The Impact of Access Regulation on Health Insurance Market Structure. B. Individual Market Effects of Regulation


Guaranteed issue. Federal law does not require guaranteed issue in the individual market, as it does in the group market. As a result, only 7 states had all-product guaranteed issue in any year between 1995 and 1997, and only 5 states required guaranteed issue of some products. Neither of these provisions had a significant impact on the number of insurers writing coverage in the state.

However, guaranteed issue provisions may affect the relative market share of different types of insurers. The imposition of some-product guaranteed issue increased commercial insurer market share (with high significance), and (with lower significance) reduced the market share of both BCBS plans and HMOs. The imposition of all-product guaranteed issue raised BCBS market share and reduced commercial insurers’ market share, although these latter results are statistically weak (90 percent).

These results suggest some interaction between the dominance of one type of insurer in the individual market and the state’s adoption of guaranteed issue rules (although their simple correlation is low). Historically, many BCBS organizations have community rated, and in some states where they are dominant, they still do so. In such states, the BCBS plans have complained about adverse selection as a result of commercial insurers underwriting aggressively. In states where BCBS is dominant, they may be more likely to obtain legislative relief through all-product guaranteed issue rules (all else being equal) than in states where they are less dominant. Conversely, in states where commercial insurers have a very strong presence, they are more likely to be engaged in public policy discussions and therefore to drive reforms more acceptable to the commercial insurance industry – such as some products guaranteed issue, but not all-products guaranteed issue.

In contrast to the web of impacts associated with guaranteed issue in the individual market, guaranteed renewal – now required by HIPAA – had no impact on any measure of market structure.

Preexisting condition exclusions. Limits on waiting periods for coverage of preexisting conditions in individual insurance markets had no significant impact on any measure of market structure. This result suggests that, where the states have shortened the maximum waiting period for coverage of preexisting conditions, these reforms did not drive substantial adverse selection by encouraging individuals to drop and seek coverage as their health care needs changed.

Rate reforms. Constraints on either age rating or on health rating in the states had no significant impact on the number of insurers writing coverage in the state. However, as with guaranteed issue provisions, restrictions on health rating may have an effect on the relative market share of commercial insurers. Narrower constraints on health rating in the individual market reduced commercial insurers’ market share in favor of greater BCBS market share, and increased market concentration (measured by the Herfindahl index). This pattern of effects (specifically, the absence of a significant impact on the largest insurers’ market share) suggests that narrower constraints on health rating may have caused the smallest commercial insurers either to abandon the individual market or to merge in order to gain market share.

High risk pools. In general, one would expect that high risk pools might favor the presence of small insurers, supporting a larger number of insurers in the market, greater competition, and potentially lower insurance prices. Indeed, at least one recent study (Sloan and Conover, 1998) found evidence consistent with that expectation: a significant (and positive) effect on coverage from the presence of a high risk pool, despite the very small size of the risk pools in all but two states (California and Minnesota) and their small size relative to population in all states but one (Minnesota). However, we find no measurable impact of the presence of risk pools on any measure of market structure.