| [Previous] | [Table of Contents] | [Next] |
by
Deborah J. Chollet, Ph.D.
Kosali Ilayperuma
Simon, Ph.D.
Adele M. Kirk, M.A.
The results reported in Tables 2 and 3 indicate that both market structure and regulation may affect the rate of employer coverage among small-firm employees. In general, our results find fewer impacts of access regulation on coverage (controlling for the strictness of regulation, not just the fact the regulation). However, they also implicate market structure as having a marginal impact on small employer coverage. Also, consistent with some other studies, we find a greater apparent impact of rate regulation on coverage among workers in firms with fewer than 100 workers (many of whom were not subject to rate regulation) than among workers in firms with fewer than 25 employees (all of whom were subject to rate regulation). This anomalous result may reflect a stratification of supply within the small-group market (and, therefore, differences in products and pricing to very small employers) that is not discernable in our market structure data.
Most measures of market structure appear to have little impact on coverage among workers in firms with fewer than 100 employees. Specifically, the number of insurers in the state has no significant impact, suggesting that competition — all else being equal — does not affect the price of insurance enough to drive higher rates of coverage (indeed, the coefficient on this variable in our third and preferred specification is negative). Similarly, the distribution of the market among BCBS plans, HMOs and commercial insurers had no significant impact on coverage when we also controlled for market concentration.
However, among workers in firms with fewer than 100 employees and with even greater statistical significance among workers in firms with fewer than 25 employees, greater market concentration among the largest insurers (the “top five”) drove higher rates of coverage. This result is consistent with either or both of two potential explanations: (1) insurance markets with greater concentration benefit from greater economies of scale; and/or (2) state insurance departments review the prices of large insurers more critically and, in states with greater market concentration, a larger share of the entire market is subject to more critical review. In either case, price levels may be lower in states with greater market concentration. The magnitude of the ultimate impact of market concentration on coverage was surprisingly large: all else being equal, a ten-percentage point increase in the collective market share of the largest five insurers drove a 2 to 4 percentage point increase in small employer coverage.
Controlling for market structure (as well as individual characteristics), we also find impacts of state regulation on small employer coverage, and these impacts are in general consistent with earlier research. First, guaranteed issue of all products has a positive impact on coverage, all else being equal raising the probability of small employer coverage by as much as 26 percent. This result was consistent across both firm sizes, although its statistical significance was moderate (90 to 95 percent). In contrast, states that enacted guaranteed issue of only some products did not affect coverage significantly.
Second, among workers in firms with fewer than 100 employees, composite rate bands affected small employer coverage. In the absence of guaranteed issue, narrower composite rate bands (in the limit, pure community rating) raised the likelihood of coverage by as much as 15 to 17 percentage points. However, when coupled with guaranteed issue, very narrow composite rate bands had no appreciable net impact on coverage: that is, the positive effects of either guaranteed issue or very narrow rate bands disappear when implemented together. These offsetting effects are not apparent among workers in the smallest firms: among workers in firms with fewer than 25 employees, guaranteed issue of all products raised the probability of coverage, and any offsetting (negative) impact of rate constraints was statistically insignificant. The difference that we observed between effects of regulation on employees in “larger” small firms versus very small firms is consistent with insurers practicing conventional price discrimination in the small-group market (where demand among very small employers is arguably more price-elastic than demand among “larger” small employers).
In summary, we conclude that guaranteed issue of all products in the small-group market, such as HIPAA requires, probably has expanded small employer coverage. States that also enacted rate constraints may have offset the coverage impact of guaranteed issue on larger small groups (25 to 99 employees), but on net, coverage in those states was not lower than in the absence of regulation. Among workers in the smallest firms, all-product guaranteed issue had an especially strong positive impact on coverage, and the impact of very strict rate regulation was insignificant. Notably, other forms of access regulation — shortened preexisting condition exclusion periods, guaranteed renewal, narrower rate bands on either age or health (but not both, and either alone or in combination with guaranteed issue) — had no significant impact on coverage.
| [Previous] | [Table of Contents] | [Next] |