 
restricting how premiums may be set. As a result, most of the health 
coverage offered by small businesses is subject to both federal and 
state requirements, whereas self-funded plans offered by businesses--
typically larger businesses--are subject only to federal requirements.

In an effort to make health coverage more affordable for small 
businesses, Congress is considering allowing groups of businesses that 
are part of or join an association to offer health insurance policies 
that would not be subject to some state health insurance 
requirements.[Footnote 2] This Association Health Plan (AHP) proposal 
would also establish additional federal requirements for health 
coverage offered through the AHPs.

In light of the AHP proposal, you asked us to summarize current federal 
and state requirements for small business health coverage. 
Specifically, we identified existing federal and state requirements for 
(1) health benefits and available data on the costs of state-mandated 
benefits, (2) premium setting, (3) availability of coverage, (4) 
patient protections regarding denied claims and access to specialists, 
and (5) employers' fiduciary and insurers' financial responsibilities.

To identify existing federal and state requirements,[Footnote 3] we 
reviewed federal and selected states' laws; information from the 
Department of Labor (DOL), the National Association of Insurance 
Commissioners (NAIC), the Blue Cross Blue Shield Association (BCBSA), 
and Georgetown University's Institute for Health Care Research and 
Policy; other literature; and prior GAO reports.[Footnote 4] The 
information available did not always distinguish between state 
requirements that apply to health insurance sold to small businesses 
(referred to as the small group market) and those that apply to 
insurance sold to larger businesses and individuals (the large group 
and individual insurance markets, respectively). To obtain more 
detailed information on how benefit mandates in the small group market 
differ across states, we reviewed states' laws, regulations, and 
insurance department bulletins and contacted department of insurance 
officials in eight states (Alabama, Colorado, Georgia, Idaho, Illinois, 
Maryland, Nevada, and Vermont), which, based on a BCBSA report, 
exhibited a range in the number of state health insurance mandates. To 
obtain more detailed information on how premium-setting requirements 
differ across states, we reviewed the laws of four states (Colorado, 
Maine, Rhode Island, and Texas) that have adopted different approaches 
to regulating insurers' premiums for coverage sold to small businesses. 
Our work was conducted from March through September 2003 according to 
generally accepted government auditing standards.

Results in Brief:

Overall, employees working for small businesses could have 
substantially different benefits, premiums, and protections available 
to them, depending on the states in which their employers are located. 
While federal law generally requires all private employers offering 
health coverage to their employees to meet certain minimum 
requirements, states have primary responsibility for regulating health 
insurance policies sold by insurers. As a result, substantial variation 
exists across states in the extent to which they impose requirements on 
health insurance, such as mandating coverage of certain benefits or 
placing limits on premiums.

Federal law does not require that any business offer health coverage or 
require coverage of specific benefits. However, federal law has minimum 
benefit requirements for businesses that choose to offer health 
coverage that includes certain benefits, whether it is purchased from 
an insurer or is a self-funded plan. For example, businesses of any 
size offering mastectomy coverage must also cover related 
reconstructive surgery and other mastectomy-related benefits. While all 
states have mandated that certain benefits be covered by health 
insurance policies, the number, type, and scope of the states' 
requirements varied substantially. According to a BCBSA survey 
published in 2002, the total number of benefits mandated in the small 
group, large group, and individual markets varied among states from 
fewer than 10 in five states to more than 30 in seven states. The two 
most commonly mandated benefits--required by 43 or more states--were 
mammography screening and diabetic supplies. Less commonly mandated 
benefits--required by five or fewer states--included hair prostheses 
(wigs) for individuals with cancer or other diseases, blood lead 
screening, prescription drugs, and chemotherapy. In eight states where 
we reviewed mandated benefits applicable specifically to the small 
group market, we found that the specific terms and scope of certain 
mandates also varied. For example, four of the eight states mandated 
coverage for mental health services, but these states varied in the 
diagnoses for which coverage must be provided and the number of 
inpatient days and outpatient visits for which coverage was required. 
When estimating the costs associated with mandated benefits, few 
studies have taken into account the fact that many businesses would 
offer some similar benefits even absent a mandate. However, two studies 
estimated that the additional costs associated with state-mandated 
benefits represented about 3 to 5 percent of total premium costs.

Federal requirements related to premiums apply to any size business and 
prohibit variation among individuals within the same employee category-
-which could include the same geographic location or employment status-
-on the basis of health-status related characteristics. Most states set 
limits on how premiums that insurers charge small businesses could 
vary, but states varied widely in the extent to which they allowed 
premiums to vary and the characteristics of the group that could be 
used to set or vary premiums, both initially and upon policy renewal. 
Differences among states in their premium requirements can 
substantially affect the extent to which small businesses that have 
employees with higher-cost risk factors would be charged more for 
coverage. For example, in New York, a small business covering older 
employees and dependents, including one in poor health, would have been 
charged the same premium as a small business of the same size with 
younger, healthier employees and dependents, while in Texas, the 
employer covering higher-risk employees and dependents could have been 
charged nearly four times as much as an employer of lower-risk people.

With regard to availability of coverage, federal laws require that 
insurers offer small businesses with 2 to 50 employees the option to 
purchase coverage and that small businesses with 20 or more employees 
allow employees and their dependents to continue to purchase health 
coverage under certain circumstances, such as when individuals, with 
certain exceptions, lose their health coverage due to a loss of 
employment. States had requirements for availability of health 
insurance and continuation of coverage for individuals with coverage 
through small businesses that in some cases exceeded the federal 
requirements. For example, 39 states extended the federal continuation 
of coverage requirements to policies covering groups with fewer than 20 
employees.

With regard to patient protections, federal law requires that coverage 
offered through businesses of any size, whether it is through an 
insurance policy or a self-funded plan, have an internal review process 
for appeals of denied claims, and most states required an independent 
external review process for appeals of denied claims. Specifically, 43 
states had laws in 2002 establishing independent external review of 
denied claims for insurance policies, although states varied 
significantly in the kinds of appeals eligible for external review, 
individuals' accessibility to the external review process, the 
independence of the reviewer, and the time allowed for completion of 
external review. In addition, in response to concerns about appropriate 
access to health care services, particularly regarding managed care, 
most states adopted protections that allowed patients direct access to 
certain health care providers and services, such as obstetricians/
gynecologists and emergency services.

Regarding employer fiduciary responsibilities and insurer financial 
requirements, federal law focuses on the responsibilities of 
fiduciaries--persons with discretionary authority over plan assets. 
Federal law requires that fiduciaries for any employer-sponsored health 
coverage act prudently and in the exclusive interest of the covered 
individuals. Federal requirements do not include specific financial 
requirements, such as protections against insolvency. In contrast, all 
states generally required that insurers maintain sufficient funds to 
cover unexpected losses and to invest conservatively in order to ensure 
that insurers were financially sound and able to pay the claims of 
policyholders. State requirements include oversight of insurers' 
financial soundness, such as through periodic on-site financial exams. 
States with set requirements to protect against unexpected losses for 
health insurers required that insurers maintained a minimum of $150,000 
to $3.6 million, with a median of $1.3 million. In addition, some 
states required certain insurers to maintain more than the minimum 
amount, depending on their financial risk. According to data from NAIC, 
the median amount insurers selling health coverage reported having to 
protect against unexpected losses in 2002 was $15 million. All states 
also required certain insurers to contribute to state-administered 
guaranty funds, which are used to pay for claims if an insurer fails.

We provided a draft of this report to DOL, NAIC, and 12 states whose 
benefit or premium requirements for the small group market were 
discussed in the report. DOL and 10 states provided technical comments, 
which we incorporated as appropriate; 2 states did not provide 
comments. In written comments, NAIC expressed agreement with several 
findings in our report and also stressed the important role that states 
play in providing protections to consumers with health insurance. NAIC 
also provided technical comments, which we incorporated as appropriate.

Background:

Most small businesses that offer health coverage to their employees 
purchase health insurance policies from insurers, such as local Blue 
Cross and Blue Shield plans or other private insurers, or managed care 
organizations, such as health maintenance organizations. Few small 
businesses offer a self-funded plan--12 percent of the small businesses 
with fewer than 50 employees that offered coverage in 2001 had a self-
funded plan. In contrast, the larger businesses are more likely to 
offer self-insured plans, with nearly 60 percent of businesses with 50 
or more employees self-funding at least one of the health plans they 
offered.[Footnote 5] Many businesses that self-fund purchase stop-loss 
insurance to moderate their risk, as such insurance caps the amount of 
claims the business will pay directly for either an individual or the 
group.

The Employee Retirement Income Security Act of 1974 (ERISA)[Footnote 6] 
established certain federal requirements for benefits that employers 
offer their employees, retirees, and dependents including health 
coverage as well as pensions and other benefits. ERISA requirements 
generally apply to all private employer-sponsored health coverage 
regardless of the size of business or whether the coverage is through a 
health insurance policy or a self-funded plan. ERISA also preempts 
employer-sponsored health coverage from direct state regulation (but 
maintains states' role in regulating insurance). ERISA establishes 
certain reporting requirements, disclosure requirements, fiduciary 
obligations, and claims-filing procedures that are enforceable by the 
Employee Benefits Security Administration of DOL.

Since ERISA was enacted in 1974, it has been amended several times to 
establish additional federal requirements for employer-sponsored 
coverage. The Consolidated Omnibus Budget Reconciliation Act of 1985 
(COBRA)[Footnote 7] requires employers to offer continued coverage for 
individuals, with certain exceptions, who would have otherwise lost 
employer-sponsored health coverage. COBRA allows individuals who change 
or lose their jobs to maintain coverage for a minimum of 18 months, but 
the individual may be required to pay the full premium. The Health 
Insurance Portability and Accountability Act of 1996 (HIPAA)[Footnote 
8] guarantees the availability of health insurance for small businesses 
that choose to purchase coverage and provides greater continuity in 
coverage for individuals who change health plans when they change 
employers or who change to an individually purchased insurance policy. 
Three subsequent laws established additional minimum requirements that 
businesses must meet if they offer coverage for mental health, 
maternity, or mastectomy benefits.[Footnote 9]

States have primary responsibility for regulating insurance. Therefore, 
health insurance sold within a state must meet federal and state 
requirements, but businesses' self-funded plans are subject only to 
federal requirements because ERISA preempts states' regulation of 
employer-sponsored health coverage.[Footnote 10] State requirements 
may apply to all health insurers, whether they are selling coverage to 
small or larger groups or to individuals, or they may be specific to 
coverage sold in the small group market. In addition, state 
requirements may be based on model laws, regulations, and guidelines 
developed by NAIC.

Proposed federal legislation would establish new rules for health 
coverage sponsored by associations for the employees of member 
businesses.[Footnote 11] These new rules would apply only to AHPs that 
obtain certification from DOL and would vary depending on whether the 
AHP coverage is through a self-funded plan or an insured policy. The 
proposed legislation would change current federal and state 
requirements for health coverage in several respects: (1) self-funded 
AHP plans would be subject to new federal financial requirements, (2) 
insured AHP policies could be approved in one state and sold in other 
states without meeting all the requirements for approval in the other 
states, and (3) all AHP coverage would be exempt from every states' 
health benefit mandates and in some cases could be subject to premium-
setting requirements that differ from current state requirements. As 
deliberations on this proposed legislation proceed, however, the 
specific proposals and requirements could be subject to change.

Health Benefit Requirements:

While federal law does not require businesses to offer any specific 
health benefits, those that choose to cover maternity, mental health, 
or mastectomy benefits generally must meet minimum federal 
requirements. Every state mandated that certain health benefits be 
included in insurance policies sold within the state (in the small 
group, large group, or individual insurance markets); however, the 
number and type of benefits required varied significantly from state to 
state. In eight states where we reviewed mandated benefits applicable 
specifically to the small group market, we found that the specific 
terms and scope of certain mandates also varied. In estimating the 
costs associated with mandated benefits, few studies have taken into 
account the fact that many businesses would offer some similar benefits 
even without a mandate to do so. However, two studies estimated that 
the additional costs associated with mandates represented about 3 to 5 
percent of total premiums.

Coverage for Certain Benefits Must Satisfy Minimum Federal 
Requirements:

Federal laws include minimum benefit requirements for businesses that 
choose to offer certain benefits:

* The Pregnancy Discrimination Act[Footnote 12] requires businesses 
with 15 or more employees to cover expenses for pregnancy and medical 
conditions related to pregnancy on the same basis as coverage for other 
medical conditions.

* The Newborns' and Mothers' Health Protection Act of 1996 requires 
that employer-sponsored health coverage that includes hospital stays in 
connection with childbirth must cover a minimum length of stay for 
mothers and newborns following delivery. For vaginal deliveries, the 
coverage provided cannot restrict hospital stays to less than 48 hours; 
for caesarean births, the coverage provided cannot restrict hospital 
stays to less than 96 hours.

* The Mental Health Parity Act of 1996 requires that mental health 
benefits included in employer-sponsored health coverage cannot have 
annual or lifetime dollar limits on mental health benefits that are 
lower than any such dollar limits for medical and surgical benefits. 
The law does not apply to (1) coverage sponsored by a small business 
with 50 or fewer employees and (2) coverage sponsored by larger 
businesses that experience an increase in total claims costs of at 
least 1 percent as a result of complying with the act. The health 
coverage may still contain other limits, such as those on the number of 
days or visits covered.[Footnote 13]

* The Women's Health and Cancer Rights Act of 1998 requires that 
employer-sponsored health coverage that provides coverage for 
mastectomies also cover related reconstructive surgery and other 
mastectomy-related benefits, such as coverage for prostheses and 
physical complications (including lymphedemas).

DOL is responsible for enforcing the minimum federal requirements for 
the Newborns' and Mothers' Health Protection Act, the Mental Health 
Parity Act, and the Women's Health and Cancer Rights Act for self-
funded plans.[Footnote 14] In cases where a state does not enforce 
these requirements for coverage purchased from an insurer, the Centers 
for Medicare & Medicaid Services (CMS) assumes the responsibility for 
enforcement. As of July 2003, nearly all states were enforcing the 
federal requirements--only Colorado, Massachusetts, Wisconsin, and 
Rhode Island had not enacted fully conforming legislation and relied on 
CMS to enforce one or more of these federal requirements.

Health Insurance Mandates Vary Substantially among States:

All states mandated that certain benefits and providers be included or 
offered in health policies sold in their states. State mandates may 
apply to insurance products sold in the small group, large group, or 
individual insurance markets; however, some states altered requirements 
specifically for insurance policies sold in the small group market. The 
most common types of mandates required health insurers to cover certain 
procedures or treatment of illnesses (mandated benefits) or to pay for 
covered services provided by certain physician specialists or 
nonphysician providers (provider mandates).[Footnote 15]

Number and Type of State Benefit and Provider Mandates for All 
Insurance Markets:

The total number of mandates applicable to all insurance markets--small 
group, large group, and individual--varied from state to state. (See 
fig. 1.) According to a 2002 survey by BCBSA, 7 states--Connecticut, 
Maryland, Massachusetts, Minnesota, Nevada, Texas, and Virginia--each 
had 30 or more mandates. Fifteen states had 15 or fewer mandates; 5 of 
these states--Alabama, Idaho, Iowa, Vermont, and the District of 
Columbia--each had fewer than 10. The median number of mandates 
required by states for all three insurance markets was 17.

Figure 1: Number of Benefit and Provider Mandates for Small Group, 
Large Group, and Individual Insurance Markets, by State, 2002:

[See PDF for image]

Note: Includes benefit and provider mandates as identified by BCBSA. 
BCBSA also identified ambulance transportation and emergency service 
requirements as mandated benefits, but we classified these as patient 
protections because they involve access to health services. 
Additionally, we did not include state laws related to the federal 
requirements for breast reconstruction or minimum maternity stay.

[End of figure]

The types of mandates required varied from state to state, with some 
mandates required more often than others. Of the 59 different types of 
benefits that states required for all insurance markets, 8 were 
required by more than half the states. The two most commonly mandated 
benefits were mammography screening and diabetic supplies, with 43 or 
more states requiring coverage of each of these benefits. Other 
benefits were less frequently required--such as hair prostheses (wigs) 
for individuals being treated for cancer or other diseases (5 states), 
blood lead screening (4 states), prescription drugs (3 states), and 
chemotherapy (2 states). Further, 19 of the mandates were required by 
only 1 state, such as coverage for Alzheimer's disease, treatment for 
morbid obesity, prenatal HIV testing, and wellness exams. (See fig. 2.) 
Common provider mandates included chiropractors (42 states), 
psychologists (41 states), and optometrists (36 states).

Figure 2: Frequency of State Benefit Mandates for Small Group, Large 
Group, and Individual Insurance Markets, 2002:

[See PDF for image]

[A] Mandate goes beyond federal minimum requirement.

[B] Phenylketonuria (PKU) is an enzymatic disorder that affects the way 
the body processes protein.

[C] Mandate requires coverage of vaccines once approved by the Food and 
Drug Administration.

