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


All states have enacted health insurance reforms designed to improve access to health insurance among people with health problems. Even before implementation of the Health Insurance Portability and Accountability Act (HIPAA), many states already had required small-group insurers to guarantee issue and renewal. Many states also had portability requirements, limiting the duration of preexisting condition exclusions in the small-group market. Some states had extended these protections into the individual market as well, typically exceeding HIPAA’s very limited protections in the individual market.

An emerging research literature suggests that health insurance market reforms may reduce coverage in private insurance markets. These reforms typically favor small groups and individuals that otherwise would have difficulty obtaining or renewing coverage (due to health problems) or affording coverage that is priced to reflect their higher risk. The now-standard theory of insurance suggests that market regulation favoring high risk would drive some very low risk out of the market when coverage is voluntary, and that new entrants would be higher-risk. Given the change in the risk composition of insured lives, insurance prices would rise. However, this relationship between regulation and insurance prices presumes that sellers of insurance are competitive and that they cannot sustain higher cost without raising prices. These circumstances of the market have not been proven.

This paper considers the impact of regulation on the supply side of health insurance markets, in both the group and individual insurance markets. Our analysis contributes to the existing literature in several ways: (1) we examine the supply side of the market, whereas other studies to date have tested only the demand-side effects regulation; (2) we test for the impact of various market regulations separately, whereas other studies have tested the impact of “bundles” of reforms taken together; and (3) we consider the degree of reforms limiting insurers’ prices and exclusions for preexisting conditions, differentiating both between narrower and broader rate bands and between shorter and longer exclusion periods.

The study is organized into five sections. Section 2 reviews the prevalence of state health insurance regulations in the group and individual health insurance markets. Section 3 summarizes the structure of the states’ group and individual health insurance markets, reviewing changes in those markets between 1995 and 1997, and differences among states in the number of insurers writing coverage in their markets. Section 4 describes our research design and methods, and in Section 5, we present our results. Conclusions are summarized in Section 6.