Health Insurance Reform: Standards for Electronic Transactions. L. Unfunded mandates


We have identified the private sector costs associated with the implementation of these standards. Although these costs are unfunded, we expect that they will be offset by subsequent savings as detailed in this impact analysis.

Most costs to health care providers and health plans will occur in the first 3 years following the adoption of the HIPAA standards, with savings to health care providers and health plans exceeding costs in the fourth year. The total net savings for the period 2001-2011 will be $29.8 billion (a net savings of $13.1 billion for health plans, and a net savings of $16.7 billion for health care providers). The single year net savings for the year 2011 will be $5.6 billion ($2.5 billion for health plans and $3.1 billion for health care providers). The discounted present value of these savings is $19.1 billion over ten years. These estimates do not include the secondary benefits that will be realized through expanded e-commerce resulting from standardized systems.

The costs to State and local governments and tribal organizations are also unfunded, but we do not have sufficient information for programs other than Medicaid to provide estimates of the impact of these standards on those entities. As discussed previously, several State Medicaid agencies have estimated that it may cost as much as $10 million per state to implement all the HIPAA standards. However, the Congressional Budget Office analysis stated that “States are already in the forefront in administering the Medicaid program electronically; the only costs-- which should not be significant--would involve bringing the software and computer systems for the Medicaid programs into compliance with the new standards.” The report went on to point out that Medicaid State agencies have the option to compensate for costs by reducing other expenditures. State and local government agencies are likely to incur less in the way of costs since most of them will have fewer enrollees than Medicaid agencies. Moreover, the Federal government pays a portion of the cost of converting State Medicaid Management Information Systems (MMIS) as Federal Financial Participation -- 75 percent for system maintenance changes and 90 percent for new software (if approved). Many States are in the process of changing systems as they convert many of the current functions in the move to enroll Medicaid beneficiaries in managed care. The net effect is that some States may have to pay $1 million to comply; however, numerous States may have already incurred some of these costs, though the Department does not have a complete record of State changes.