[End of figure]

Number, Type, and Scope of State Mandates in the Small Group Market:

The benefit requirements in eight states we reviewed--Alabama, 
Colorado, Georgia, Idaho, Illinois, Maryland, Nevada, and Vermont--
illustrate the extent of variation in the number, type, and scope of 
state benefit requirements specifically for the small group health 
insurance market. The number of benefit mandates that applied to health 
insurance policies sold to small businesses in these states ranged from 
5 in Idaho to 32 in Maryland. Four of the 5 mandates required in Idaho-
-coverage for congenital abnormalities, mammography screening, 
maternity care, and complications of pregnancy--were also required by 
some of the other states we reviewed. Similarly, 27 of Maryland's 
mandates, such as diabetic supplies and mammography screenings, were 
also mandated by one or more of the other seven states, while 5 
mandates, including bone density screenings and hearing aids for 
children, were not required in any of the other states we reviewed. 
(See table 3 in app. I for more detail on benefit and provider mandates 
in these eight states.):

Among states that required health insurance to cover certain services, 
the scope of the benefit mandates often varied. For example, mandates 
varied in their terms and conditions (such as the diagnosis for which 
coverage must be provided) and the minimum level of benefits required 
(such as the number of inpatient days or outpatient visits). The 
following illustrates the variation in the scope of mandates for the 
small group market among the eight states we reviewed for four specific 
types of mandates:

Well-child care: Five of the eight states--Colorado, Georgia, Illinois, 
Maryland, and Vermont--required that well-child care be covered, but 
varied as to the age of children and types of services for which 
coverage was required. For example, Colorado required coverage of 
preventive services and immunizations for children up to the age of 13, 
while Georgia required coverage for reviews of the physical and 
emotional status of a child through age 5. Maryland specified 
comprehensive requirements listed under the recommendations from the 
United States Preventive Services Task Force.[Footnote 16] Further, 
Georgia and Colorado exempted well-child care services from deductibles 
and dollar limits.

Mental health services: Five of the eight states--Colorado, Illinois, 
Maryland, Nevada, and Vermont--required insurance sold in the small 
group market to include mental health benefits, but the extent of the 
required coverage varied among the states.[Footnote 17] For example, 
Nevada required coverage for a minimum of 40 days of inpatient care and 
40 days of outpatient care and limited this coverage to six 
"biologically based" conditions.[Footnote 18] Maryland required 
coverage for 60 inpatient days and, in addition to requiring the 
coverage of outpatient services, required insurers to pay at least 70 
percent of the cost for outpatient services. Maryland also required 
coverage of residential crisis services.

Parity in mental health and other medical/surgical services: Four of 
the eight states we reviewed--Colorado, Georgia, Maryland, and Vermont-
-had mental health parity requirements that applied to smaller 
businesses exempt from the federal Mental Health Parity Act, which 
applies only to employers with 51 or more employees. These states' 
parity laws varied, however, in the diagnoses for which parity was 
required, whether separate cost-sharing amounts for mental health care 
were permitted, and whether parity extended to limits on the number of 
covered days or visits. For example, Colorado required that mental 
health benefits for six biologically-based conditions be no less 
extensive than those for physical illness. Vermont prohibited insurers 
from establishing any rate, term, or condition that placed a greater 
financial burden on the insured individual than that for the treatment 
of physical conditions, including parity regarding limits on the number 
of covered visits.

Organ transplants: Two of the eight states--Illinois and Maryland--had 
provisions mandating coverage for organ transplants. Illinois generally 
required coverage for organ transplants with the exception of 
experimental and investigational procedures, while Maryland required 
coverage of bone marrow, cornea, kidney, liver, heart, lung, and 
pancreas transplants.

Appendix I provides additional detail about these four types of 
mandated benefits in the eight states.

Estimated Costs of State-Mandated Benefits:

While the number, type, and scope of benefit and provider mandates in a 
state can affect the cost of insurance, the additional costs beyond 
what businesses would typically incur are estimated to be relatively 
small. Most studies that have addressed the costs of mandated benefits 
have not examined the additional (marginal) costs of mandates but have 
instead reported the total costs associated with benefit mandates, even 
though employers may have chosen to cover some or all of these benefits 
even in the absence of any mandate.[Footnote 19] Maryland--the state 
with the most mandated benefits--analyzed both the total and marginal 
costs of its mandated benefits. Whereas Maryland found that the total 
costs associated with its benefit mandates were about 14 percent, the 
marginal costs represented about 3 percent of premiums.[Footnote 20] In 
another study, the Congressional Budget Office estimated that the 
marginal costs of five state health insurance mandates were 0.28 to 
1.15 percent, and estimated that mandated benefits in general could 
increase premiums by about 5 percent over what they would have been 
without mandates.[Footnote 21] (See app. II for additional information 
on the estimated cost of mandated benefits.):

Premium Requirements:

Federal premium requirements prohibit any employer-sponsored health 
coverage from charging employees a higher premium based on health-
related factors than the premium charged to other similarly situated 
individuals. Employers may treat groups of individuals differently if 
the groups are based on an employment class (such as full-time or part-
time) that is consistent with employers' usual business practices. 
State premium requirements for insurance sold in the small group market 
limited how premiums were set and the amount by which they could vary 
for different small businesses. In 2003, almost all states had premium-
setting requirements, but states varied widely in the degree to which 
they limited the individual characteristics that could be used to set 
premiums and how much the premiums could differ among small businesses 
buying the same insurance product. Also, for the small group market in 
2002, many states limited how premiums were set for renewal policies 
but did not restrict how often premiums could be adjusted.

Federal Requirements Restrict Variation in Premiums for Individuals 
with Employer-Sponsored Health Coverage:

Federal requirements do not address how premiums for employer-sponsored 
health coverage are set but rather HIPAA's nondiscrimination provision 
prohibits, for businesses of all sizes, premiums from differing for 
similarly situated individuals on the basis of health-related 
factors.[Footnote 22] Similarly situated employees might share the same 
geographic location or employment status. HIPAA does not prohibit 
health insurers or employers that self-fund from taking into account 
the health of the employees and their dependents when setting the 
group's premiums, but it does prohibit them from charging employees or 
their dependents different amounts based on this health information. 
Further, HIPAA does not prohibit premiums from varying among employees 
for other reasons. For example, employees in different employment 
categories, such as those in different geographic locations or with 
different employment status, may be charged different amounts for 
health coverage.

Most States Limited How Insurers Could Vary Premiums for Different 
Small Businesses:

In 2003, nearly all states (47) had some restrictions on how premiums 
were set for insurance sold in the small group market. These 
requirements focused on limiting the extent to which premiums offered 
to small employers purchasing the same coverage could differ. State 
requirements varied in the extent to which they restricted the amount 
premiums could reflect the heath and other demographic characteristics 
of the group's employees and dependents. Further, while states tended 
to adopt one of three types of premium-setting requirements for 
coverage sold to small businesses--pure community rating, modified 
community rating, or rating bands--the specific restrictions varied 
widely with some states adopting aspects of more than one type of 
requirement. (See app. III for a summary of state premium 
requirements.) In general, pure community rating requirements were the 
most restrictive, allowing insurers to vary premiums among small 
businesses of the same size purchasing the same coverage for geographic 
area and family size only. Variation for health or other demographic 
characteristics of the group's employees and dependents such as age or 
gender was prohibited. Modified community rating requirements 
prohibited insurers from varying premiums among small businesses on the 
basis of health but allowed some variation for other factors in 
addition to geographic area and family size, such as age and gender of 
the employees and dependents. The most common approach used was rating 
bands, which allowed insurers to vary premiums on the basis of the 
employees' and dependents' health as well as other factors (such as 
age, type of industry of the business, or size of the group) but set 
some restrictions on the variation allowed. Premium-setting 
requirements in rating band states, however, may have included aspects 
of other types of premium-setting requirements as well. For example, we 
classified Rhode Island as a rating band state because premiums could 
vary on the basis of the group's health, but it also had elements of 
modified community rating because insurers developed a community rate 
from which adjustments could be made. (See table 1.):

Table 1: Number of States with Premium-Setting Requirements for the 
Small Group Market, by Type of Rating, 2003:

Type of rating: Pure community rating; Number of states: 2; 
Description of requirements: Prohibits use of health status and other 
factors such as age, group size, and gender. Premiums can vary among 
small businesses only for geographic area and family size.

Type of rating: Modified community rating; Number of states: 10; 
Description of requirements: Prohibits use of health status. 
Premiums can vary among small businesses for geographic area and family 
size and for other factors within limits, such as age and gender.

Type of rating: Rating bands; Number of states: 35; 
Description of requirements: Premiums can vary among small businesses 
for health and other factors, such as age, group size, and industry, 
within limits.

Type of rating: No restrictions; Number of states: 4; 
Description of requirements: No limits on factors that can be used or 
amount premiums can vary among small businesses.

Source: GAO analysis of data from BCBSA, NAIC, and selected state 
requirements.

[End of table]

Other than the two states that required pure community rating (New York 
and Vermont), states differed greatly in their specific restrictions 
even if they had the same type of premium-setting requirement. All 
states with modified community rating prohibited consideration of 
individual employees' health but differed in the other factors they 
allowed insurers to consider in setting premiums. For example:

* Colorado allowed premiums to vary among small businesses for three 
factors--age, geographic area, and family size--based on actuarial data 
but did not otherwise set limits on the amount that premiums could vary 
for any of these factors.

* Maine allowed premiums to vary among small businesses for seven 
factors--age, employees' occupation or employer's industry, geographic 
area, group size, smoking status, participation in wellness programs, 
and family size--but limited to 20 percent the total amount premiums 
could vary above or below the community rate for age, occupation or 
industry, and geographic area.

Similarly, states with premium rating bands allowed premiums to vary 
based on health but differed in their restrictions on other factors 
that could be used in setting premiums. For example:

* Rhode Island allowed premiums to vary among small businesses from the 
community rate for health, age, gender, and four types of family 
composition: (1) enrollee, (2) enrollee and spouse, (3) enrollee, 
spouse, and children, or (4) enrollee and children. Of these factors, 
premium variation among small employers was not limited for age or 
gender, whereas variation from the community rate for health was 
limited to 10 percent, and variation among employer groups was limited 
to 400 percent of the lowest premium rate for the same type of family 
composition.

* Texas required insurers to set premiums using two steps. First, the 
insurer could determine a base premium using criteria including 
geographic area, age, gender, industry, and group size. Variation was 
limited for only industry and group size; specifically, the highest 
factor for industry and group size could not exceed the lowest factor 
by more than 15 percent and 20 percent, respectively. Second, the 
insurer could adjust the amount of the base premium by as much as 67 
percent on the basis of health status, duration of coverage, or other 
characteristics related to the health status or experience of a small 
group or of any member of a small group.

Differences among states in their premium requirements can 
substantially affect the amount that premiums varied among small 
businesses with employees and dependents with different risk factors. 
For example, in New York, a small business whose employees and 
dependents had higher-risk characteristics would have been charged the 
same amount as a small business with younger, healthier employees and 
dependents; in Texas, the small business with higher-risk employees and 
dependents could have been charged several thousand dollars more per 
year than the small business with younger, healthier employees and 
dependents. (See table 2.):

Table 2: Average Annual per Enrollee Premium Quotations for Three 
Hypothetical Small Business Groups, with Increasing Risk 
Characteristics, in Selected Localities, 2000:

Premium-setting requirement: Pure community rating; Location: Albany, 
New York[A]; Group 1--Lower risk: Primarily young, with no 
health conditions and few high-risk characteristics: Annual premium: 
$2,580; Group 2--Medium risk: similar to Group 1 but 1 adult 
has a serious health condition (juvenile-onset diabetes): Annual 
premium: $2,580; Group 2--Medium risk: similar to Group 1 but 1 adult 
has a serious health condition (juvenile-onset diabetes): Percentage 
increase from Group 1: 0%; Group 3--Higher risk: same serious 
health condition as Group 2, but other enrollees have other increased-
risk characteristics, including older, male and smoker, and the 
business was a higher-risk industry: Annual premium: $2,580; Group 3--
Higher risk: same serious health condition as Group 2, but other 
enrollees have other increased-risk characteristics, including older, 
male and smoker, and the business was a higher-risk industry: 
Percentage increase from Group 1: 0%.

Premium-setting requirement: Modified community rating; Location: 
Baltimore, Maryland[B]; Group 1--Lower risk: Primarily young, 
with no health conditions and few high-risk characteristics: Annual 
premium: 2,113; Group 2--Medium risk: similar to Group 1 but 1 
adult has a serious health condition (juvenile-onset diabetes): Annual 
premium: 2,113; Group 2--Medium risk: similar to Group 1 but 1 adult 
has a serious health condition (juvenile-onset diabetes): Percentage 
increase from Group 1: 0%; Group 3--Higher risk: same serious 
health condition as Group 2, but other enrollees have other increased-
risk characteristics, including older, male and smoker, and the 
business was a higher-risk industry: Annual premium: 3,977; Group 3--
Higher risk: same serious health condition as Group 2, but other 
enrollees have other increased-risk characteristics, including older, 
male and smoker, and the business was a higher-risk industry: 
Percentage increase from Group 1: 88%.

Premium-setting requirement: Rating band; Location: Sacramento, 
California[C]; Group 1--Lower risk: Primarily young, with no 
health conditions and few high-risk characteristics: Annual premium: 
2,513; Group 2--Medium risk: similar to Group 1 but 1 adult 
has a serious health condition (juvenile-onset diabetes): Annual 
premium: 2,513; Group 2--Medium risk: similar to Group 1 but 1 adult 
has a serious health condition (juvenile-onset diabetes): Percentage 
increase from Group 1: 0%; Group 3--Higher risk: same serious 
health condition as Group 2, but other enrollees have other increased-
risk characteristics, including older, male and smoker, and the 
business was a higher-risk industry: Annual premium: 3,614; Group 3--
Higher risk: same serious health condition as Group 2, but other 
enrollees have other increased-risk characteristics, including older, 
male and smoker, and the business was a higher-risk industry: 
Percentage increase from Group 1: 44%.

Premium-setting requirement: Rating band; Location: Springfield, 
Illinois[D]; Group 1--Lower risk: Primarily young, with no 
health conditions and few high-risk characteristics: Annual premium: 
1,259; Group 2--Medium risk: similar to Group 1 but 1 adult 
has a serious health condition (juvenile-onset diabetes): Annual 
premium: 1,504; Group 2--Medium risk: similar to Group 1 but 1 adult 
has a serious health condition (juvenile-onset diabetes): Percentage 
increase from Group 1: 19%; Group 3--Higher risk: same serious 
health condition as Group 2, but other enrollees have other increased-
risk characteristics, including older, male and smoker, and the 
business was a higher-risk industry: Annual premium: 2,946; Group 3--
Higher risk: same serious health condition as Group 2, but other 
enrollees have other increased-risk characteristics, including older, 
male and smoker, and the business was a higher-risk industry: 
Percentage increase from Group 1: 134%.

Premium-setting requirement: Rating band; Location: Austin, Texas[E]; 
Group 1--Lower risk: Primarily young, with no health 
conditions and few high-risk characteristics: Annual premium: 1,810; 
Group 2--Medium risk: similar to Group 1 but 1 adult has a 
serious health condition (juvenile-onset diabetes): Annual premium: 
2,934; Group 2--Medium risk: similar to Group 1 but 1 adult has a 
serious health condition (juvenile-onset diabetes): Percentage 
increase from Group 1: 62%; Group 3--Higher risk: same serious 
health condition as Group 2, but other enrollees have other increased-
risk characteristics, including older, male and smoker, and the 
business was a higher-risk industry: Annual premium: 7,051; Group 3--
Higher risk: same serious health condition as Group 2, but other 
enrollees have other increased-risk characteristics, including older, 
male and smoker, and the business was a higher-risk industry: 
Percentage increase from Group 1: 290%.

Sources: U.S. General Accounting Office, Private Health Insurance: 
Small Employers Continue to Face Challenges in Providing Coverage (GAO-
02-8, Oct. 31, 2001), and unpublished premium quotations.

Notes: Amounts reflect average annual per enrollee premiums for 10 
enrollees: 5 employees purchasing single coverage and 2 employees 
purchasing family coverage for a total of 3 dependents.

[A] Premium for preferred provider organization (PPO) coverage that has 
a $500 out-of-network deductible and $10 in-network copayment for 
office visits.

[B] Premium for PPO coverage that has a $750 out-of-network deductible 
and $10 in-network copayment for office visits.

[C] Premium for PPO coverage that has a $300 out-of-network deductible 
and $10 in-network copayment for office visits.

[D] Premium for PPO coverage that has a $1,000 out-of-network 
deductible and $25 in-network copayment for office visits.

[E] Premium for PPO coverage that has a $300 out-of-network deductible 
and $10 in-network copayment for office visits.

