Many states (38) had some form of guaranteed issue legislation for small groups at the time HIPAA was enacted (Litow and McClelland, 1997). Of these, 16 require guaranteed issue of all insurance products and 22 have statutory plans that are guaranteed issue. In about 12 of these states, however, the state law does not encompass all small groups covered by HIPAA.
In the 24 states that do not guarantee issue insurance products to small groups or have guaranteed issue legislation that does not encompass all groups from 2 to 50, HIPAA may result in changes in the number of firms that offer health insurance. The research evidence on the effect of this type of reform is very limited because most of the states’ small group reform legislation is relatively recent. One empirical study using state data from 1989-1993 suggests that guaranteed issue legislation may result in an increase in the number of firms offering insurance (Jensen et al., 1995). This study’s estimate implies about a 10 percentage point increase in the number of small firms offering insurance in states in which availability is guaranteed, holding constant other regulations and market characteristics. Another recent empirical study of the effect of insurance market reforms on states’ uninsured rates found that guaranteed issue, when part of a package of small group reforms including portability and limits on pre-existing conditions, reduces the uninsured rate (Marsteller et al., 1998). However, this conclusion is likely to vary from state to state depending on other state regulations concerning the health insurance market. HIPAA for example, guarantees access to insurance for all small groups, but it does not guarantee affordability. Whether guaranteed access leads to additional group insurance purchases is likely to depend on whether and what type of rating restrictions the state insurance legislation places on premiums that insurers can charge small groups. For example, Marsteller and her colleagues (1998) suggest that there are no changes in the uninsured rate when rating restrictions are combined with the reforms including guaranteed issue.
Most states (30) have legislation for small group plans that meets or surpasses the HIPAA limits on pre-existing conditions periods that can be imposed (Ladenheim, 1996). Many of these state regulations also credit prior coverage in determining these periods (GAO, 1995). However, the HIPAA limits on pre-existing conditions and group-to-group portability would also apply to large businesses, which are typically not subject to state regulations, and to self-funded plans, which are exempt from state regulation. The GAO (1995) estimates that about 12 million employees and almost 7 million dependents of employees may benefit—in terms of reduced or eliminated waiting period—from the HIPAA group-to-group portability provisions (GAO, 1995).
While potentially benefiting many current plan enrollees, the provisions are unlikely to lead to an increase in the number of firms offering insurance. Jensen and her colleagues (1995) found no evidence that restricting pre-existing condition waiting periods increased offer rates among small employers. Similarly, the results from the Urban Institute study (Marsteller et al., 1998) found a small, and only marginally significant, effect of limits on pre-existing conditions and portability if guaranteed issue is not part of the package. In larger firms, the HIPAA provisions would benefit only a fraction of employees and so have limited influence on the group decision, assuming the preferences of the median worker dominate (Goldstein and Pauly, 1976). Moreover, offer rates in large firms (those with 50 or more employees) currently exceed 90 percent (Cantor, Long, and Marquis, 1995).
While we believe it is unlikely that the pre-existing condition limits and portability will increase the number of firms offering insurance, the absence of waiting periods may induce some persons to enroll in group plans that they otherwise would turn down. Research indicates that individuals are more likely to purchase insurance when the expected benefit of the plan is greater (see for example, Marquis and Holmer, 1996). This increase, however, is also expected to be small, because about 90 percent of workers offered group insurance enroll in the plan (Long and Marquis, 1993; Cooper and Schone, 1997).
Portability may also benefit individuals who wish to change jobs but who currently stay in their job because of fear of losing insurance. We examine this benefit of the HIPAA reforms in more detail below.
The non-discrimination provisions also are unlikely to substantially affect firm offer rates or employee enrollments. Health insurance offer rates by small employers are not significantly different in states that have limits on the exclusions allowed under pre-existing condition clauses nor are they significantly different in those that have laws prohibiting occupational exclusions from coverage (Jensen, Morrisey, and Morlock, 1995). Medical underwriting, the practice of excluding workers from coverage if they have specific preexisting conditions, occurred in both large and small employer group plans, though it was more common in the latter. However, it was rarely practiced; fewer than 5 percent of firms report that specific individuals are excluded from coverage (Cantor, Long, and Marquis, 1995).
Finally, guaranteed renewal is not an effective guarantee of access to coverage without limits on premium increases (Blumberg and Nichols, 1996). HIPAA does not provide for affordable coverage; it only ensures the continued right to purchase a plan.
Several state-specific experiences after adopting a package of regulations similar to the HIPAA provisions also suggest that there will be at most modest access effects, and that other market factors and regulatory conditions may influence outcomes. California enacted a package of reforms, effective in 1993, for firms with 3-50 employees that included guaranteed issue, guaranteed renewal, limits on pre-existing conditions, and restrictions on premium variability. In the post-reform period, about 10 percent more firms with 3-24 employees offered insurance than in the pre-reform period (Buchmueller and Jensen, 1997). No change in offer rates were found among firms with 25-50 employees, however. Minnesota’s experience is similar to California’s. Minnesota also enacted a package of reforms for the small group market that included guaranteed issue and renewal, and limits on pre-existing condition exclusions. After reform, the number of enrollees in the small group market increased by more than 8-12 percent (Nichols et al., 1997).
However, Buchmueller and Jensen (1997) did not find increases in offer rates among small firms in a group of states that adopted reforms similar to California’s during the same period. They concluded that intense competition in the California health market that exerted downward pressure on prices may have provided an environment in which the access reforms were successful in providing a small expansion in coverage. Observers of Minnesota’s market draw similar conclusions (Nichols et al., 1997). Moreover, Minnesota’s reforms included a provision prohibiting individuals from purchasing individual policies on their own if they were eligible for group coverage. It is believed that some of the increase in the group market is a move from the individual market (IHPS, 1995).