The Regulation of the Individual Health Insurance Market. Background


The business of insurance, including health insurance, has traditionally been regulated at the state level.  States license entities that offer health insurance coverage and have established laws that control their structure, finances, and obligations to the people that they insure.  However, a number of federal laws also have an impact on private insurance coverage, most notably the Employee Retirement Income Security Act (ERISA) of 1974 and the Health Insurance Portability and Accountability Act (HIPAA) of 1996. [1]

In 1945, preceding ERISA and HIPAA, the McCarran-Ferguson Act restored the primary role of states in regulating the business of insurance.  Passage of McCarran-Ferguson was prompted by state and industry concern over a U.S. Supreme Court decision rendered in 1944 (U.S. v. South-Eastern Underwriters Assn., 322 U.S. 533 (1944)) which held that insurers that conducted a substantial part of their business across state lines were engaged in interstate commerce and thereby subject to federal antitrust laws.  McCarran-Ferguson provided that the “business of insurance, and every person engaged therein, shall be subject to the laws of the several States…”  The act specified that federal law that does not specifically regulate the business of insurance will not preempt a state law enacted for that purpose.  States regulate individual insurance products differently from group insurance products.  Additionally, the regulation of small group business policies may be subject to some regulations that do not apply to larger groups.

This paper will concentrate on individual health insurance regulations, with reference to the group market where necessary to differentiate practices and/or processes.  The paper will discuss some of the major areas of state regulation, trends in the number of states with various regulations, and some of the effects of these regulations on health insurance coverage, costs and access.

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