[End of table]

Most states set additional requirements for the small group market in 
how premiums could be adjusted upon renewal but did not limit the total 
amount that premiums could increase in the small group market or how 
often premiums could increase. According to information from NAIC, in 
2002 many of the 44 states with renewal requirements had requirements 
that were based on or similar to those in the NAIC model regulation, 
which allowed insurers to adjust premiums up to the sum of (1) the 
percentage that premiums have increased for new business, (2) 
adjustments not exceeding 15 percent for claims experience, health 
status, and duration of coverage of a particular small business, and 
(3) adjustments, as determined by the insurer's rating manual, for 
changes in coverage or individual characteristics (other than claims 
experience, health status, and duration of coverage).[Footnote 23] 
Further, according to information from NAIC, only 8 states in 2002 
limited the frequency with which insurers could adjust small 
businesses' premiums for insurance policies that had already been 
purchased. These states tended to require that premiums remain 
unchanged for at least 1 year unless certain factors, such as the 
composition of the group or the benefits of the plan, changed.

Requirements for Availability of Health Coverage:

Federal laws--HIPAA and COBRA--have established requirements to ensure 
the availability of health coverage for small businesses and for 
employees, with certain exceptions, who lose group coverage. All states 
except Missouri had laws that conformed with the federal minimum 
requirements for the availability of health coverage for small 
businesses, and some states had requirements that exceeded the federal 
minimums.

Federal Requirements for Availability of Coverage for Small Businesses 
Represent the Minimum for State Requirements:

Federal laws require that insurers in the small group market offer 
small businesses with 2 to 50 employees the option to purchase coverage 
and that employees in businesses with at least 20 employees be allowed 
to continue to purchase health coverage for themselves and their 
dependents under certain circumstances, such as when individuals lose 
their health coverage due to loss of employment. Specifically, for 
small businesses, HIPAA requires that insurers make all policies 
available and issue coverage to any small business that applies (a 
standard known as guaranteed issue). For small or large businesses, 
HIPA requires that:

* all health coverage must be renewable upon expiration of the policy 
term (guaranteed renewal) with limited exceptions, such as if an 
employee does not pay required premiums or an insurer leaves a 
geographic area;

* the maximum length of time that coverage can be excluded for 
preexisting conditions is 12 months from enrollment for most 
individuals and 18 months for individuals who enrolled late,[Footnote 
24] and 6 months is the maximum time an insurer or other group health 
plan can "look back" to determine whether a condition was preexisting; 
and:

* a health plan must credit an individual's period of prior group 
coverage against the plan's preexisting condition exclusion period 
(group-to-group portability).[Footnote 25]

COBRA generally requires that employers with 20 or more employees allow 
individuals who lose their health coverage for specified reasons, such 
as changes in employment, to continue their coverage.[Footnote 26] The 
individual is responsible for paying up to 102 percent of the group 
premium for COBRA continuation coverage, which can generally last for 
up to 18 months.[Footnote 27]

Some States Exceeded Federal Minimum Requirements for Availability of 
Health Coverage for Small Businesses:

All but one state--Missouri--met or exceeded the federal minimum 
requirements for the availability of health coverage through small 
businesses. States had responsibility for enforcing these regulations, 
while CMS had responsibility for enforcing the federal requirements for 
insurers in states that did not establish conforming 
requirements.[Footnote 28] CMS determined that all but one state--
Missouri--had enacted requirements that conform with HIPAA's 
requirements.[Footnote 29]

Some states had requirements for the availability of insurance that 
exceeded the federal minimums. In these instances, insurers were 
required to meet the more stringent state requirements. For example, 
according to NAIC, as of 2002, 14 states required insurers to have a 
shorter period of time to exclude coverage for preexisting conditions 
for newly enrolled individuals than the federal maximum of 12 months. 
Specifically, 10 states limited exclusionary periods to between 3 and 9 
months, and 4 states prohibited exclusions for preexisting conditions 
entirely.

Some states had requirements that exceeded federal COBRA continuation 
requirements. The majority of states (39) extended the federal COBRA 
requirements to individuals covered by businesses that had fewer than 
20 employees. For example, in a previous study examining state programs 
to provide health insurance for unemployed individuals, we found that 
each of the six states we reviewed had health insurance continuation of 
coverage laws for employers that had fewer than 20 employees and thus 
were not subject to federal COBRA requirements.[Footnote 30] The states 
varied in the eligibility requirements and the maximum length of 
continuation coverage provided. New Jersey provided up to 12 months of 
continuation coverage and required that the individual have coverage on 
his or her last day of employment prior to losing group coverage. 
Colorado, North Carolina, Ohio, Oregon, and Utah provided from 6 to 18 
months of continuation coverage and required that eligible individuals 
had to have been insured for 3 to 6 months prior to losing group 
coverage.[Footnote 31] (App. IV provides more detail on states that 
exceed the federal requirements regarding preexisting condition 
exclusions and that have continuation of coverage requirements for 
small businesses with fewer than 20 employees that are not covered by 
COBRA requirements.):

Patient Protection Requirements Regarding Appeals of Denied Claims and 
Access to Certain Health Care Services:

Federal law requires employer-sponsored health coverage for businesses 
of any size to have an internal review process for individuals who 
appeal a denied benefit claim. Most states had established requirements 
for independent external review processes for health insurers, although 
these review processes varied substantially among states in their 
specifics. In addition, most states had patient protections that 
allowed patients direct access (without prior approval) to certain 
health care providers and services, such as emergency services and 
obstetricians/gynecologists.

Federal Requirements Establish Internal Review Procedures for Appeals 
of Denied Claims:

Federal requirements include provisions for internal claims review in 
settling appeals regarding denied claims. Under ERISA, health insurers 
or employers' self-funded plans must maintain procedures for an 
internal review process for considering individuals' appeals of any 
denied claims. DOL's regulatory requirement generally allows the plan 
administrator flexibility in designing its process.[Footnote 32] 
However, under the regulation, plan administrators generally must 
specify reasons for claims denial within 90 days after a claim has been 
filed. In the case of a claim involving urgent care, the plan 
administrator must notify an individual of the plan's decision no later 
than 72 hours after the plan administrator receives the claim, unless 
the individual has not provided sufficient information to make a 
decision.

Most States Established External Review Procedures for Appeals of 
Denied Insurance Claims and Provided Other Patient Protections:

Most states had a requirement that some or all insurers establish a 
process for independent external review of appeals of denied claims, 
but the states' programs varied substantially in the kinds of denials 
eligible for external review, individuals' accessibility to the 
program, independence of the reviewer, and the time allowed for 
completion of external review. Based on information from a May 2002 
report prepared by the Institute for Health Care Research and Policy at 
Georgetown University, 43 states had laws related to external grievance 
reviews.[Footnote 33] Most states limited the types of denials, such as 
those based on medical necessity, that are eligible for external 
review. Nearly all states required individuals to first exhaust their 
federally required internal appeals process before seeking the state-
established external review. Further, in 27 states, an individual had 
less than 180 days in which to request an external review following the 
insurer's final adverse determination. Requirements for the 
independence of the external review also varied--some states selected 
the external review entity themselves, others allowed the insurer or 
individual to select the reviewer. Twelve states also specified a 
maximum time of 30 or fewer business days for completion of the 
external review. Other states allowed 90 days or more. Tables 7 and 8 
in appendix V compare states' requirements for external review 
programs.

States also had other patient protection requirements, which came about 
in response to concerns about access to health care services, 
particularly regarding managed care, but that apply to other health 
insurance products as well. These included requirements for open 
communication between providers and patients as well as access to 
certain providers and services. For example, according to BCBSA, in 
2002:[Footnote 34]

* Forty-seven states prohibited "gag clauses" (restrictions on certain 
communications) in insurers' contracts with health care providers. 
These laws enable physicians to speak openly with their patients about 
treatment options not covered by the health insurance policy.

* Forty-two states required insurers to cover emergency services, 
defined on the basis of what a prudent layperson (that is, a 
nonmedically trained person) would reasonably assume to be an 
emergency, to prevent a patient from being denied coverage when the 
individual believes emergency treatment is necessary.

* Forty-one states required that insurers allow individuals direct 
access to obstetricians and gynecologists (OB/GYN). Some state 
requirements allowed women to designate an OB/GYN as their primary care 
physician, while other states prohibited insurers from requiring prior 
authorization or referral for coverage of certain obstetric or 
gynecologic services.

Table 9 in appendix V provides certain patient protection requirements 
for all states.

Fiduciary and Financial Requirements:

Federal requirements establish responsibilities for fiduciaries; 
specifically, that individuals with discretionary authority over assets 
related to any employer-sponsored health coverage must act prudently 
and in the exclusive interest of enrolled individuals. In contrast, 
states established financial requirements for insurance policies sold 
in the small or large group market. The state requirements aimed at 
ensuring the solvency of insurers, including requirements that insurers 
set aside money for the payment of future expected and unexpected 
claims and expenses and follow guidelines on investment activities. All 
states also had requirements whereby certain insurers would have to 
contribute to a state-administered guaranty fund to pay for outstanding 
claims if an insurer became insolvent. Also, as part of their oversight 
activities, states monitored the financial soundness of insurers by 
conducting financial analyses and periodic on-site financial 
examinations.

Federal Requirements Limited to Fiduciary Responsibilities, Not 
Solvency or Other Financial Protections:

Federal requirements for employer-sponsored health coverage do not 
specify solvency or other financial requirements for that coverage. 
Rather, ERISA requires that fiduciaries--persons who have control or 
authority over assets related to the health coverage--act prudently and 
in the exclusive interest of enrolled individuals. These fiduciary 
responsibilities, however, are limited; unlike private pension plans 
where in most cases assets are held in a trust, most employers do not 
prefund their health coverage and instead operate on a pay-as-you-go 
basis, using assets from general funds and employee contributions. 
Also, since most coverage offered by small businesses is through an 
insurance policy, fiduciary responsibilities primarily relate to the 
payment of premiums. DOL can and does take legal action to enforce 
fiduciary duties when, for example, fiduciaries fail to forward 
employee contributions for health premiums to an insurer. In such 
cases, DOL may obtain voluntary compliance, have the fiduciaries 
reimburse all losses and pay penalty amounts (when applicable), or 
permanently bar them from serving as fiduciaries in the future.

Federal requirements do not include mechanisms such as guaranty funds 
to ensure that individuals' outstanding claims will be paid if an 
insurer becomes insolvent or a self-funded plan becomes bankrupt and 
ceases to exist. When a self-funded plan fails and its sponsor (such as 
the employer) goes bankrupt, individuals with unpaid health claims must 
file a proof of claim with the bankruptcy court requesting that, when 
the assets of the employer are liquidated to pay its creditors, these 
outstanding claims be considered for payment. However, since bankruptcy 
courts establish priority arrangements for paying an employer's 
liabilities, some claims may not be paid.

State Financial Requirements for Insurers in the Small or Large Group 
Market Include Insolvency Protections, Reporting Rules, and Oversight 
Activities:

State financial requirements for insurers selling in the small or large 
group market focused on ensuring that the insurers were financially 
sound and likely to be able to pay claims.[Footnote 35] According to 
NAIC officials, all states required insurers to maintain adequate 
reserves (funds set aside to pay for outstanding claims). These reserve 
requirements focused on ensuring that insurers can meet pending claims 
and benefits, based largely on incurred liabilities, prior experience, 
and projections that assume moderately adverse conditions. According to 
information from NAIC, 36 states had requirements that insurers selling 
health insurance in 2003 maintain certain minimum levels of reserves. 
Most of these 36 states based their requirements on NAIC's model 
regulation, which specified minimum standards for the estimation of 
reserves.[Footnote 36] In general, NAIC's model required that reserves 
be sufficient to cover three types of liabilities--claims that have 
been incurred but not paid, premiums that were paid beyond the period 
for which coverage has been provided, and contractual benefits that are 
anticipated to exceed the value of premiums. The NAIC model also 
required that reserves be calculated using specified morbidity, 
mortality, and interest rates. Based on filings with NAIC, the median 
reserve levels kept by insurers selling health insurance nationwide in 
2002 was $5.9 million, with levels ranging from $490,000 for the 
quarter of companies with the lowest to $35.7 million for the quarter 
of companies with the highest amount of reserves.[Footnote 37]

State requirements for capital and surplus levels generally called for 
insurers to maintain a set minimum amount or an amount based on the 
insurer's level of financial risk. Capital and surplus requirements aim 
to ensure that insurers have a sufficient financial cushion to 
withstand unexpected losses that were the result of events more extreme 
than those that reserve requirements are meant to protected against. In 
2002, every state had set minimum capital and surplus requirements--
amounts that did not vary according to the size, risk, or experience of 
the insurer--for life or health insurers. According to NAIC, 29 states 
had set minimum requirements for life insurers (including those that 
also sell health insurance) or other types of insurers, while 22 states 
had minimum capital and surplus requirements specifically for health 
insurers. In 2002, these set minimum requirements for insurers ranged 
from $150,000 to $10 million, with states most often requiring minimums 
of $1 million to $2 million.[Footnote 38] Among states with specific 
requirements for health insurance, the median set minimum requirement 
was $1.3 million, with requirements ranging from $150,000 to $3.6 
million. (See app. VI for a summary of states' financial 
requirements.):

Following several insolvencies among multistate insurers in the late 
1980s and early 1990s, states added risk-based capital (RBC) 
requirements whereby the minimum amount of capital and surplus an 
insurer must maintain varies according to the level of financial risk 
of the company. RBC also attempted to provide regulators with an early 
warning mechanism to identify companies that are weakly capitalized and 
therefore at risk of becoming insolvent in the future. NAIC developed 
different RBC formulas depending on the line of insurance sold. These 
RBC formulas include one for insurance sold by life insurers, including 
health insurance (Life RBC), and one for health insurance sold by Blue 
Cross Blue Shield companies or HMOs (Health RBC). According to NAIC, 
all states had Life RBC requirements, while less than half of states 
(22) had Health RBC requirements in 2003. Thus, all health insurance 
sold by life and property/casualty insurers was subject to RBC 
requirements. Whether insurance policies sold by Blue Cross Blue Shield 
companies and HMOs were subject to RBC requirements, however, depended 
on where the company was headquartered. Based on filings with NAIC, the 
median amount of capital and surplus retained by insurers nationwide in 
2002 was $15 million, with levels ranging from $4.4 million for the 
quarter of companies with the least to $66.8 million for the quarter of 
companies with the highest amount of capital and surplus.[Footnote 39]

Other state requirements to promote solvency included limits on 
insurers' investment activities. According to NAIC, in 2003, all states 
had requirements for insurer investments. Twenty-three of these states 
based their requirements on NAIC models, which included rules for the 
kinds of investments that insurers were permitted to make or the amount 
that could be invested in any one entity or type of investment. For 
example, funds for reserves or capital may be required to be invested 
in conservative and secure investments such as government bonds and 
mortgages.

According to NAIC officials, states required that insurers submit 
quarterly and annual reports and conducted financial analyses and 
periodical on-site financial exams to verify information on the annual 
statements. In 2003, states typically had requirements that on-site 
financial exams of insurers headquartered in the state occur every 3 to 
5 years. For multistate insurers, on-site exams were conducted under 
the supervision of the state in which the insurer was headquartered and 
representatives from the other states in which the insurer sells could 
request to participate.

All states had provisions related to the payment of outstanding claims 
for policyholders whose insurer became insolvent, but few states had 
similar requirements for HMOs. In cases where a failing insurer's funds 
were insufficient, each state had provisions to assure payment for 
certain incurred claims up to a specified amount through guaranty 
funds. Solvent insurers were required to contribute to these guaranty 
funds, usually on an as-needed basis and according to prescribed 
limits. According to NAIC, the maximum amount an insurer could be 
assessed for a guaranty fund varied among the states from 1 percent to 
4 percent of the premiums charged in the state in 2003, with the 
majority of states (49) setting the limit at no more than 2 percent. 
Also, some states allowed insurers to recover the amount they had been 
assessed for a guaranty fund through reductions in their state premium 
taxes. According to information from NAIC, most states did not extend 
their health insurance guaranty fund requirements to HMOs[Footnote 40] 
and 6 states had requirements allowing for the establishment of a fund 
specifically for HMOs in 2003.

Comments from External Reviewers:

We provided a draft of this report to DOL, NAIC, and 12 states whose 
benefit or premium requirements for the small group market were 
discussed in the report. DOL and 10 states provided technical comments 
that we incorporated as appropriate; 2 states did not provide comments.

In written comments, NAIC highlighted several of the report's findings. 
Specifically, NAIC agreed with our finding that the costs associated 
with benefit and provider mandates over what businesses would normally 
incur are estimated to be relatively small. NAIC also commented that 
mandates provide important protections for consumers and help prevent 
insurers from limiting their risk by denying coverage for certain 
benefits or limiting access to certain providers. NAIC further noted 
that such mandates have been carefully considered and adopted by state 
legislators. NAIC also emphasized that federal law does not include 
solvency requirements or financial protections for consumers in self-
funded health plans and that, in its view, these responsibilities are 
best left to the states. Finally, NAIC highlighted the states' long-
standing role in providing consumer protections for health insurance, 
such as small group market reforms for premium rates and eligibility 
practices, internal and external review requirements, marketing 
standards, and fraud prevention. As we noted in the report, states have 
primary responsibility for regulating health insurance, but substantial 
variation exists across states in the extent to which they impose 
certain requirements. NAIC also provided technical comments that we 
incorporated as appropriate.

