Summary

Although state insurance departments are responsible for overseeing health insurers and protecting consumers, their authority extends over only part of the market and varies widely among states. Moreover, more and more states have elected to self-insure their health plans under the Employee Retirement Income Security Act of 1974, thereby avoiding state regulation. About 24 percent of health care is now paid for by private health insurance that is regulated by state insurance departments. Although the National Association of Insurance Commissioners has tried to establish a uniform, nationwide system of insurance regulation, it has no authority to require states to adopt its model policies; this responsibility falls to state legislatures. The resources that state legislatures allocate to their insurance departments and the proportion that the departments dedicate to regulating health insurance also vary widely among states. State insurance departments work to protect consumers from insurer failures, unfair policy provisions, excessive premiums, and unscrupulous business practices--any of which could financially devastate policyholders. GAO found wide variations in the practices and the procedures that states use to monitor insurer solvency, approve health insurance premium rates and policy forms, and respond to consumer complaints. As Congress reviews the various proposals for health care reform, it needs to consider what role, if any, state insurance departments will play in enforcing new requirements that may be imposed on health insurers.

GAO found that: (1) although state insurance departments are responsible for overseeing health insurers and protecting consumers, their authority varies widely among states, is limited to only a part of the insurance market, and does not extend to many companies because they have self-insured health plans; (2) about 24 percent of health care is paid for by private health insurance and regulated by state insurance departments; (3) although the National Association of Insurance Commissioners has developed models for establishing a national health insurance regulation system, it does not have sufficient authority to require that states adopt and implement its model policies; (4) funding for insurance departments' regulatory activities varies among states; (5) state insurance departments often have difficulties in estimating the amount of staff needed for oversight activities; (6) state insurance departments' regulatory functions include protecting consumers from insurer failures, unfair policy provisions, excessive premiums, and unfair insurer business practices; (7) the practices that state insurance departments use to monitor insurer solvency, approve health premium rates and policy forms, and respond to consumer complaints vary significantly; and (8) Congress needs to consider how and to what extent state insurance departments will be used in regulating health insurance as health insurance reform is implemented.