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Policy benefits that state requires cost $1.3b a year

Study leads to debate on mandates

By Kay Lazar
Globe Staff / July 8, 2008

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A long-awaited report concludes that 12 cents of every $1 paid for health insurance in Massachusetts goes toward 26 state-mandated benefits, from maternity and mental healthcare to infertility and diabetes services.

Statewide, the price tag is $1.3 billion a year, says the report released yesterday by the Division of Health Care Finance and Policy. It was commissioned in 2006 as part of the state's near-universal health insurance law.

Insurers and small business groups said the findings show that mandates are helping to drive up costs, making coverage unaffordable as many businesses and workers struggle. The business groups said the mandates translate to roughly $1,300 annually per employee in a family healthcare plan.

But some mandates are also required under federal law, the report said, meaning that employers would have to offer those benefits even if the state mandates were not in place. Excluding such benefits, the report concludes that the cost of the state's mandates would be no higher than $687 million a year, or roughly 6 cents of every $1 paid for health insurance.

State lawmakers are now considering proposals that could require employers to add more benefits, including expanded mental healthcare coverage.

"It's getting harder and harder for both employees and employers to pay healthcare costs," said Dr. Marylou Buyse, president of the Massachusetts Association of Health Plans, which represents most of the state's health insurers.

"We believe there should be a moratorium on all new mandates until healthcare costs rise at the same rate as general inflation," she said. "Right now, healthcare costs are about two to three times the rate of inflation."

The report's authors reviewed health studies about the various mandates and estimated that most of them are cost-effective. But they suggested that regulators may consider removing some that are not considered the standard of care, such as bone marrow transplants for treatment of breast cancer. The report also noted that just five of the mandates - maternity, mental health, home health, preventive care for children, and infertility services - account for 80 percent of the total cost of the mandated benefits.

Advocates for universal health coverage said these conclusions show that regulators and lawmakers are not going to be able to wring significant cost savings from slashing existing benefits.

"Healthcare costs are going to require serious grappling of root causes of cost inflation, which are not these mandated benefits," said Brian Rosman, research director at Health Care for All, a nonprofit that lobbies for affordable healthcare and pushed for the state's 2006 landmark health insurance overhaul.

The law included a moratorium on adding mandated health benefits until the state published a report detailing the costs of existing mandates. The report released yesterday effectively lifts that moratorium.

The report did not calculate the cost of mandatory prescription drug coverage, which is being phased in this year.

Small business owners say that that mandate alone is likely to boost costs by another 3 to 4 percent.

"Legislators think companies are all big businesses who can afford to pay, and that's not true," said Bill Vernon, state director of the National Federation of Independent Business, which represents small business owners.

Vernon said small business owners are bearing the brunt of the state mandates because most larger companies are exempt from state insurance rules under federal law.

He said healthcare costs are typically the second- or third-largest employer expense and that mandates make it tough for small companies to tailor their coverage to the benefits that would most help their employees.

"Perhaps the employees want something else, like higher pay or more 401K contributions," he said. "It's the [lack of] flexibility that really irritates small business owners."

Kay Lazar can be reached at klazar@globe.com.