As agreed with your office, unless you publicly announce this report's 
contents earlier, we will not distribute it until 30 days after its 
date. At that time, we will send copies to the Secretary of Labor, 
interested congressional committees, and other parties. We will also 
make copies available to others on request. Copies of this report will 
also be available at no charge on GAO's Web site at http://www.gao.gov.

Please call me at (202) 512-7118 or John E. Dicken at (202) 512-7043 if 
you have any questions. Major contributors to this report include 
JoAnne Bailey, Romy Gelb, and Pamela Roberto.

Sincerely yours,

Kathryn G. Allen 

Director, 
Health Care--Medicaid and Private Health Insurance Issues:

Signed by Kathryn G. Allen: 

[End of section]

Appendix I: State-Mandated Benefits for the Small Group Health 
Insurance Market in Eight States:

To obtain more detailed information on benefit and provider mandates 
applicable to the small group market, we conducted a review of eight 
states--Alabama, Colorado, Georgia, Idaho, Illinois, Maryland, Nevada, 
and Vermont. We selected these states because they represented a range 
in the number of mandates.

Table 3 identifies certain health care benefits and provider mandates 
for the small group health insurance market and whether they were 
mandated in each of the eight states for 2003. Of these states, 
Maryland had the largest number of mandates (32) applying to the small 
group market, which included five types of benefits, such as bone 
density screenings and hearing aids for minors, not offered by the 
other states we reviewed. Idaho had the fewest mandates (5), with four 
of the five found in other states we reviewed.

Table 3: Health Care Benefit and Provider Mandates Applicable to the 
Small Group Market in Eight States, 2003:

Benefits: Alcoholism treatment; Maryland: Yes; Georgia: No; 
Illinois: Yes; Colorado: No; Nevada: Yes; Vermont: Yes; Alabama: 
No; Idaho: No.

Benefits: Asthma treatment; Maryland: No; Georgia: Yes[A]; Illinois: 
No; Colorado: No; Nevada: No; Vermont: No; Alabama: 
No; Idaho: No.

Benefits: Autism treatment; Maryland: No; Georgia: Yes[A]; Illinois: 
No; Colorado: Yes[A]; Nevada: No; Vermont: No; Alabama: 
No; Idaho: No.

Benefits: Blood products; Maryland: Yes; Georgia: No; Illinois: Yes; 
Colorado: No; Nevada: No; Vermont: No; Alabama: No; 
Idaho: No.

Benefits: Bone density screening; Maryland: Yes; Georgia: No; 
Illinois: No; Colorado: No; Nevada: No; Vermont: 
No; Alabama: No; Idaho: No.

Benefits: Breast implant removal; Maryland: No; Georgia: No; 
Illinois: Yes; Colorado: No; Nevada: No; Vermont: No; 
Alabama: No; Idaho: No.

Benefits: Cervical cancer screening; Maryland: Yes; Georgia: Yes; 
Illinois: Yes; Colorado: No; Nevada: Yes; Vermont: No; Alabama: No; 
Idaho: No.

Benefits: Chemotherapy or related treatments; Maryland: No; 
Georgia: No; Illinois: No; Colorado: No; Nevada: 
No; Vermont: Yes; Alabama: No; Idaho: No.

Benefits: Chlamydia screening; Maryland: Yes; Georgia: Yes; Illinois: 
No; Colorado: No; Nevada: No; Vermont: No; Alabama: 
No; Idaho: No.

Benefits: Cleft palate/congenital abnormality treatment; Maryland: Yes; 
Georgia: Yes; Illinois: Yes; Colorado: Yes; Nevada: No; Vermont: 
No; Alabama: No; Idaho: Yes.

Benefits: Clinical trials; Maryland: Yes; Georgia: Yes; Illinois: No; 
Colorado: No; Nevada: No; Vermont: Yes; Alabama: No; 
Idaho: No.

Benefits: Colorectal screening; Maryland: Yes; Georgia: Yes; Illinois: 
Yes; Colorado: No; Nevada: Yes[A]; Vermont: No; Alabama: No; Idaho: No.

Benefits: Complications of pregnancy; Maryland: Yes; Georgia: Yes[A]; 
Illinois: Yes; Colorado: Yes; Nevada: Yes; Vermont: No; Alabama: 
No; Idaho: Yes[A].

Benefits: Contraceptives; Maryland: Yes; Georgia: Yes[A]; Illinois: 
No; Colorado: No; Nevada: Yes[A]; Vermont: Yes[A]; Alabama: 
No; Idaho: No.

Benefits: Craniofacial disorders treatment; Maryland: No; 
Georgia: No; Illinois: No; Colorado: No; Nevada: 
No; Vermont: Yes; Alabama: No; Idaho: No.

Benefits: Dental anesthesia; Maryland: Yes; Georgia: Yes; Illinois: 
Yes; Colorado: Yes; Nevada: No; Vermont: No; Alabama: No; 
Idaho: No.

Benefits: Diabetic supplies/education; Maryland: Yes; Georgia: Yes; 
Illinois: Yes; Colorado: Yes; Nevada: Yes; Vermont: Yes; Alabama: No; 
Idaho: No.

Benefits: Drug abuse treatment; Maryland: Yes; Georgia: No; 
Illinois: No; Colorado: No; Nevada: Yes; Vermont: Yes; Alabama: 
No; Idaho: No.

Benefits: Family planning; Maryland: Yes; Georgia: No; Illinois: 
No; Colorado: No; Nevada: No; Vermont: No; Alabama: 
No; Idaho: No.

Benefits: Formula for metabolic disorders; Maryland: Yes; Georgia: 
No; Illinois: No; Colorado: Yes[A]; Nevada: Yes; Vermont: Yes; 
Alabama: No; Idaho: No.

Benefits: Hearing aids for minors; Maryland: Yes; Georgia: No; 
Illinois: No; Colorado: No; Nevada: No; Vermont: 
No; Alabama: No; Idaho: No.

Benefits: Home health care; Maryland: Yes; Georgia: No; Illinois: 
No; Colorado: No; Nevada: Yes; Vermont: No; Alabama: 
No; Idaho: No.

Benefits: Hormone replacement therapy; Maryland: No; Georgia: 
No; Illinois: No; Colorado: No; Nevada: Yes[A]; Vermont: 
No; Alabama: No; Idaho: No.

Benefits: Hospice care; Maryland: Yes; Georgia: No; Illinois: 
No; Colorado: No; Nevada: Yes; Vermont: No; Alabama: 
No; Idaho: No.

Benefits: Infertility treatment; Maryland: Yes; Georgia: Yes; 
Illinois: Yes; Colorado: No; Nevada: No; Vermont: No; Alabama: No; 
Idaho: No.

Benefits: Mammography screening; Maryland: Yes; Georgia: Yes; 
Illinois: Yes; Colorado: Yes; Nevada: Yes; Vermont: Yes; Alabama: Yes; 
Idaho: Yes[A].

Benefits: Maternity care; Maryland: Yes; Georgia: Yes[B]; Illinois: 
Yes[B]; Colorado: Yes; Nevada: No; Vermont: Yes; Alabama: No; Idaho: 
Yes.

Benefits: Mental health services; Maryland: Yes; Georgia: No; 
Illinois: Yes[B]; Colorado: Yes; Nevada: Yes; Vermont: Yes; Alabama: 
No; Idaho: No.

Benefits: Mental health parity; Maryland: Yes; Georgia: Yes; Illinois: 
No; Colorado: Yes; Nevada: No; Vermont: Yes; Alabama: No; 
Idaho: No.

Benefits: Minimum mastectomy stay; Maryland: Yes; Georgia: Yes; 
Illinois: Yes; Colorado: No; Nevada: No; Vermont: No; Alabama: 
No; Idaho: No.

Benefits: Off-label drug use; Maryland: No; Georgia: Yes; Illinois: 
Yes[A]; Colorado: No; Nevada: Yes[A]; Vermont: No; Alabama: Yes; 
Idaho: No.

Benefits: Organ transplants; Maryland: Yes; Georgia: No; Illinois: 
Yes; Colorado: No; Nevada: No; Vermont: No; Alabama: 
No; Idaho: No.

Benefits: Orthotics/prosthetics; Maryland: Yes[C]; Georgia: No; 
Illinois: No; Colorado: Yes; Nevada: No; Vermont: No; 
Alabama: No; Idaho: No.

Benefits: Ovarian cancer screening; Maryland: No; Georgia: Yes; 
Illinois: No; Colorado: No; Nevada: No; Vermont: 
No; Alabama: No; Idaho: No.

Benefits: Prenatal HIV testing; Maryland: No; Georgia: No; 
Illinois: Yes; Colorado: No; Nevada: No; Vermont: No; 
Alabama: No; Idaho: No.

Benefits: Prostate cancer screening; Maryland: Yes; Georgia: Yes; 
Illinois: Yes; Colorado: Yes; Nevada: No; Vermont: No; Alabama: No; 
Idaho: No.

Benefits: Rehabilitation services; Maryland: Yes; Georgia: No; 
Illinois: Yes[B]; Colorado: No; Nevada: No; Vermont: No; 
Alabama: No; Idaho: No.

Benefits: Residential crisis services; Maryland: Yes; Georgia: No; 
Illinois: No; Colorado: No; Nevada: No; Vermont: 
No; Alabama: No; Idaho: No.

Benefits: Second opinion; Maryland: Yes; Georgia: No; Illinois: 
No; Colorado: No; Nevada: No; Vermont: No; Alabama: 
No; Idaho: No.

Benefits: Temporomandibular joint disorders treatment; Maryland: Yes; 
Georgia: Yes; Illinois: No; Colorado: No; Nevada: Yes; Vermont: 
Yes; Alabama: No; Idaho: No.

Benefits: Well-child care; Maryland: Yes; Georgia: Yes; Illinois: 
Yes[B]; Colorado: Yes; Nevada: No; Vermont: Yes; Alabama: No; Idaho: 
No.

Benefits: Providers; Maryland: No; Georgia: No; Illinois: 
No; Colorado: No; Nevada: No; Vermont: No; Alabama: 
No; Idaho: No.

Benefits: Acupuncturist; Maryland: No; Georgia: No; 
Illinois: No; Colorado: No; Nevada: Yes; Vermont: No; 
Alabama: No; Idaho: No.

Benefits: Athletic trainer; Maryland: No; Georgia: Yes; Illinois: 
No; Colorado: No; Nevada: No; Vermont: No; Alabama: 
No; Idaho: No.

Benefits: Chiropractor; Maryland: No; Georgia: Yes; Illinois: 
No; Colorado: Yes; Nevada: Yes; Vermont: Yes; Alabama: Yes; Idaho: 
No.

Benefits: Dentist; Maryland: No; Georgia: No; Illinois: Yes; 
Colorado: Yes; Nevada: No; Vermont: No; Alabama: Yes; Idaho: 
No.

Benefits: Marriage therapist; Maryland: No; Georgia: No; 
Illinois: No; Colorado: Yes; Nevada: Yes; Vermont: No; Alabama: 
No; Idaho: No.

Benefits: Nurse; Maryland: No; Georgia: No; Illinois: 
No; Colorado: Yes; Nevada: Yes; Vermont: No; Alabama: No; 
Idaho: No.

Benefits: Nurse, registered first assistant[D]; Maryland: No; 
Georgia: Yes; Illinois: No; Colorado: No; Nevada: No; 
Vermont: No; Alabama: No; Idaho: No.

Benefits: Nurse midwife; Maryland: No; Georgia: Yes; Illinois: 
No; Colorado: No; Nevada: No; Vermont: No; Alabama: 
No; Idaho: No.

Benefits: Optometrist; Maryland: No; Georgia: Yes; Illinois: Yes; 
Colorado: Yes; Nevada: No; Vermont: No; Alabama: Yes; Idaho: 
No.

Benefits: Osteopath; Maryland: No; Georgia: No; Illinois: 
No; Colorado: Yes; Nevada: No; Vermont: No; Alabama: 
No; Idaho: No.

Benefits: Physician/surgical assistant; Maryland: No; Georgia: 
No; Illinois: No; Colorado: No; Nevada: No; 
Vermont: No; Alabama: Yes; Idaho: No.

Benefits: Podiatrist; Maryland: No; Georgia: No; Illinois: Yes; 
Colorado: Yes; Nevada: No; Vermont: No; Alabama: Yes; Idaho: 
No.

Benefits: Professional counselor; Maryland: No; Georgia: No; 
Illinois: Yes; Colorado: Yes; Nevada: No; Vermont: No; Alabama: 
No; Idaho: No.

Benefits: Psychologist; Maryland: No; Georgia: Yes; Illinois: Yes; 
Colorado: Yes; Nevada: Yes; Vermont: No; Alabama: Yes; Idaho: No.

Benefits: Public and other facilities[E]; Maryland: No; Georgia: 
No; Illinois: No; Colorado: No; Nevada: No; 
Vermont: No; Alabama: No; Idaho: Yes.

Benefits: Social worker; Maryland: No; Georgia: No; Illinois: 
Yes; Colorado: Yes; Nevada: Yes; Vermont: No; Alabama: No; Idaho: 
No.

Benefits: Total state mandates (benefits and providers); Maryland: 
32[F]; Georgia: 27; Illinois: 26; Colorado: 23; Nevada: 21; Vermont: 
15; Alabama: 8; Idaho: 5.

Source: GAO interviews with state officials, July 2003.

Note: Provider mandates only apply if the policy covers the services 
that the provider is qualified to provide.

[A] These mandates set minimum requirements that apply only if policy 
covers a specified benefit.

[B] Applies only to HMO plans.

[C] Excludes coverage of orthotics.

[D] The registered nurse first assistant is responsible for providing 
technical assistance under the direct supervision and direction of an 
operating surgeon.

[E] Requires coverage for care provided in state institutions or by the 
department of health and welfare.

[F] Maryland small group regulations do not list mandated providers by 
specialty, but require that the insurer cover benefits covered under 
the contract if (1) the services are provided by a health care provider 
licensed under the Health Occupations Article and (2) the provider is 
acting within the scope of his or her license.

[End of table]

Table 4 illustrates the variation among the eight states in terms of 
the scope of the requirements for four categories of mandates (well-
child care, mental health coverage, mental health parity, and organ 
transplants) for the small group market. The mental health coverage 
category included states that required insurers to provide some level 
of mental health care benefits. A state was considered to have a mental 
health parity mandate if its requirements for equivalence of benefits 
between mental health care and physical health care applied to the 
small group market. (The federal Mental Health Parity Act exempts 
business with 50 or fewer employees.) Mandates for organ transplants 
required coverage of specific organs or specified guidelines under 
which transplantation could be denied, and well-child care pertained to 
the preventative services insurers were required to cover for minor 
children. Although several states mandated coverage for the same 
benefit, their requirements varied substantially in the range of 
treatment or services covered and the minimum level of benefits 
required. For example, Colorado mandated coverage of well-child care 
services through age 13, while Georgia restricted coverage to children 
under the age of 5.

Table 4: Variation in Scope of Selected Mandates for Small Group Market 
in Selected States:

Well-child care (5 of 8 states reviewed): 

Well-child care mandates varied in the states we reviewed as to 
the scope of services required as well as to the age of children 
covered under the mandate: 

State: Colorado; Key Features: * Immunizations and preventive services 
through age 13; * Exempt from deductibles/dollar limits.

State: Georgia; Key Features: * Physical/emotional exam through age 5; 
* Insurer may not require deductible.

State: Illinois; Key Features: * Appropriate preventive services/
immunizations; * Only applies to HMOs.

State: Maryland; Key Features: * Preventive services recommended by 
U.S. Preventive Services Task Force; * Includes audiology screening 
for newborns limited to one screen and one confirming screen; 
* Insurer may not require deductible for well-child care visits for 
children under age 2 and immunization visits for children under age 
13.

State: Vermont; Key Features: * 31 days of newborn coverage without 
additional premiums; * May not reduce coverage for pediatric vaccines 
below May 1, 1993, levels.

State: Mental health coverage (4 of 8 states reviewed): 

State: Mental health mandates varied in the diagnoses for which 
coverage was required; the types of services (inpatient, outpatient, 
and residential) that were covered; and the number of inpatient and 
outpatient visits: 

State: Colorado; Key Features: * Autism excluded from definition of 
mental illness; * Minimum annual coverage: 45 days inpatient; 
* Coverage for outpatient services required.

State: Illinois; Key Features: * Minimum annual coverage: 10 inpatient 
days, 20 outpatient visits; * Only applies to HMOs.

State: Maryland; Key Features: * Minimum annual coverage: 60 inpatient 
days; * For outpatient care, 70% coverage; * Coverage of residential 
crisis services required.

State: Nevada; Key Features: * Mental illness defined as 6 
biologically based conditions[A]; * Minimum annual coverage: 40 
inpatient days, 40 outpatient visits; * Does not apply to groups whose 
premiums rise more than 2% as a result of mandate.

