NCPA - National Center for Policy Analysis


February 11, 2009

Costs are higher for small-group insurance because states require small-group health policies to cover certain conditions, treatments and providers. Large employers often self-insure. Their plans are governed by federal law rather than state regulations, and federal government mandates fewer benefits.  Small group premiums vary widely by state, and the highest premiums are in the most heavily regulated states, says Daniel Wityk, a legislative assistant at the National Center for Policy Analysis.

According to the Council on Affordable Health Insurance, there are more than 1,961 state-mandated benefits that insurance companies are required to offer in their health plans, adding to the cost of small group health insurance: 

  • Mental health parity is one of the most expensive and pervasive mandates — 47 states require insurers to cover mental health conditions, adding 3 percent to 5 percent to premiums, according to CAHI estimates.
  • Forty-six states require coverage for chiropractors, 11 states mandate acupuncturists and four require coverage for massage therapy.
  • Four states require coverage of naturopaths, who utilize food and herbal remedies to complement (and sometimes in place of) surgery or drugs.

In Massachusetts, the Division of Health Care Finance and Policy reported that 13 cents of every dollar spent on health care goes to cover mandated benefits.  CAHI estimates that these mandates add 20 to 50 percent more to the cost of insurance, depending on the state.

Protection from interstate competition allows politicians to impose expensive mandates and costly regulations.  Allowing businesses to purchase coverage across state lines would create more competitive insurance markets.  Interstate competition would give more people access to affordable insurance.  Steve Parente and Roger Feldman of the University of Minnesota found that purchasing across state lines would potentially insure 12 million previously uninsured people, says Wityk.

Source: Daniel Wityk, "Small Business Health Insurance," National Center for Policy Analysis, February 11, 2009.

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