Consumer Response to a National Marketplace for Individual Insurance. Characterize the state-specific individual insurance markets


The first step in this simulation is to describe the regulatory environment of the individual insurance market in each state.  We used several secondary sources for this description, including Blue Cross/Blue Shield for state mandates; the Georgetown University Health Policy Institute for guaranteed issue and community rating; and Thomson-West’s Netscan/Health Policy Tracking Service (“Major Health Care Policies, 50 State Profiles, 2003/2004”) for any willing provider laws. 

The second step is to identify the marginal cost of particular regulations, including mandates, guaranteed issue, community rating, and any willing provider laws.

  • Mandates are state regulations that require insurers to cover particular services or providers.  We opted to use the count of mandates in a state rather than trying to identify the separate cost of each mandate.  This decision follows the empirical work, which typically uses a count of state mandates.
  • Guaranteed issue laws require insurers to sell insurance to all potential customers regardless of health or pre-existing conditions.  However, this doesn’t necessarily mean that insurers can’t put riders on pre-existing conditions or incorporate premium adjustments for them.  Guaranteed issue provisions can be broad (e.g. applying to all products, all consumers, at all times) or narrow (e.g. applying to very specific populations or during specific open enrollment periods).  Our coding rules are biased toward those states that had fairly broad guaranteed issue provisions. 
  • Community rating requires insurers to limit premium differences across individuals.  We coded a state as having community rating if it had ‘pure’ (no premium differences are allowed) or ‘adjusted’ community rating.  We did not consider rating bands as part of this definition.
  • Any willing provider (AWP) laws restrict insurers’ ability to exclude providers from their networks.  There is a lot of variability here as well.  Many states apply AWP laws narrowly (e.g. to pharmacies only).  We coded a state as having an AWP law if it applied broadly to providers.

We conducted a literature review to identify estimates of the impact of these state laws and regulations on health insurance premiums.1 We used only studies of the individual insurance market, since this is the market in which we are interested.  This ruled out using studies that focus on the relationship between regulations and premiums in the small-group market (e.g. Simon, 2005). 

We utilized estimates from the following four studies: Congdon, et al. (2005); Henderson, et al. (2007); New (2006); and Hadley and Reschovsky (2003).  It should be noted that only the Hadley and Reschovsky (2003) paper has been published in a peer-reviewed journal.  The other three are working papers.2 In Table 1, we summarize the key findings:

Table 1 Summary of Studies of the Effects of State Regulations on Premiums in the Individual Health Insurance Market

Regulation/Law Congdon, et al. Henderson, et al. New Hadley & Reschovsky
Guaranteed Issue 94-114% increase in premium in one state (NJ) No effect NA (not assessed) No effect
Community Rating 20-27% increase in premium No effect  NA 15-34.6% increase in premium
Any Willing Provider 1.5-9% increase in premium 5-12% increase NA NA
Mandates Each additional mandate increases premium .4-.9%. Used indicator variables for a very comprehensive set of mandates.  Some increase and some decrease premium. Each additional mandate raises the monthly premium by 75 cents, approximately .5%. NA

To make our analysis comprehensive, we used three summary measures of the regulatory effects: (1) the midpoint of the range3 of the estimated effect of each regulation/mandate – our moderate estimate; (2) the minimum estimated effect; and (3) the maximum estimated effect.  These effects are summarized in Table 2.

Table 2 Minimum, Maximum, and Midpoint Estimates of the Effects of Regulations

Regulation Minimum Increase Midpoint Increase Maximum Increase
Guaranteed Issue 0 57% 114%
Community Rating 0 17.3% 34.6%
Any Willing Provider 1.5% 6.75% 12%
Mandates .4% per mandate .65% per mandate .9% per mandate

Regulations and mandates represent important differences across state-specific individual insurance markets, but there may be other factors as well.

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