State: Vermont; Key Features: * Coverage of conditions or disorders 
involving mental illness or alcohol or substance abuse listed in the 
mental disorders section of the ICD[B].

State: Mental health parity (4 of 8 states reviewed applying parity to 
the small group market).

State: State parity laws varied in the diagnoses for which parity was 
required as well as whether parity extended to the number of services 
(days or visits) and/or the cost-sharing amounts.

State: Georgia[C]; Key Features: * Coverage to same extent as physical 
illness for ICD/DSM[D] conditions; * May impose mental health cost-
sharing that does not apply to other benefits but deductible may not 
exceed deductible for medical/surgical benefits.

State: Colorado; Key Features: * Biologically-based mental illness may 
not be less extensive or have more restrictive prior authorization 
requirements than physical illness; * Deductible same as for physical 
health benefits; copayment may not exceed 50%.

State: Maryland; Key Features: * No separate lifetime maximums, out-of-
pocket limits, or separate deductible/copayment amounts for mental 
health benefits.

State: Vermont; Key Features: * No rate/term/condition that places 
greater financial burden on insured than treatment of physical 
conditions; * Out-of-pocket limits/deductible must be comprehensive 
for both mental and physical conditions; * Number of covered visits 
may not differ for mental and physical conditions.

State: Organ transplants (2 of 8 states reviewed); State: Well-child 
care (5 of 8 states reviewed): Well-child care mandates varied in the 
states we reviewed as to the scope of services required as well as to 
the age of : No.

State: Organ transplant mandates varied in the states we reviewed as 
to the types of procedures for which the mandates applied.

State: Illinois; Key Features: * Organ transplants must be covered 
with the exception of experimental and investigational procedures.

State: Maryland; Key Features: * Bone-marrow, cornea, kidney, liver, 
heart, lung, heart/lung, pancreas, and pancreas/kidney transplants.

Source: GAO interviews with state officials, July 2003.

[A] The six biologically based conditions were schizophrenia, 
schizoaffective disorder, bipolar disorder, major depressive 
disorders, panic disorder, and obsessive-compulsive disorder.

[B] The International Classification of Diseases.

[C] Georgia requires insurers to offer coverage for treatment of mental 
disorders.

[D] Diagnostic and Statistical Manual of Mental Disorders.

[End of table]

[End of section]

Appendix II: Estimated Costs of State-Mandated Benefits:

Estimates vary widely regarding the costs of state-mandated health 
benefits, depending in part on the assumptions made to develop the 
estimates. Adding mandates to employer-based health coverage raises 
total costs only to the extent that employers would not have otherwise 
offered the benefits. However, few studies have examined the additional 
costs--referred to as marginal costs--of adding mandated benefits to a 
health insurance policy. Several studies have estimated the total costs 
associated with mandated benefits even though many businesses may have 
offered these benefits without the mandate.[Footnote 41]

Two studies that evaluated the marginal costs of adding mandated 
benefits--accounting for the extent to which employers otherwise may 
have included similar benefits--estimated relatively small cost 
increases. In 2000, the Congressional Budget Office (CBO) developed an 
estimate based on an earlier study that examined the frequency with 
which health insurance policies covered five benefits even though the 
state in which the policy operated did not require such 
coverage.[Footnote 42] Because many policies would have covered some of 
the benefits even in the absence of a legal mandate, CBO concluded that 
the effective marginal cost of these state mandates was in the range of 
0.28 to 1.15 percent. CBO estimated that benefit mandates in general 
might increase premiums by about 5 percent.

Maryland conducts an annual evaluation of the costs for each of its 
mandates.[Footnote 43] In addition to estimating the total costs 
associated with the mandates, Maryland estimates a marginal cost, 
defined as the difference between the total cost of the benefit and the 
cost of the services that would be covered in the absence of the 
mandate. In 2001, the marginal cost of mandates in Maryland's small 
group market represented 3.4 percent of premiums, whereas the total 
cost accounted for 14.1 percent. In determining the marginal cost, 
Maryland considered the likelihood of coverage for certain benefits in 
the absence of state mandates based on a survey of self-funded 
employers exempt from benefit mandates.[Footnote 44]

Some other states, including Texas and Virginia, have assessed the cost 
of state benefit mandates, but did not measure the marginal costs 
associated with mandates. In 2000, Texas contracted with the actuarial 
firm Milliman & Robertson to estimate the cost of 13 specific mandated 
benefits.[Footnote 45] Assuming that none of the benefits would be 
covered by a policy in the absence of a mandate, the 13 benefits 
accounted for 6.3 percent of the average small group premium.[Footnote 
46]

Virginia requires all insurers, health service plans, and health 
maintenance organizations to report cost and utilization information 
for each of the state's mandated benefits and providers. Based on 
actual claims experience, insurers calculate the share of the overall 
average premium attributable to each mandate. Without taking into 
account whether benefits would be covered without a mandate, in 2000 
the total costs associated with Virginia's mandates represented 26.87 
percent and 29.28 percent of the overall premiums for individual and 
family group policies, respectively.[Footnote 47] The study also did 
not distinguish total costs between the small and large group markets.

[End of section]

Appendix II: State Premium Requirements:

State requirements varied widely in the extent to which they restricted 
the amount that premiums could vary among different small businesses 
purchasing the same coverage and the characteristics of the group that 
could be used to set or vary premiums, both initially and upon renewal. 
In 2003, 47 states had premium-setting requirements which generally 
followed one of three types of premium-setting requirements for 
coverage sold to small businesses--pure community rating, modified 
community rating, or rating bands--however, the specific restrictions 
varied widely and states may have adopted aspects of more than one type 
of requirement.

* Pure community rating allowed insurers to vary premiums among small 
businesses of the same size for geographic area and family size only, 
prohibiting variation for health or other demographic characteristics 
of the group's employees and dependents, such as age or gender.

* Modified community rating prohibited insurers from varying premiums 
among small businesses based on health but allowed some variation for 
other factors, such as age and gender.

* Rating bands allowed insurers to vary premiums based on the health of 
the small group's employees and dependents as well as other factors, 
such as age, type of industry of the business, or the size of the 
group, but set some restrictions on the variation.

Also, in 2002, 44 states set requirements for how premiums are adjusted 
upon renewal.

Table 5 summarizes state premium-setting requirements for initial 
policies and for policies being renewed.

Table 5: State Premium Requirements:

State: Alabama; Type of premium setting requirement (2003): Rating 
band; Sets limits on premium-setting for renewals (2002): No.

State: Alaska; Type of premium setting requirement (2003): Rating band; 
Sets limits on premium-setting for renewals (2002): Yes.

State: Arizona; Type of premium setting requirement (2003): Rating 
band; Sets limits on premium-setting for renewals (2002): Yes.

State: Arkansas; Type of premium setting requirement (2003): Rating 
band; Sets limits on premium-setting for renewals (2002): Yes.

State: California; Type of premium setting requirement (2003): Rating 
band; Sets limits on premium-setting for renewals (2002): Yes.

State: Colorado; Type of premium setting requirement (2003): Modified 
community rating; Sets limits on premium-setting for renewals (2002): 
Yes.

State: Connecticut; Type of premium setting requirement (2003): 
Modified community rating; Sets limits on premium-setting for renewals 
(2002): Yes.

State: Delaware; Type of premium setting requirement (2003): Rating 
band; Sets limits on premium-setting for renewals (2002): Yes.

State: District of Columbia; Type of premium setting requirement 
(2003): None; Sets limits on premium-setting for renewals (2002): 
No.

State: Florida; Type of premium setting requirement (2003): Rating 
band; Sets limits on premium-setting for renewals (2002): Yes.

State: Georgia; Type of premium setting requirement (2003): Rating 
band; Sets limits on premium-setting for renewals (2002): Yes.

State: Hawaii; Type of premium setting requirement (2003): None; Sets 
limits on premium-setting for renewals (2002): No.

State: Idaho; Type of premium setting requirement (2003): Rating band; 
Sets limits on premium-setting for renewals (2002): Yes.

State: Illinois; Type of premium setting requirement (2003): Rating 
band; Sets limits on premium-setting for renewals (2002): Yes.

State: Indiana; Type of premium setting requirement (2003): Rating 
band; Sets limits on premium-setting for renewals (2002): Yes.

State: Iowa; Type of premium setting requirement (2003): Rating band; 
Sets limits on premium-setting for renewals (2002): Yes.

State: Kansas; Type of premium setting requirement (2003): Rating band; 
Sets limits on premium-setting for renewals (2002): Yes.

State: Kentucky; Type of premium setting requirement (2003): Rating 
band; Sets limits on premium-setting for renewals (2002): Yes.

State: Louisiana; Type of premium setting requirement (2003): Rating 
band; Sets limits on premium-setting for renewals (2002): Yes.

State: Maine; Type of premium setting requirement (2003): Modified 
community rating; Sets limits on premium-setting for renewals (2002): 
Yes.

State: Maryland; Type of premium setting requirement (2003): Modified 
community rating; Sets limits on premium-setting for renewals (2002): 
Yes.

State: Massachusetts; Type of premium setting requirement (2003): 
Modified community rating; Sets limits on premium-setting for renewals 
(2002): Yes.

State: Michigan; Type of premium setting requirement (2003): None; Sets 
limits on premium-setting for renewals (2002): No.

State: Minnesota; Type of premium setting requirement (2003): Rating 
band; Sets limits on premium-setting for renewals (2002): Yes.

State: Mississippi; Type of premium setting requirement (2003): Rating 
band; Sets limits on premium-setting for renewals (2002): Yes.

State: Missouri; Type of premium setting requirement (2003): Rating 
band; Sets limits on premium-setting for renewals (2002): Yes.

State: Montana; Type of premium setting requirement (2003): Rating 
band; Sets limits on premium-setting for renewals (2002): Yes.

State: Nebraska; Type of premium setting requirement (2003): Rating 
band; Sets limits on premium-setting for renewals (2002): Yes.

State: Nevada; Type of premium setting requirement (2003): Rating band; 
Sets limits on premium-setting for renewals (2002): Yes.

State: New Hampshire; Type of premium setting requirement (2003): 
Modified community rating; Sets limits on premium-setting for renewals 
(2002): Yes.

State: New Jersey; Type of premium setting requirement (2003): Modified 
community rating; Sets limits on premium-setting for renewals (2002): 
Yes.

State: New Mexico; Type of premium setting requirement (2003): Rating 
band; Sets limits on premium-setting for renewals (2002): Yes.

State: New York; Type of premium setting requirement (2003): Pure 
community rating; Sets limits on premium-setting for renewals (2002): 
Yes.

State: North Carolina; Type of premium setting requirement (2003): 
Modified community rating; Sets limits on premium-setting for renewals 
(2002): Yes.

State: North Dakota; Type of premium setting requirement (2003): Rating 
band; Sets limits on premium-setting for renewals (2002): Yes.

State: Ohio; Type of premium setting requirement (2003): Rating band; 
Sets limits on premium-setting for renewals (2002): Yes.

State: Oklahoma; Type of premium setting requirement (2003): Rating 
band; Sets limits on premium-setting for renewals (2002): Yes.

State: Oregon; Type of premium setting requirement (2003): Modified 
community rating; Sets limits on premium-setting for renewals (2002): 
Yes.

State: Pennsylvania; Type of premium setting requirement (2003): None; 
Sets limits on premium-setting for renewals (2002): No.

State: Rhode Island; Type of premium setting requirement (2003): Rating 
band; Sets limits on premium-setting for renewals (2002): Yes.

State: South Carolina; Type of premium setting requirement (2003): 
Rating band; Sets limits on premium-setting for renewals (2002): Yes.

State: South Dakota; Type of premium setting requirement (2003): Rating 
band; Sets limits on premium-setting for renewals (2002): Yes.

State: Tennessee; Type of premium setting requirement (2003): Rating 
band; Sets limits on premium-setting for renewals (2002): Yes.

State: Texas; Type of premium setting requirement (2003): Rating band; 
Sets limits on premium-setting for renewals (2002): Yes.

State: Utah; Type of premium setting requirement (2003): Rating band; 
Sets limits on premium-setting for renewals (2002): Yes.

State: Vermont; Type of premium setting requirement (2003): Pure 
community rating; Sets limits on premium-setting for renewals (2002): 
No.

State: Virginia; Type of premium setting requirement (2003): Rating 
band; Sets limits on premium-setting for renewals (2002): Yes.

State: Washington; Type of premium setting requirement (2003): Modified 
community rating; Sets limits on premium-setting for renewals (2002): 
No.

State: West Virginia; Type of premium setting requirement (2003): 
Rating band; Sets limits on premium-setting for renewals (2002): Yes.

State: Wisconsin; Type of premium setting requirement (2003): Rating 
band; Sets limits on premium-setting for renewals (2002): Yes.

State: Wyoming; Type of premium setting requirement (2003): Rating 
band; Sets limits on premium-setting for renewals (2002): Yes.

Source: GAO analysis of data from Blue Cross Blue Shield Association, 
National Association of Insurance Commissioners, and selected state 
requirements.

[End of table]

[End of section]

Appendix III: States Exceeding Federal Availability of Coverage 
Requirements:

Some states have extended federal requirements that increase the 
availability of health coverage for small employers and for certain 
employees who lose group coverage. Forty states extended continuation 
coverage to employer groups with fewer than 20 employees (and therefore 
not covered by COBRA) for certain employees who lose their health 
coverage. Similarly, 13 states had more stringent requirements than the 
federal maximum of 12 months for the amount of time insurers can 
exclude coverage for preexisting conditions for newly enrolled 
individuals. See table 6.

Table 6: Selected Availability of Coverage Protections, by State:

State: Alabama; Continuation of coverage to employers with fewer than 
20 employees (2003): No; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: Alaska; Continuation of coverage to employers with fewer than 20 
employees (2003): No; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: Arizona; Continuation of coverage to employers with fewer than 
20 employees (2003): No; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: Arkansas; Continuation of coverage to employers with fewer than 
20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: California; Continuation of coverage to employers with fewer 
than 20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): Yes.

State: Colorado; Continuation of coverage to employers with fewer than 
20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): Yes.

State: Connecticut; Continuation of coverage to employers with fewer 
than 20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): Yes.

State: Delaware; Continuation of coverage to employers with fewer than 
20 employees (2003): No; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: District of Columbia; Continuation of coverage to employers with 
fewer than 20 employees (2003): Yes; Exclusion of coverage for 
preexisting condition for less than 12 months (2002): No.

State: Florida; Continuation of coverage to employers with fewer than 
20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: Georgia; Continuation of coverage to employers with fewer than 
20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: Hawaii; Continuation of coverage to employers with fewer than 20 
employees (2003): No; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): Yes.

State: Idaho; Continuation of coverage to employers with fewer than 20 
employees (2003): No; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: Illinois; Continuation of coverage to employers with fewer than 
20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: Indiana; Continuation of coverage to employers with fewer than 
20 employees (2003): No; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): Yes.

State: Iowa; Continuation of coverage to employers with fewer than 20 
employees (2003): Yes; Exclusion of coverage for preexisting condition 
for less than 12 months (2002): No.

State: Kansas; Continuation of coverage to employers with fewer than 20 
employees (2003): Yes; Exclusion of coverage for preexisting condition 
for less than 12 months (2002): Yes.

State: Kentucky; Continuation of coverage to employers with fewer than 
20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: Louisiana; Continuation of coverage to employers with fewer than 
20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: Maine; Continuation of coverage to employers with fewer than 20 
employees (2003): Yes; Exclusion of coverage for preexisting condition 
for less than 12 months (2002): No.

State: Maryland; Continuation of coverage to employers with fewer than 
20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): Yes.

State: Massachusetts; Continuation of coverage to employers with fewer 
than 20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): Yes.

State: Michigan; Continuation of coverage to employers with fewer than 
20 employees (2003): No; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: Minnesota; Continuation of coverage to employers with fewer than 
20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: Mississippi; Continuation of coverage to employers with fewer 
than 20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: Missouri; Continuation of coverage to employers with fewer than 
20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: Montana; Continuation of coverage to employers with fewer than 
20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: Nebraska; Continuation of coverage to employers with fewer than 
20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: Nevada; Continuation of coverage to employers with fewer than 20 
employees (2003): Yes; Exclusion of coverage for preexisting condition 
for less than 12 months (2002): No.

State: New Hampshire; Continuation of coverage to employers with fewer 
than 20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): Yes.

State: New Jersey; Continuation of coverage to employers with fewer 
than 20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): Yes.

State: New Mexico; Continuation of coverage to employers with fewer 
than 20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): Yes.

State: New York; Continuation of coverage to employers with fewer than 
20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: North Carolina; Continuation of coverage to employers with fewer 
than 20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: North Dakota; Continuation of coverage to employers with fewer 
than 20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: Ohio; Continuation of coverage to employers with fewer than 20 
employees (2003): No; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: Oklahoma; Continuation of coverage to employers with fewer than 
20 employees (2003): No; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: Oregon; Continuation of coverage to employers with fewer than 20 
employees (2003): Yes; Exclusion of coverage for preexisting condition 
for less than 12 months (2002): Yes.

