The Impact of Access Regulation on Health Insurance Market Structure. Endnotes


1 - In lieu of requiring waiting periods for coverage of preexisting health problems, insurers may exclude coverage for selected conditions altogether. Permanent exclusions of coverage for specific health conditions are called exclusion riders; for other conditions, the insured group or individual coverage has full coverage under the terms of the contract. While most states (in 1999, 37 states) prohibit insurers from using exclusion riders in small-group contracts, only 13 states prohibit exclusion riders in the individual market. However, in at least one state which does not otherwise prohibit exclusion riders, state law banning discrimination effectively prohibits insurers from excluding maternity coverage.

2 - These data exclude self-insured group health plans and also stop-loss coverage to the extent that we could distinguish primary coverage from stop loss. Conversion of self-insured coverage to HMO coverage would represent an addition to health insurers earned premiums. The group data also include association plans, which at least one large domestic insurer formed almost entirely from its individual business between 1995 and 1997. Nationally, the volume of business related to association plans is unknown.

3 - New York, Indiana, Tennessee, Texas, Illinois and Wisconsin.

4 - See, for example: Sloan and Conover, 1998; Jensen and Morissey, 1999; Zuckerman and Rajan, 1999; and Simon, 1999a and 1999b.

5 - At least one study (Grace and Timme, 1992) suggests that most of the accident and health insurance industry (including major medical insurers as well as other accident and health insurers) experiences significant increasing economies of scale, with only the very largest insurers experiencing constant returns to scale. It is reasonable to expect that their result also holds for the subset of the industry that writes major medical coverage. Similarly, other studies (Blair and Vogel, 1978; Clement, 1995; and Feldman, Wholey and Christianson, 1996) suggest increasing economies of scale among small HMOs.

6 - Wholey et al. (1995) estimated that HMOs experience increasing economies of scale until they enroll about 100,000 lives, beyond which additional economies of scale are insignificant.

7 - The Herfindahl index is defined as Σm2, where m is the market share of each insurer. The Herfindahl index takes on a maximum value of 1 (monopoly) and approaches zero as market share is distributed among more competitors.

8 - Satterthwaite (1979) raised an intriguing alternative to the conventional economic sense of competitive markets as price-reducing, which arguably could apply to health insurance markets. Satterthwaite hypothesized that in markets where consumers place subjective value on the service being sold and are able to discern the value of the product accurately only after experiencing it for a period of time, more sellers in a market may equate to greater monopoly power for each seller and higher prices not greater competition and lower prices as the conventional economic theory of monopolistic competition would predict. We use this logic to justify application of two-tailed significance tests in our estimation.

9 - We also tested the sum of limits on look-back periods and waiting periods, with no difference in our empirical results. In states with no limit on the waiting period for coverage of preexisting conditions we coded the waiting period as 72 months — one year longer than the maximum waiting period that we observed in any state.

10 - Simon (1999b) observed an increase (of about 4 percentage points) in group health insurance premiums associated with “full” reform in the small-group market.