Consumer Response to a National Marketplace for Individual Insurance. Appendix 2


Literature Review for Effects of State Regulations on Health Insurance Premium in the Small Group and Non-Group Markets

Effects of “Second Generation” Small Group Health Insurance Market Reforms, 1993 to 1997
Authors: Marquis & Long, 2001
Data: NEHIS 1993-1996 and 1997 RWJF EHIS.
This study compared small group premiums in nine states that adopted guaranteed issue and rating restrictions (prohibiting the use of health status for premium rating) between 1993-1997 with 11 states and DC where none of these regulations were adopted. Outcomes were measured by premiums that took into account different plan benefits, the variability of premiums among employers, and the change of premiums over time.  Only estimates from a difference-in-differences (D-in-D) model are reported in this summary.  Results showed mixed effects. Regulations had a statistically significant impact only in New York where premiums for family coverage were reduced and in Oregon, where premiums increased.  Between 1996 and 1997, small firms in NY had significantly lower premiums by 12.3%, while other eight states did not show statistically significant differences.
Who Gains and Who Loses with Community Rating for Small Business?
Authors: Buchanan & Marquis, 1999
Data: A half-sample of the May 1993 CPS, selecting working heads of families employed in a small firm at the time of the survey.  Workers in the surveyed families were grouped into artificial small firms (under 50 workers).  A simulation model predicted annual premiums, which were slightly smaller than the observed values.  Experience rating and community rating were compared, using the RAND Health Plan Choice and Health Expenditures Simulation model.  Simulation results showed that around 60% of the firms faced higher community-rated premiums than experience-rated premiums, and around 50% of the firms faced community-rated premiums 20% higher than the other rating policy.  Also, the median premium paid by firms under experience rating was $1,132 on average, which was 40% lower than the $1,946 paid under community rating.

The Effect of State Regulations on Health Insurance Premiums: A Preliminary Analysis
Author: M. J. New, 2005
Data: Health premiums data from
State regulations have positive effects on premiums. A ‘Health Plan Liability’ law increases monthly premiums by $26.72; ‘Direct-Access-To-Specialists’ increases monthly premiums by $310; and ‘Provider Due Process’ increases premiums by $22.49.  Each additional mandated benefit (not distinguished by type of mandate) increases monthly premiums by $0.89.  The control group is monthly premiums for policies in states without the presence of 26 mandated benefits and the insurance laws mentioned above.

The Effect of State Regulations on Health Insurance Premiums: A Revised Analysis
Author: M. J. New, 2006
A revised paper showed results similar to the previous one.  Health plan liability laws increase monthly premiums by $21.84.  Direct-Access-To-Specialists increase monthly premiums by $31.15.  Provider due process laws increase premiums by $16.62.  Each additional mandated benefit increases premiums by $0.75.

Study of Costs of Certain Mandated Benefits in Insurance Policies 2001
Author: Wisconsin Office of the Commissioner of Insurance, 2002
This report showed that the costs of five mandated benefits as a percentage of total benefits decreased slightly compared with an earlier report, from 6.49% in 1990 to 5.53% in 2001.  However, no details were presented regarding data and methods; therefore, the results of this report cannot be assessed.

Price Sensitivity of Demand for Nongroup Health Insurance
Author: Congressional Budget Office, 2005
Data: SIPP 2001-2005
This study imputed premiums for single workers in the non-group insurance market. Without state rating restrictions, premiums are estimated based on an individual’s self-reported health status, taking into account three age rates.  With state rating restrictions, rating bands were applied to health or age factors based on the unregulated premiums; an additional 30% was added to premiums in states with pure community rating; this addition was proportionally reduced for states with weaker restrictions. A price ceiling of 2.5-3 times the average premium was applied to states with high-risk pools.  State premium rating restrictions would reduce the annual premium for people with Fair or Poor health status, from $4,109 to $3,500 (-15%).  Rating restrictions would raise the premium for people with Good, Very Good or Excellent health status, from $1,781 to $2,453 (38%).  But these are not empirical results – they were created by an actuarial model to estimate the effects of regulations on take-up rates.  The control group was states without rating restrictions.

Health and the Cost of Non-group Insurance
Authors: Hadley & Reschovsky, 2003
Data: 1999-2001 Community Tracking Study-household surveys
Community rating versus no health rating would increase monthly premiums by 14% under OLS estimation or by 35% under selection-adjusted estimation.  The control group is households in states without community rating.