State: Pennsylvania; Continuation of coverage to employers with fewer 
than 20 employees (2003): No; Exclusion of coverage for 
preexisting condition for less than 12 months (2002): No.

State: Rhode Island; Continuation of coverage to employers with fewer 
than 20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): Yes.

State: South Carolina; Continuation of coverage to employers with fewer 
than 20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: South Dakota; Continuation of coverage to employers with fewer 
than 20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: Tennessee; Continuation of coverage to employers with fewer than 
20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: Texas; Continuation of coverage to employers with fewer than 20 
employees (2003): Yes; Exclusion of coverage for preexisting condition 
for less than 12 months (2002): No.

State: Utah; Continuation of coverage to employers with fewer than 20 
employees (2003): Yes; Exclusion of coverage for preexisting condition 
for less than 12 months (2002): No.

State: Vermont; Continuation of coverage to employers with fewer than 
20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: Virginia; Continuation of coverage to employers with fewer than 
20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: Washington; Continuation of coverage to employers with fewer 
than 20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): Yes.

State: West Virginia; Continuation of coverage to employers with fewer 
than 20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: Wisconsin; Continuation of coverage to employers with fewer than 
20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: Wyoming; Continuation of coverage to employers with fewer than 
20 employees (2003): Yes; Exclusion of coverage for preexisting 
condition for less than 12 months (2002): No.

State: Total; Continuation of coverage to employers with fewer than 20 
employees (2003): 40; Exclusion of coverage for preexisting condition 
for less than 12 months (2002): 13.

Sources: Blue Cross Blue Shield Association, January 2003, and National 
Association of Insurance Commissioners, 2002.

Note: State continuation of coverage information current as of January 
2003, except information for the District of Columbia, which was 
current as of December 2002.

[End of table]

[End of section]

Appendix IV: State External Review Programs and Patient Protections for 
Access to Health Care Providers:

Tables 7 and 8 compare state requirements for insurers' external review 
programs in terms of the kinds of denials eligible for the review, 
consumer accessibility to the program, independence of the reviewer, 
and the time allowed for completion of external review. Nine states did 
not limit the types of denials eligible for external review program 
while 32 states limited external reviews to denials based on medical 
necessity determinations or other clinically-based reasons. Forty 
states required individuals to first exhaust their health policy's 
internal appeals and grievance process before seeking external review. 
In 27 states, the individual had 180 days following the insurer's final 
adverse determination to request an external review.

Table 7: Claims Denials Eligible for Review and Individual 
Accessibility to State External Review Programs:

State: Alabama; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: No; Internal plan 
appeals process must be exhausted prior to start of external review 
process: No; Individual must file a request for an external review 
within 180 days of insurer's adverse determination[A]: No.

State: Alaska; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; Individual must file a request for an external review within 180 
days of insurer's adverse determination[A]: No.

State: Arizona; Any type of denial eligible for external review: Yes; 
Only denials based on medical necessity or other clinically-based 
reasons eligible for external review: No; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; Individual must file a request for an external review within 180 
days of insurer's adverse determination[A]: Yes.

State: Arkansas; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: No; Internal plan 
appeals process must be exhausted prior to start of external review 
process: No; Individual must file a request for an external review 
within 180 days of insurer's adverse determination[A]: No.

State: California; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: No.

State: Colorado; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: Yes.

State: Connecticut; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: Yes.

State: Delaware; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: Yes.

State: District of Columbia; Any type of denial eligible for external 
review: No; Only denials based on medical necessity or other 
clinically-based reasons eligible for external review: Yes; Internal 
plan appeals process must be exhausted prior to start of external 
review process: Yes; Individual must file a request for an external 
review within 180 days of insurer's adverse determination[A]: Yes.

State: Florida; Any type of denial eligible for external review: Yes; 
Only denials based on medical necessity or other clinically-based 
reasons eligible for external review: No; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: No.

State: Georgia; Any type of denial eligible for external review: Yes; 
Only denials based on medical necessity or other clinically-based 
reasons eligible for external review: No; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: No.

State: Hawaii; Any type of denial eligible for external review: Yes; 
Only denials based on medical necessity or other clinically-based 
reasons eligible for external review: No; Internal plan appeals process 
must be exhausted prior to start of external review process: Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: Yes.

State: Idaho; Any type of denial eligible for external review: No; 
Only denials based on medical necessity or other clinically-based 
reasons eligible for external review: No; Internal plan appeals 
process must be exhausted prior to start of external review process: 
No; Individual must file a request for an external review within 
180 days of insurer's adverse determination[A]: No.

State: Illinois; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: No.

State: Indiana; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: Yes.

State: Iowa; Any type of denial eligible for external review: No; 
Only denials based on medical necessity or other clinically-based 
reasons eligible for external review: Yes; Internal plan appeals 
process 
must be exhausted prior to start of external review process: Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: Yes.

State: Kansas; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: Yes.

State: Kentucky; Any type of denial eligible for external review: Yes; 
Only denials based on medical necessity or other clinically-based 
reasons eligible for external review: No; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: Yes.

State: Louisiana; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: Yes.

State: Maine; Any type of denial eligible for external review: No; 
Only denials based on medical necessity or other clinically-based 
reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes[B]; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: No.

State: Maryland; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: Yes.

State: Massachusetts; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: Yes.

State: Michigan; Any type of denial eligible for external review: Yes; 
Only denials based on medical necessity or other clinically-based 
reasons eligible for external review: No; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: Yes.

State: Minnesota; Any type of denial eligible for external review: Yes; 
Only denials based on medical necessity or other clinically-based 
reasons eligible for external review: No; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: No.

State: Mississippi; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: No; Internal plan 
appeals process must be exhausted prior to start of external review 
process: No; Individual must file a request for an external review 
within 180 days of insurer's adverse determination[A]: No.

State: Missouri; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
No; Individual must file a request for an external review within 
180 days of insurer's adverse determination[A]: No.

State: Montana; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: No.

State: Nebraska; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: No; Internal plan 
appeals process must be exhausted prior to start of external review 
process: No; Individual must file a request for an external review 
within 180 days of insurer's adverse determination[A]: No.

State: Nevada; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: No; Internal plan 
appeals process must be exhausted prior to start of external review 
process: No; Individual must file a request for an external review 
within 180 days of insurer's adverse determination[A]: No.

State: New Hampshire; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: No.

State: New Jersey; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: Yes.

State: New Mexico; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: Yes.

State: New York; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: Yes.

State: North Carolina; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: No; Internal plan 
appeals process must be exhausted prior to start of external review 
process: No; Individual must file a request for an external review 
within 180 days of insurer's adverse determination[A]: No.

State: North Dakota; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: No; Internal plan 
appeals process must be exhausted prior to start of external review 
process: No; Individual must file a request for an external review 
within 180 days of insurer's adverse determination[A]: No.

State: Ohio; Any type of denial eligible for external review: Yes; Only 
denials based on medical necessity or other clinically-based reasons 
eligible for external review: No; Internal plan appeals process 
must be exhausted prior to start of external review process: Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: Yes.

State: Oklahoma; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: Yes.

State: Oregon; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: No.

State: Pennsylvania; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: Yes.

State: Rhode Island; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: Yes.

State: South Carolina; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: Yes.

State: South Dakota; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: No; Internal plan 
appeals process must be exhausted prior to start of external review 
process: No; Individual must file a request for an external review 
within 180 days of insurer's adverse determination[A]: No.

State: Tennessee; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: Yes.

State: Texas; Any type of denial eligible for external review: No; 
Only denials based on medical necessity or other clinically-based 
reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: No.

State: Utah; Any type of denial eligible for external review: No; 
Only denials based on medical necessity or other clinically-based 
reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: No.

State: Vermont; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: Yes[C].

State: Virginia; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: Yes.

State: Washington; Any type of denial eligible for external review: 
Yes; 
Only denials based on medical necessity or other clinically-based 
reasons eligible for external review: No; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: No.

State: West Virginia; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: Yes.

State: Wisconsin; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: Yes; Internal plan appeals 
process must be exhausted prior to start of external review process: 
Yes; 
Individual must file a request for an external review within 180 days 
of insurer's adverse determination[A]: Yes.

State: Wyoming; Any type of denial eligible for external review: 
No; Only denials based on medical necessity or other clinically-
based reasons eligible for external review: No; Internal plan 
appeals process must be exhausted prior to start of external review 
process: No; Individual must file a request for an external review 
within 180 days of insurer's adverse determination[A]: No.

State: Total; Any type of denial eligible for external review: 9; Only 
denials based on medical necessity or other clinically-based reasons 
eligible for external review: 32; Internal plan appeals process must be 
exhausted prior to start of external review process: 40; Individual 
must file a request for an external review within 180 days of insurer's 
adverse determination[A]: 27.

Source: Karen Pollitz et al., Georgetown University, Institute for 
Health Care Research and Policy, Assessing State External Review 
Programs and the Effects of Pending Federal Patients' Rights 
Legislation, prepared for The Henry J. Kaiser Family Foundation 
(Washington, D.C.: May 2002) and select state officials.

Note: Eight states (Alabama, Idaho, Mississippi, Nebraska, Nevada, 
North Dakota, South Dakota, and Wyoming) did not have external review 
requirements.

The categories in the table columns are not exhaustive of all of the 
specific terms of these external review programs. Therefore, states 
with external review programs but without checkmarks for specific 
categories may have other provisions for the types of denials eligible 
for review or consumer accessibility. For example, Missouri requires an 
individual to receive an adverse determination letter from an insurer 
prior to starting the external review process.

The Henry J. Kaiser Family Foundation study did not specify which types 
of insurers were subject to the external review requirements. Some 
states may only apply external review requirements to certain types of 
insurers. For example, Illinois' external review requirements were for 
HMOs only.

[A] Within the time following insurer's final adverse determination.

[B] Under certain circumstances, the internal appeals process does not 
have to be exhausted prior to the start of the external review process.

[C] Applies to nonmental health.

[End of table]

Table 8 shows that in 27 states, the state selects the external review 
entity while, in 7 states, the insurer selects this entity.[Footnote 
48] Twelve states specify a maximum time of 30 or fewer business days 
for completion of the external review.

Table 8: Independence of Reviewer and Time Limits on Completion of 
Review Process for State External Review Programs:

State: Alabama; State selects external review entity: No; Insurer 
selects internal review entity: No; External review must be 
completed within 30 business days or less: No.

State: Alaska; State selects external review entity: No; Insurer 
selects internal review entity: Yes; External review must be completed 
within 30 business days or less: Yes.

State: Arizona; State selects external review entity: Yes; Insurer 
selects internal review entity: No; External review must be 
completed within 30 business days or less: No.

State: Arkansas; State selects external review entity: No; Insurer 
selects internal review entity: No; External review must be 
completed within 30 business days or less: No.

State: California; State selects external review entity: Yes; Insurer 
selects internal review entity: No; External review must be 
completed within 30 business days or less: No.

State: Colorado; State selects external review entity: Yes; Insurer 
selects internal review entity: No; External review must be 
completed within 30 business days or less: No.

State: Connecticut; State selects external review entity: Yes; Insurer 
selects internal review entity: No; External review must be 
completed within 30 business days or less: No.

State: Delaware; State selects external review entity: Yes; Insurer 
selects internal review entity: No; External review must be 
completed within 30 business days or less: No.

State: District of Columbia; State selects external review entity: Yes; 
Insurer selects internal review entity: No; External review must 
be completed within 30 business days or less: No.

State: Florida; State selects external review entity: Yes; Insurer 
selects internal review entity: No; External review must be 
completed within 30 business days or less: No.

State: Georgia; State selects external review entity: Yes; Insurer 
selects internal review entity: No; External review must be 
completed within 30 business days or less: No.

State: Hawaii; State selects external review entity: Yes; Insurer 
selects internal review entity: No; External review must be completed 
within 30 business days or less: No.

State: Idaho; State selects external review entity: No; Insurer 
selects internal review entity: No; External review must be 
completed within 30 business days or less: No.

State: Illinois; State selects external review entity: No; Insurer 
selects internal review entity: No; External review must be 
completed within 30 business days or less: No.

State: Indiana; State selects external review entity: Yes; Insurer 
selects internal review entity: No; External review must be 
completed within 30 business days or less: Yes.

State: Iowa; State selects external review entity: No; Insurer 
selects internal review entity: No; External review must be 
completed within 30 business days or less: No.

State: Kansas; State selects external review entity: Yes; Insurer 
selects internal review entity: No; External review must be completed 
within 30 business days or less: No.

State: Kentucky; State selects external review entity: No; Insurer 
selects internal review entity: Yes; External review must be completed 
within 30 business days or less: No.

State: Louisiana; State selects external review entity: No; 
Insurer selects internal review entity: Yes; External review must be 
completed within 30 business days or less: No.

State: Maine; State selects external review entity: Yes; Insurer 
selects internal review entity: No; External review must be completed 
within 30 business days or less: Yes.

State: Maryland; State selects external review entity: Yes; Insurer 
selects internal review entity: No; External review must be 
completed within 30 business days or less: No.

State: Massachusetts; State selects external review entity: Yes; 
Insurer selects internal review entity: No; External review must be 
completed within 30 business days or less: No.

State: Michigan; State selects external review entity: Yes; Insurer 
selects internal review entity: No; External review must be 
completed within 30 business days or less: Yes.

State: Minnesota; State selects external review entity: Yes; Insurer 
selects internal review entity: No; External review must be 
completed within 30 business days or less: No.

State: Mississippi; State selects external review entity: No; 
Insurer selects internal review entity: No; External review must 
be completed within 30 business days or less: No.

State: Missouri; State selects external review entity: Yes; Insurer 
selects internal review entity: No; External review must be 
completed within 30 business days or less: No.

State: Montana; State selects external review entity: No; Insurer 
selects internal review entity: No; External review must be 
completed within 30 business days or less: No.

State: Nebraska; State selects external review entity: No; Insurer 
selects internal review entity: No; External review must be 
completed within 30 business days or less: No.

State: Nevada; State selects external review entity: No; Insurer 
selects internal review entity: No; External review must be 
completed within 30 business days or less: No.

State: New Hampshire; State selects external review entity: Yes; 
Insurer selects internal review entity: No; External review must be 
completed within 30 business days or less: No.

State: New Jersey; State selects external review entity: Yes; Insurer 
selects internal review entity: No; External review must be 
completed within 30 business days or less: No.

State: New Mexico; State selects external review entity: Yes; Insurer 
selects internal review entity: No; External review must be 
completed within 30 business days or less: No.

State: New York; State selects external review entity: Yes; Insurer 
selects internal review entity: No; External review must be 
completed within 30 business days or less: No.

State: North Carolina; State selects external review entity: No; 
Insurer selects internal review entity: No; External review must 
be completed within 30 business days or less: No.

State: North Dakota; State selects external review entity: No; 
Insurer selects internal review entity: No; External review must 
be completed within 30 business days or less: No.

State: Ohio; State selects external review entity: No; Insurer 
selects internal review entity: No; External review must be 
completed within 30 business days or less: Yes.

State: Oklahoma; State selects external review entity: No; Insurer 
selects internal review entity: No; External review must be 
completed within 30 business days or less: No.

State: Oregon; State selects external review entity: Yes; Insurer 
selects internal review entity: No; External review must be completed 
within 30 business days or less: Yes.

State: Pennsylvania; State selects external review entity: Yes; 
Insurer selects internal review entity: No; External review must be 
completed within 30 business days or less: No.

State: Rhode Island; State selects external review entity: No; 
Insurer selects internal review entity: No; External review must 
be completed within 30 business days or less: Yes.

State: South Carolina; State selects external review entity: No; 
Insurer selects internal review entity: Yes; External review must be 
completed within 30 business days or less: No.

State: South Dakota; State selects external review entity: No; 
Insurer selects internal review entity: No; External review must 
be completed within 30 business days or less: No.

State: Tennessee; State selects external review entity: No; 
Insurer selects internal review entity: Yes; External review must be 
completed within 30 business days or less: Yes[A].

State: Texas; State selects external review entity: Yes; Insurer 
selects internal review entity: No; External review must be completed 
within 30 business days or less: Yes.

State: Utah; State selects external review entity: No; Insurer 
selects internal review entity: Yes; External review must be completed 
within 30 business days or less: Yes[B].

State: Vermont; State selects external review entity: Yes; Insurer 
selects internal review entity: No; External review must be 
completed within 30 business days or less: Yes.

State: Virginia; State selects external review entity: Yes; Insurer 
selects internal review entity: No; External review must be 
completed within 30 business days or less: No.

State: Washington; State selects external review entity: No; 
Insurer selects internal review entity: Yes; External review must be 
completed within 30 business days or less: Yes[C].

State: West Virginia; State selects external review entity: Yes; 
Insurer selects internal review entity: No; External review must be 
completed within 30 business days or less: No.

State: Wisconsin; State selects external review entity: No; 
Insurer selects internal review entity: No; External review must 
be completed within 30 business days or less: No.

State: Wyoming; State selects external review entity: No; Insurer 
selects internal review entity: No; External review must be 
completed within 30 business days or less: No.

