GAO: States Health Coverage Regulations Vary Widely

October 3, 2003 ( - Small-business employees in different states could have substantially different benefits, premiums, and protections available to them, a new government report found.

According to the US Government Accounting Office (GAO), that’s because small companies are more likely to provide workplace health coverage via an insurance policy while larger firms are more apt to self-insure. Because current laws leave it up to the states to regulate insurance, the most telling thing about a small-business health plan may well be the state in which the company providing it is located, said GAO researchers in Small Business Health Coverage Requirements.

“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,” the GAO report declared. Government researchers reached the conclusion after an in-depth study of state-by-state health insurance requirements requested by members of Congress who are considering whether to allow firms to band together to collectively offer Association Health Plans (AHP) that would be freed from some current state insurance mandates, but would come under potential new federal requirements (See House Panel Oks Association Health Plan Bill ).

The GAO report pointed out that there is currently no federal requirement that employers offer any level of health coverage, but does include dictates for those firms choosing to offer such a benefit. For example, firms whose policies cover mastectomy operations, must also pay for related reconstructive surgery and other mastectomy benefits.

Number of State Mandates Varies

Researchers found that states, likewise, mandate certain coverage, but that those requirements were different around the country. A Blue Cross/Blue Shield 2002 study cited by the GAO found that the total number of coverage mandates varied from less than 10 in five states to more than 30 in seven states. The two most common – required in 43 states – were mammography screening and diabetic supplies.

In eight states where the GAO reviewed requirements for the small-group market, four states mandated mental-health coverage but differed widely in the extent of the coverage required.

The GAO also examined mandates relating to health coverage premiums. While federal law requires that premiums cannot vary among workers in the same employee category on the basis of health-status related characteristics, states also had premium requirements. But, once again, researchers found a wide variety in the extent of the permissible differences between workers as well as in how those premiums could be set. The GAO pointed out that New York State firms with older, sicker workers would pay the same premium as those with a younger, healthier workforce while a Texas employer attempting to cover higher-risk workers could be charged almost four times as much as counterpart with healthier employees.

Other GAO findings included:

  • Most 43 states had laws in 2002 establishing independent external review of denied claims, but there were wide differences in the appeals eligible for review, access to the review process, the independence of the reviewer and the time allowed for the appeal to be completed.
  • States generally required that insurers maintain enough funds to cover unexpected losses and to invest conservatively to make sure they could pay policyholders’ claims.

A full copy of the GAO report is at .