Consumer Response to a National Marketplace for Individual Insurance. Scenarios for Policy Simulation


We developed three different scenarios for policy simulation.  Each of these simulations was run on a set of minimum, moderate and maximum impacts of state-specific regulations as derived from the literature.  The impact of each scenario was calculated by multiplying a given person’s original premium by a state min/mod/max specific multiplier.  These multipliers are described in Appendix 4 by state.  For each scenario, if the consumer faces a lower premium as a result of the proposed policy change, the consumer will choose the better price.  If the new possible premium is not a better deal than that in the consumer’s home state, they will stick with their home state in the simulation.  The three scenarios are:

Scenario 1: Competition among 5 largest states

In this scenario, only the five largest states are permitted to be available for the national market along with the consumer’s own state.  This scenario was considered in a previous legislative proposal with the rationale that large states would have the critical skills in their insurance departments to take on additional regulatory responsibilities for new out-of-state consumers.  The five largest states in the United States, based upon population size, are (in order of descending population size): California, Texas, New York, Florida, and Illinois.  Of these, Texas has the least regulated health insurance environment and is the comparison state in the simulations.

Scenario 2: Competition among all 50 states

For this scenario, the state with the least regulation is identified as Alabama.  In this simulation, all consumers are assumed to find Alabama the state to which they would switch policies unless they were already residents of Alabama.  This could be the most extreme outcome of legislation similar to that proposed by Rep. John Shadegg (R-AZ) for the last few years.

Scenario 3: Competition within regions

Under this scenario, the United States’ health insurance market is divided into four regions: Northeast, South, Midwest, and West.  Residents in each region buy insurance from a state within their region with the most favorable premium due to decreased regulation.  This scenario was based on the regional Part D and TriCare contract models for insurance carriers.  For the Northeast, the state with least-cost regulatory impact was New Hampshire.  In the Midwest, Nebraska was the favored state.  In the West, the state of choice was Arizona and in the South, the state of choice was Alabama.

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