State: Total; State selects external review entity: 27; Insurer selects 
internal review entity: 7; External review must be completed within 30 
business days or less: 12.

Source: Karen Pollitz et al., Georgetown University, Institute for 
Health Care Research and Policy, Assessing State External Review 
Programs and the Effects of Pending Federal Patients' Rights 
Legislation, prepared for The Henry J. Kaiser Family Foundation 
(Washington, D.C.: May 2002), and select state officials.

Note: Eight states (Alabama, Idaho, Mississippi, Nebraska, Nevada, 
North Dakota, South Dakota, and Wyoming) did not have external review 
requirements.

The categories in the table columns are not exhaustive of all of the 
specific terms of these external review programs. Therefore, states 
with external review programs but without checkmarks for specific 
categories may have other provisions for independence or the time 
allowed for completion. For example, New Jersey specifies a maximum 
time of 90 days for completion of the external review.

The Henry J. Kaiser Family Foundation study did not specify which types 
of insurers were subject to the external review requirements. Some 
states may only apply external review requirements to certain types of 
insurers. For example, Illinois' external review requirements were for 
HMOs only.

[A] The time limit is applicable if initiated by Department of 
Insurance.

[B] For preservice cases (instances where treatment or service has not 
been sought).

[C] 25 calendar days plus 3 business days.

[End of table]

Table 9 summarizes states' requirements for select patient protections 
for access to certain health care providers. Overall:

* Forty-seven states prohibited "gag" clauses (restrictions on certain 
communications between physicians and their patients).

* Forty-two states required coverage of emergency room (ER) care 
services based on what a prudent layperson would assume to be an 
emergency.

* Forty-one states required direct access (access without a referral) 
to obstetricians and gynecologists (OB/GYN).

Table 9: Selected Patient Protections, by State, 2003:

State: Alabama; No "gag" clause: No; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: Alaska; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: No.

State: Arizona; No "gag" clause: Yes; ER care covered per prudent 
layperson: No; Direct access to OB/GYN: No.

State: Arkansas; No "gag" clause: Yes; ER care covered per prudent 
layperson: No; Direct access to OB/GYN: Yes.

State: California; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: Colorado; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: Connecticut; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: Delaware; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: Florida; No "gag" clause: Yes; ER care covered per prudent 
layperson: No; Direct access to OB/GYN: Yes.

State: Georgia; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: Hawaii; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: No.

State: Idaho; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: Illinois; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: Indiana; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: Iowa; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: No.

State: Kansas; No "gag" clause: Yes; ER care covered per prudent 
layperson: No; Direct access to OB/GYN: No.

State: Kentucky; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: Louisiana; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: Maine; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: Maryland; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: Massachusetts; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: Michigan; No "gag" clause: Yes; ER care covered per prudent 
layperson: [A]; Direct access to OB/GYN: Yes.

State: Minnesota; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: Mississippi; No "gag" clause: No; ER care covered per 
prudent layperson: No; Direct access to OB/GYN: Yes.

State: Missouri; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: Montana; No "gag" clause: Yes; ER care covered per prudent 
layperson: [A]; Direct access to OB/GYN: Yes.

State: Nebraska; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: Nevada; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: New Hampshire; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: New Jersey; No "gag" clause: No; ER care covered per 
prudent layperson: Yes; Direct access to OB/GYN: Yes.

State: New Mexico; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: New York; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: North Carolina; No "gag" clause: Yes; ER care covered per 
prudent layperson: Yes; Direct access to OB/GYN: Yes.

State: North Dakota; No "gag" clause: Yes; ER care covered per 
prudent layperson: Yes; Direct access to OB/GYN: No.

State: Ohio; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: Oklahoma; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: No.

State: Oregon; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: Pennsylvania; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: Rhode Island; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: South Carolina; No "gag" clause: Yes; ER care covered per 
prudent layperson: Yes; Direct access to OB/GYN: Yes.

State: South Dakota; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: No.

State: Tennessee; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: Texas; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: Utah; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: Vermont; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: Virginia; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: Washington; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: West Virginia; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: Wisconsin; No "gag" clause: Yes; ER care covered per prudent 
layperson: Yes; Direct access to OB/GYN: Yes.

State: Wyoming; No "gag" clause: Yes; ER care covered per prudent 
layperson: No; Direct access to OB/GYN: No.

State: Total; No "gag" clause: 47; ER care covered per prudent 
layperson: 42; Direct access to OB/GYN: 41.

Source: Blue Cross Blue Shield Association (BCBSA), January 2003.

Note: BCBSA did not include information on the District of Columbia.

[A] Prior authorization not required for medically necessary emergency 
services.

[End of table]

[End of section]

Appendix V: State Financial Requirements:

State financial requirements for health insurance sold to small 
employers focus on the solvency of insurers--that they are financially 
sound and likely able to pay the claims of policyholders.[Footnote 49] 
States had differing requirements for the minimum amounts of capital 
and surplus that insurers must maintain and all states had guaranty 
funds to pay incurred claims for certain insolvent insurers. 
Specifically:

* All states had set minimum capital and surplus amounts--requirements 
that aimed to ensure that insurers have a sufficient financial cushion 
to withstand unexpected losses that are the result of more extreme 
events--however; only 22 states had specific requirements for health 
insurance.

* Since the early 1990s, all states have added a requirement for risk-
based capital (RBC)--an approach that varied the minimum amount of 
capital and surplus a life insurer, including those that sell health or 
other lines of insurance, must keep according to its characteristics, 
which included the size, financial risk, and experience of the insurer. 
Twenty-two states had RBC requirements specifically for insurers whose 
primary business is health insurance, such as health maintenance 
organizations (HMO) or Blue Cross Blue Shield plans (health risk-based 
capital).

* The median amount of capital and surplus that insurers selling health 
insurance (including life insurers, health insurers, HMO plans, and 
Blue Cross Blue Shield plans) maintained and reported to NAIC varied 
among the states from $2.7 million to $198 million.

* While all states had provisions related to the payment of outstanding 
claims for policyholders whose insurers became insolvent, few states 
had similar requirements for HMOs. The maximum amount an insurer could 
be assessed for a guaranty fund varied among the states from 1 percent 
to 4 percent of premiums; 49 states limited assessments to no more than 
2 percent.

Table 10 summarizes these features of state financial requirements.

Table 10: State Financial Requirements:

State: Alabama; Initial minimum capital and surplus amount[A]: 
2,500,000; Health risk-based capital: No; Median capital and 
surplus amount reported by insurers[B]: 7,417,714; Maximum percent of 
premium insurers assessed for guaranty fund: 1.

State: Alaska; Initial minimum capital and surplus amount[A]: 
2,000,000; Health risk-based capital: No; Median capital and 
surplus amount reported by insurers[B]: [C]; Maximum percent of premium 
insurers assessed for guaranty fund: 2.

State: Arizona; Initial minimum capital and surplus amount[A]: 650,000; 
Health risk-based capital: Yes; Median capital and surplus amount 
reported by insurers[B]: 7,041,211; Maximum percent of premium insurers 
assessed for guaranty fund: 2.

State: Arkansas; Initial minimum capital and surplus amount[A]: 
862,500; Health risk-based capital: Yes; Median capital and surplus 
amount reported by insurers[B]: 12,924,359; Maximum percent of premium 
insurers assessed for guaranty fund: 2.

State: California; Initial minimum capital and surplus amount[A]: 
5,200,000; Health risk-based capital: No; Median capital and 
surplus amount reported by insurers[B]: 14,997,981; Maximum percent of 
premium insurers assessed for guaranty fund: 1.

State: Colorado; Initial minimum capital and surplus amount[A]: 
1,500,000; Health risk-based capital: Yes; Median capital and surplus 
amount reported by insurers[B]: 24,762,714; Maximum percent of premium 
insurers assessed for guaranty fund: 1.

State: Connecticut; Initial minimum capital and surplus amount[A]: 
1,000,000; Health risk-based capital: Yes; Median capital and surplus 
amount reported by insurers[B]: 25,118,329; Maximum percent of premium 
insurers assessed for guaranty fund: 2.

State: Delaware; Initial minimum capital and surplus amount[A]: 
450,000; Health risk-based capital: No; Median capital and surplus 
amount reported by insurers[B]: 2,771,037; Maximum percent of premium 
insurers assessed for guaranty fund: 2.

State: District of Columbia; Initial minimum capital and surplus 
amount[A]: 1,500,000; Health risk-based capital: Yes; Median capital 
and surplus amount reported by insurers[B]: 15,484,145; Maximum percent
of premium insurers assessed for guaranty fund: 2.

State: Florida; Initial minimum capital and surplus amount[A]: 
2,500,000; Health risk-based capital: No; Median capital and 
surplus amount reported by insurers[B]: 10,901,659; Maximum percent of 
premium insurers assessed for guaranty fund: 1.

State: Georgia; Initial minimum capital and surplus amount[A]: 
1,500,000; Health risk-based capital: Yes; Median capital and surplus 
amount reported by insurers[B]: 23,220,427; Maximum percent of premium 
insurers assessed for guaranty fund: 2.

State: Hawaii; Initial minimum capital and surplus amount[A]: 900,000; 
Health risk-based capital: No; Median capital and surplus amount 
reported by insurers[B]: 6,165,906; Maximum percent of premium insurers 
assessed for guaranty fund: 2.

State: Idaho; Initial minimum capital and surplus amount[A]: 2,000,000; 
Health risk-based capital: No; Median capital and surplus amount 
reported by insurers[B]: 15,047,046; Maximum percent of premium 
insurers assessed for guaranty fund: 2.

State: Illinois; Initial minimum capital and surplus amount[A]: 
2,000,000; Health risk-based capital: Yes; Median capital and surplus 
amount reported by insurers[B]: 6,975,443; Maximum percent of premium 
insurers assessed for guaranty fund: 2.

State: Indiana; Initial minimum capital and surplus amount[A]: 
2,000,000; Health risk-based capital: No; Median capital and 
surplus amount reported by insurers[B]: 9,910,472; Maximum percent of 
premium insurers assessed for guaranty fund: 2.

State: Iowa; Initial minimum capital and surplus amount[A]: 10,000,000; 
Health risk-based capital: Yes; Median capital and surplus amount 
reported by insurers[B]: 198,360,000; Maximum percent of premium 
insurers assessed for guaranty fund: 2.

State: Kansas; Initial minimum capital and surplus amount[A]: 
1,200,000; Health risk-based capital: Yes; Median capital and surplus 
amount reported by insurers[B]: 16,567,092; Maximum percent of premium 
insurers assessed for guaranty fund: 2.

State: Kentucky; Initial minimum capital and surplus amount[A]: 
3,000,000; Health risk-based capital: Yes; Median capital and surplus 
amount reported by insurers[B]: 21,960,695; Maximum percent of premium 
insurers assessed for guaranty fund: 2.

State: Louisiana; Initial minimum capital and surplus amount[A]: 
2,000,000; Health risk-based capital: No; Median capital and 
surplus amount reported by insurers[B]: 14,809,038; Maximum percent of 
premium insurers assessed for guaranty fund: 2.

State: Maine; Initial minimum capital and surplus amount[A]: 2,000,000; 
Health risk-based capital: Yes; Median capital and surplus amount 
reported by insurers[B]: 27,162,235; Maximum percent of premium 
insurers assessed for guaranty fund: 2.

State: Maryland; Initial minimum capital and surplus amount[A]: 
1,875,000; Health risk-based capital: Yes; Median capital and surplus 
amount reported by insurers[B]: 7,698,500; Maximum percent of premium 
insurers assessed for guaranty fund: 2.

State: Massachusetts; Initial minimum capital and surplus amount[A]: 
300,000; Health risk-based capital: No; Median capital and surplus 
amount reported by insurers[B]: 17,663,021; Maximum percent of premium 
insurers assessed for guaranty fund: 2.

State: Michigan; Initial minimum capital and surplus amount[A]: 
7,000,000; Health risk-based capital: No; Median capital and 
surplus amount reported by insurers[B]: 8,520,273; Maximum percent of 
premium insurers assessed for guaranty fund: 2.

State: Minnesota; Initial minimum capital and surplus amount[A]: 
1,500,000; Health risk-based capital: No; Median capital and 
surplus amount reported by insurers[B]: 40,242,239; Maximum percent of 
premium insurers assessed for guaranty fund: 2.

State: Mississippi; Initial minimum capital and surplus amount[A]: 
1,000,000; Health risk-based capital: No; Median capital and 
surplus amount reported by insurers[B]: 6,188,361; Maximum percent of 
premium insurers assessed for guaranty fund: 2.

State: Missouri; Initial minimum capital and surplus amount[A]: 
1,600,000; Health risk-based capital: No; Median capital and 
surplus amount reported by insurers[B]: 12,780,191; Maximum percent of 
premium insurers assessed for guaranty fund: 2.

State: Montana; Initial minimum capital and surplus amount[A]: 600,000; 
Health risk-based capital: No; Median capital and surplus amount 
reported by insurers[B]: 2,838,613; Maximum percent of premium insurers 
assessed for guaranty fund: 2.

State: Nebraska; Initial minimum capital and surplus amount[A]: 
2,000,000; Health risk-based capital: Yes; Median capital and surplus 
amount reported by insurers[B]: 33,754,924; Maximum percent of premium 
insurers assessed for guaranty fund: 2.

State: Nevada; Initial minimum capital and surplus amount[A]: 
1,500,000; Health risk-based capital: No; Median capital and 
surplus amount reported by insurers[B]: 6,473,093; Maximum percent of 
premium insurers assessed for guaranty fund: 2.

State: New Hampshire; Initial minimum capital and surplus amount[A]: 
1,500,000; Health risk-based capital: Yes; Median capital and surplus 
amount reported by insurers[B]: 8,678,075; Maximum percent of premium 
insurers assessed for guaranty fund: 2.

State: New Jersey; Initial minimum capital and surplus amount[A]: 
3,550,000; Health risk-based capital: No; Median capital and 
surplus amount reported by insurers[B]: 7,109,223; Maximum percent of 
premium insurers assessed for guaranty fund: 2.

State: New Mexico; Initial minimum capital and surplus amount[A]: 
1,000,000; Health risk-based capital: No; Median capital and 
surplus amount reported by insurers[B]: 2,743,572; Maximum percent of 
premium insurers assessed for guaranty fund: 2.

State: New York; Initial minimum capital and surplus amount[A]: 
150,000; Health risk-based capital: No; Median capital and surplus 
amount reported by insurers[B]: 16,752,364; Maximum percent of premium 
insurers assessed for guaranty fund: 2.

State: North Carolina; Initial minimum capital and surplus amount[A]: 
1,500,000; Health risk-based capital: Yes; Median capital and surplus 
amount reported by insurers[B]: 6,627,896; Maximum percent of premium 
insurers assessed for guaranty fund: 2.

State: North Dakota; Initial minimum capital and surplus amount[A]: 
1,000,000; Health risk-based capital: Yes; Median capital and surplus 
amount reported by insurers[B]: 6,409,980; Maximum percent of premium 
insurers assessed for guaranty fund: 2.

State: Ohio; Initial minimum capital and surplus amount[A]: 2,500,000; 
Health risk-based capital: No; Median capital and surplus amount 
reported by insurers[B]: 10,597,782; Maximum percent of premium 
insurers assessed for guaranty fund: 2.

State: Oklahoma; Initial minimum capital and surplus amount[A]: 
1,500,000; Health risk-based capital: No; Median capital and 
surplus amount reported by insurers[B]: 7,702,198; Maximum percent of 
premium insurers assessed for guaranty fund: 2.

State: Oregon; Initial minimum capital and surplus amount[A]: 
3,000,000; Health risk-based capital: No; Median capital and 
surplus amount reported by insurers[B]: 11,897,051; Maximum percent of 
premium insurers assessed for guaranty fund: 2.

State: Pennsylvania; Initial minimum capital and surplus amount[A]: 
1,125,000; Health risk-based capital: Yes; Median capital and surplus 
amount reported by insurers[B]: 20,219,606; Maximum percent of premium 
insurers assessed for guaranty fund: 2.

State: Rhode Island; Initial minimum capital and surplus amount[A]: 
3,000,000; Health risk-based capital: No; Median capital and 
surplus amount reported by insurers[B]: 50,546,340; Maximum percent of 
premium insurers assessed for guaranty fund: 3.

State: South Carolina; Initial minimum capital and surplus amount[A]: 
1,200,000; Health risk-based capital: No; Median capital and 
surplus amount reported by insurers[B]: 17,053,445; Maximum percent of 
premium insurers assessed for guaranty fund: 4.

State: South Dakota; Initial minimum capital and surplus amount[A]: 
500,000; Health risk-based capital: No; Median capital and surplus 
amount reported by insurers[B]: 6,508,404; Maximum percent of premium 
insurers assessed for guaranty fund: 2.

State: Tennessee; Initial minimum capital and surplus amount[A]: 
2,000,000; Health risk-based capital: No; Median capital and 
surplus amount reported by insurers[B]: 17,490,787; Maximum percent of 
premium insurers assessed for guaranty fund: 2.