State Health Insurance Regulations and the Price of High-Deductible Policies
Authors: Congdon, Kowalski, & Showalter, 2005
Data: eHealthInsurance & Golden Rule
This study examines the impact of four state regulations on the premiums for high-deductible family and individual health insurance policies.  All regulations increase premiums.  Each additional mandated benefit would raise individual premiums by 0.4% and family premiums by 0.5%, relative to states with 21 or fewer mandated benefits.  Any willing provider (AWP) would increase individual premiums by 1.5%, though the effect was not statistically significant, and would raise family premiums by 5.3%.  Community rating would increase individual premiums by 20.3% and family premiums by 27.3%.  Guaranteed Issue would raise individual premiums by 114.5% and family premiums by 95%.  The control group is states without AWP, community rating, and guaranteed issue (New Jersey was the only state that implemented this regulation in the sample), and states with 21 or fewer mandates. A simulation study examined the effect of eliminating AWP, community rating, and guaranteed issue, and limiting mandated benefits to 10.  The individual premium is expected to drop by 10.2%, on average, and the family premium is expected to drop by 12.1%.

Community Rating and Sustainable Individual Health Insurance Markets in New Jersey
Authors: Monheit, Cantor, Koller, & Fox, 2004
Data: March 1996 – December 2001 New Jersey IHCP plans enrollment data.
In 1993 New Jersey adopted regulations including pure community rating, guaranteed issue, and guaranteed renewal for individual health insurance plans.  Premiums for all of the four investigated IHCP plans increased during the four years, some by more than 3.5 times their initial level.  By 2000, IHCP premiums exceeded and rose faster than employer-coverage premiums.  From 1996 to 2000, premiums of three IHCP indemnity plans increased by 111.9%, 154.7%, and 141.0% respectively, and premiums of the IHCP HMO plan increased 48.1%.  The study used the initial level of premiums in 1996 to contrast to those in 2000.

Estimating the Impact of State Health Insurance Mandates on Premium Costs in the Individual Market Using the Community Tracking Survey
Authors: LaPierre, Conover, Henderson, & Taylor, 2005
Data: Community Tracking Survey 1997-2003
This study found mixed effects for the number of mandated benefits on insurance premiums for four insurance types: single-coverage indemnity plans, family indemnity plans, single HMO plans, and family HMO plans.  The total number of mandated benefits did not significantly impact premiums, but mandate waivers in the individual market reduced the family-indemnity premium by 129%.  When groups of one person are permitted in the small group market, the single-indemnity premium is reduced by 32%, and the family-indemnity premium is reduced by 27%.  Pure community rating reduces HMO family premium by 103%.  An additional provider mandate reduces the HMO family premium by 18% and an additional coverage mandate increases it by 70%.  The mandate waivers in the individual market reduced indemnity family premium by 129%.  The control group is the premium without the presence of those state regulations.

The Effect of State Community Rating Regulations on Premiums and Coverage in the Individual Health Insurance Market
Authors: Herring & Pauly, 2006
Data: NHIS 1997-2004, Community Tracking Study Household Survey 1998-2001, and MEPS 1996-2003
‘Regulated’ states in this study include MA, ME, NH, NJ, NY and VT, which implemented both community rating and guaranteed issue laws.  The ‘unregulated’ states had neither community rating nor guaranteed issue.  The question of interest is whether community rating and guaranteed issue change the relationship between the log of condition-related expenses and premiums.  In unregulated states, annual premiums increase as condition-related expenses increase.  Analysis using NHIS data showed about a 10% positive effect of log condition-related expenses on premiums, and the results from CTS data showed about 7% positive effects. In regulated states, premiums increase by 6.9% as log condition-related expenses increase in the NHIS dataset, and by 2.3% in the CTS dataset.  But the differences are not statistically significant.  Thus, community rating and guaranteed issue did not have much affect on the relationship between premiums and condition-related expenses.  The control group was states with neither community rating nor guaranteed issue.

State-Mandated Benefits and Employer-Provided Health Insurance
Author: Gruber, 1994
Data: May CPS supplements for 1979, 1983, and 1988
This study investigated the effects of five expensive mandated benefits (mandated minimum benefits for alcoholism treatment, drug abuse treatment, and mental illness; mandated coverage for chiropractic services; and mandated continuation of coverage) on the propensity of small firms (less than 100 employees) to offer insurance.  The author found that adding these five benefits to a health plan could increase premiums for the average firm by 5%, but mandated benefits did not affect small firms’ decisions to offer insurance.  The control group is premiums in states without the presence of mandated benefits.

Adverse Selection in Health Insurance Markets? Evidence from State Small-Group Health Insurance Reforms
Author: Simon, 2005
Data: 1996 Medical Expenditure Panel Survey Insurance Component; 1993 NEHIS
Employer-level statistical analysis compared changes in premiums for small firms before and after ‘full’ reforms (both guaranteed issue and rating restrictions) to the changes for firms in non-reform states.  Results showed that premiums increased on average by $7.80 a month per person after the implementation of rating restrictions and guaranteed issue laws.

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