State: Texas; Initial minimum capital and surplus amount[A]: 1,400,000; 
Health risk-based capital: Yes; Median capital and surplus amount 
reported by insurers[B]: 4,219,443; Maximum percent of premium insurers 
assessed for guaranty fund: 1.

State: Utah; Initial minimum capital and surplus amount[A]: 700,000; 
Health risk-based capital: Yes; Median capital and surplus amount 
reported by insurers[B]: 17,016,615; Maximum percent of premium 
insurers assessed for guaranty fund: 2.

State: Vermont; Initial minimum capital and surplus amount[A]: 
5,000,000; Health risk-based capital: No; Median capital and 
surplus amount reported by insurers[B]: 116,130,000; Maximum percent of 
premium insurers assessed for guaranty fund: 2.

State: Virginia; Initial minimum capital and surplus amount[A]: 
4,000,000; Health risk-based capital: Yes; Median capital and surplus 
amount reported by insurers[B]: 12,408,548; Maximum percent of premium 
insurers assessed for guaranty fund: 2.

State: Washington; Initial minimum capital and surplus amount[A]: 
4,000,000; Health risk-based capital: Yes; Median capital and surplus 
amount reported by insurers[B]: 21,657,387; Maximum percent of premium 
insurers assessed for guaranty fund: 2.

State: West Virginia; Initial minimum capital and surplus amount[A]: 
2,000,000; Health risk-based capital: No; Median capital and 
surplus amount reported by insurers[B]: 23,079,209; Maximum percent of 
premium insurers assessed for guaranty fund: 2.

State: Wisconsin; Initial minimum capital and surplus amount[A]: 
3,000,000; Health risk-based capital: No; Median capital and 
surplus amount reported by insurers[B]: 22,189,369; Maximum percent of 
premium insurers assessed for guaranty fund: 2.

State: Wyoming; Initial minimum capital and surplus amount[A]: 
1,500,000; Health risk-based capital: No; Median capital and 
surplus amount reported by insurers[B]: [C]; Maximum percent of premium 
insurers assessed for guaranty fund: 2.

Source: NAIC's Compendium of State Laws on Insurance Topics, 2002 and 
2003; NAIC's Model Laws Regulations and Guidelines, 2003; and 
unpublished data from NAIC.

[A] Requirements for new stock (publicly traded) insurers in 2002--
amount of surplus that must be maintained for other types of insurers 
or insurers that are not new may be lower in some states. The amounts 
for the following states include requirements for life or other 
insurers because amounts for health insurance were not specified: 
Alabama, Arizona, California, Colorado, District of Columbia, Florida, 
Georgia, Hawaii, Idaho, Indiana, Iowa, Kansas, Kentucky, Michigan, 
Montana, Nebraska, New Hampshire, North Dakota, Ohio, Oklahoma, Oregon, 
Rhode Island, Tennessee, Vermont, Virginia, Washington, West Virginia, 
Wisconsin, and Wyoming. Requirements in the remaining states are 
specific for insurers selling health insurance.

[B] GAO analysis of NAIC unpublished insurer filings data, 2002. 
Includes data reported by life insurers that also sell health 
insurance, health insurers, Blue Cross Blue Shield plans, and HMOs for 
4 types of reserves: unpaid claims, claims adjustment expenses, 
aggregate policy reserves, and aggregate claims reserves. Excludes 
property and casualty insurers and insurers which sell only limited 
benefits, such as dental or vision only coverage. The amounts for the 
following states include requirements for life insurers that report 
earning premiums from health coverage since minimum capital and surplus 
data provided earlier in table did not have specific amounts for health 
insurers: Alabama, Arizona, California, Colorado, District of Columbia, 
Florida, Georgia, Hawaii, Idaho, Indiana, Iowa, Kansas, Kentucky, 
Michigan, Montana, Nebraska, New Hampshire, North Dakota, Ohio, 
Oklahoma, Oregon, Rhode Island, Tennessee, Vermont, Virginia, 
Washington, West Virginia, Wisconsin, and Wyoming. In the remaining 
states, data include health insurers only, such as HMOs and Blue Cross 
Blue Shield plans, that completed NAIC's health form.

[C] Median amount not reported for states that had data from fewer than 
four insurers.

[End of table]

[End of section]

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Private Health Insurance: Small Employers Continue to Face Challenges 
in Providing Coverage. GAO-02-8. Washington, D.C.: October 31, 2001.

Private Health Insurance: Federal Role in Enforcing New Standards 
Continues to Evolve. GAO-01-652R. Washington, D.C.: May 7, 2001.

Mental Health Parity Act: Despite New Federal Standards, Mental Health 
Benefits Remain Limited. GAO/HEHS-00-95. Washington, D.C.: May 10, 
2000.

Implementation of HIPAA: Progress Slow in Enforcing Federal Standards 
in Nonconforming States. GAO/HEHS-00-85. Washington, D.C.: March 31, 
2000.

Private Health Insurance: Cooperatives Offer Small Employers Plan 
Choice and Market Prices. GAO/HEHS-00-49. Washington, D.C.: March 31, 
2000.

Health Insurance Standards: New Federal Law Creates Challenges for 
Consumers, Insurers, Regulators. GAO/HEHS-98-67. Washington, D.C.: 
February 25, 1998.

Health Insurance Regulation: Varying State Requirements Affect Cost of 
Insurance. GAO/HEHS-96-161. Washington, D.C.: August 19, 1996.

Employer-Based Health Plans: Issues, Trends, and Challenges Posed by 
ERISA. GAO/HEHS-95-167. Washington, D.C.: July 25, 1995.

FOOTNOTES

[1] For the purposes of this report, the term "insurers" is used to 
include insurance carriers that provide fee-for-service health 
insurance coverage and managed care organizations such as health 
maintenance organizations (HMO). In some cases, states may have 
somewhat different requirements for HMOs than for other insurers.

[2] The Small Business Health Fairness Act of 2003 (S. 545) was 
introduced on March 6, 2003. Similar legislation, also entitled the 
Small Business Health Fairness Act of 2003 (H.R. 660), passed the House 
of Representatives on June 19, 2003.

[3] Throughout the remainder of this report, unless otherwise noted, 
the District of Columbia is included as a state. 

[4] A list of related GAO products is at the end of this report.

[5] About 76 percent of businesses with 500 or more employees offering 
health coverage offered at least one self-funded plan. See Agency for 
Healthcare Research and Quality, 2001 Employer-Sponsored Health 
Insurance Data. Private-Sector Data by Firm Size, Industry Group, 
Ownership, Age of Firm, and Other Characteristics. (Rockville, Md.: 
September 2003), http://www.meps.ahrq.gov/mepsdata/ic/2001/
index101.htm (downloaded September 22, 2003).

[6] Pub. L. No. 93-406, 88 Stat. 829.

[7] Pub. L. No. 99-272, 100 Stat. 82 (1986).

[8] Pub. L. No. 104-191, 110 Stat. 1936.

[9] These laws are the Mental Health Parity Act of 1996, Pub. L. No. 
104-204, Title VII, 110 Stat. 2874, 2944; the Newborns' and Mothers' 
Health Protection Act of 1996, Pub. L. No. 104-204, Title VI, 110 Stat. 
2874, 2935; and the Women's Health and Cancer Rights Act of 1998, Pub. 
L. No. 105-277, Title IX, 112 Stat. 2681, 2681-436. 

[10] The McCarran-Ferguson Act, March 9, 1945, Ch. 20, 59 Stat. 33, 
establishes the primary authority of the states to regulate the 
business of insurance, unless federal law provides otherwise. 

[11] S. 545 and H.R. 660, 108th Congress.

[12] Pub. L. No. 95-555, 92 Stat. 2076 (1978).

[13] U.S. General Accounting Office, Mental Health Parity Act: Despite 
New Federal Standards, Mental Health Benefits Remain Limited, GAO/
HEHS-00-95 (Washington, D.C.: May 10, 2000).

[14] The Equal Employment Opportunity Commission enforces the Pregnancy 
Discrimination Act.

[15] States also required that certain benefits be offered (mandated 
offers) in at least some policies but allow insurers to offer other 
products that do not include those benefits. 

[16] U.S. Preventive Services Task Force, Agency for Healthcare 
Research and Quality, Guide to Clinical Preventive Services, Third 
Edition: Periodic Updates (Rockville, Md.: March 2003). The U.S. 
Preventive Task Force, convened by the Public Health Services, is an 
independent panel of experts in primary care and prevention that 
systematically reviews the evidence of effectiveness and develops 
recommendations for clinical preventive services. 

[17] Georgia also mandated that mental health services be offered as a 
benefit, but insurers could also offer products without mental health 
services. Illinois mandated coverage of mental health services, but 
groups with fewer than 50 employees were exempt from the requirement.

[18] The six biologically based conditions, as specified in the 
American Psychiatric Association's Diagnostic and Statistical Manual of 
Mental Disorders, were schizophrenia, schizoaffective disorder, 
bipolar disorder, major depressive disorders, panic disorder, and 
obsessive-compulsive disorder. See American Psychiatric Association's 
Diagnostic and Statistical Manual of Mental Disorders, Fourth Edition, 
Text Revision (Washington, D.C.: 2000) 

[19] Estimates of the total costs associated with state-mandated 
benefits vary widely, with studies by three states--Maryland, Texas, 
and Virginia--estimating that mandates in their states accounted for 14 
percent, 6 percent, and 29 percent of premiums, respectively. 

[20] Mercer Human Resource Consulting, Mandated Health Insurance 
Services Evaluation, a report prepared at the request of the Maryland 
Health Care Commission, 2002.

[21] The five state mandates were alcoholism treatment, drug abuse 
treatment, mental illness treatment, chiropractic services, and 
mandated continuation of health insurance for terminated employees and 
their dependents. See Congressional Budget Office, Increasing Small-
Firm Health Insurance Coverage Through Association Health Plans and 
HealthMarts (Washington, D.C.: January 2000).

[22] HIPAA specifies that health-related factors include: (1) health 
status, (2) medical condition--including both physical and mental 
illness, (3) claims experience, (4) receipt of health care, (5) medical 
history, (6) genetic information, (7) evidence of insurability--
including conditions arising out of acts of domestic violence, and (8) 
disability. 

[23] This information is based on NAIC model number 115. NAIC model 
number 118 also addresses premium setting for small employer health 
insurance using an adjusted community rating approach and, according to 
an NAIC official, has been adopted by some states.

[24] For a new enrollee, the enrollment date is the first day of 
coverage, or if there is a waiting period before coverage takes effect, 
the first day of the waiting period. An individual is considered to be 
a late enrollee if he or she enrolls in a group plan at a time other 
than when he or she is first eligible or during a special enrollment 
period.

[25] In order for a period of prior coverage to be considered 
creditable coverage, there must have been no significant break in 
coverage. In general, breaks of more than 63 days are considered 
significant. Individuals with creditable prior coverage would not need 
to meet a new employer plan's exclusion period or would have the period 
shortened. For example, an individual who was covered for 6 months who 
changes employers may be eligible to have the subsequent employer 
plan's 12-month exclusion period for preexisting conditions reduced by 
6 months. Time spent in a health plan's waiting period may not count as 
part of a break in coverage.

[26] Employees or their covered spouses are not eligible for 
continuation of coverage under COBRA if they were terminated for "gross 
misconduct." 

[27] COBRA continuation coverage can be extended an additional 11 
months for most individuals who qualify for disability under the Social 
Security Act; however, they may be charged up to 150 percent of the 
group cost. Also, under certain circumstances unrelated to job loss, 
such as the case of a covered employee's death, spouses and dependent 
children are able to continue group coverage under COBRA for up to 36 
months.

[28] DOL is also responsible for ensuring that private employers that 
offer group health coverage comply with HIPAA's portability and 
nondiscrimination requirements.

[29] For example, Missouri's requirements for availability of health 
insurance defined a small employer as having 3 to 25 employees, 
necessitating CMS to enforce the HIPAA requirements for insurance sold 
to Missouri employers with 2 or 26 to 50 employees. See U.S. General 
Accounting Office, Private Health Insurance: Federal Role in Enforcing 
New Standards Continues to Evolve, GAO-01-652R (Washington, D.C.: May 
7, 2001). 

[30] U.S. General Accounting Office, Health Insurance: States' 
Protections and Programs Benefit Some Unemployed Individuals, 
GAO-03-193 (Washington, D.C.: Oct. 25, 2002). 

[31] In addition, California allows individuals 60 years or older and 
with 5 years of previous employer-sponsored group coverage to maintain 
continuous coverage until reaching Medicare eligibility at age 65.

[32] 29 C.F.R. pt. 2560 (2002).

[33] See Karen Pollitz et al., Georgetown University, Institute for 
Health Care Research and Policy, Assessing State External Review 
Programs and the Effects of Pending Federal Patients' Rights 
Legislation, prepared for The Henry J. Kaiser Family Foundation 
(Washington, D.C.: May 2002). Officials we contacted in Illinois, 
Maine, and Vermont also provided additional information regarding 
external reviews in their states. 

[34] BCBSA did not include information on the District of Columbia.

[35] State financial requirements may be different for different types 
of insurers. For example, all states had requirements for aspects of 
HMO operations. According to information from NAIC, in 2003, 31 states' 
requirements were similar to their Model Health Maintenance 
Organization Act. Included in this model were financial requirements 
for the maintenance of reserves for unearned premiums and unpaid claims 
as well as an initial net worth--that is, a financial cushion similar 
to capital and surplus for insurers to ensure they can withstand 
unexpected losses--of $1.5 million dollars.

[36] States with requirements applying only to individual policies were 
not included in this count.

[37] GAO analysis of unpublished NAIC data. This analysis included data 
reported by life insurers that also sold health insurance, health 
insurers, Blue Cross Blue Shield plans, and HMOs for four types of 
reserves: unpaid claims, claims adjustment expenses, aggregate policy 
reserves, and aggregate claims reserves. The analysis excluded property 
and casualty insurers and companies that offered only limited benefits, 
such as vision or dental coverage.

[38] Amounts reflect initial requirements for insurers that were 
publicly traded, for-profit companies; the amount that must be 
maintained after the initial requirements were met was lower in some 
states. Also, requirements for mutual insurers (companies that operate 
for the benefit of the contract holders and their beneficiaries) may be 
different. 

[39] GAO analysis of unpublished NAIC data. This analysis included data 
reported by life insurers that also sell health insurance, health 
insurers, Blue Cross Blue Shield plans, and HMOs. The analysis excluded 
property and casualty insurers and companies that offered only limited 
benefits, such as vision or dental coverage.

[40] In 15 states, Blue Cross Blue Shield plans were not included in 
the guaranty fund.

[41] However, the benefits mandated may still increase costs if the 
benefits already being offered by the employer are less comprehensive 
than the minimums required by the mandate. 

[42] The five benefits CBO included in its study--alcoholism treatment, 
drug abuse treatment, mental illness treatment, chiropractic services, 
and mandated continuation of health insurance for terminated employees 
and their dependents--were those identified by Jonathan Gruber in State 
Mandated Benefits and Employer Provided Health Insurance (National 
Bureau of Economic Research Working Paper, Cambridge, Mass: December 
1992). See Congressional Budget Office, "Increasing Small-Firm Health 
Insurance Coverage Through Association Health Plans and HealthMarts," 
(Washington, D.C.: January 2000).

[43] Mercer Human Resource Consulting, Mandated Health Insurance 
Services Evaluation, a report prepared for the Maryland Health Care 
Commission (2002).

[44] Maryland's estimate represents what benefits self-funded 
businesses voluntarily cover, but because few small businesses self-
fund and larger businesses may be more comprehensive in the benefits 
they voluntarily cover, this does not directly represent what small 
employers might choose to cover without mandates.

[45] Benefits included chemical dependency, complications of pregnancy, 
oral contraceptives, congenital defects, HIV/AIDS, mammography, 
prostate testing, serious mental illness, minimum maternity stay, 
minimum mastectomy stay, reconstructive surgery for mastectomy, 
handicapped dependents, and childhood immunizations. See Milliman & 
Robertson, Cost Impact Study of Mandated Benefits in Texas, (2000).

[46] This cost estimate accounts for indirect health care costs, such 
as follow-up screenings, and offsetting cost savings, such as lower 
future costs due to earlier detection and treatment of a disease, 
associated with the mandates. 

[47] Commonwealth of Virginia, Annual Report of the State Corporation 
Commission on the Financial Impact of Mandated Health Insurance 
Benefits and Providers, (Richmond: 2002).

[48] Wisconsin allowed individuals to select the review entity, and 
Rhode Island allowed individuals to select the entity when the 
individual (rather than the physician) appealed the denial. 

[49] State financial requirements may be different for different types 
of insurers. For example, all states had requirements for aspects of 
HMO operations. According to information from NAIC, 31 states had laws 
in 2003 similar to NAIC's Model Health Maintenance Organization Act, 
which included requirements for the maintenance of reserves as well as 
an initial net worth--that is, a financial cushion similar to capital 
and surplus for insurers--of $1.5 million dollars.

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