The Regulation of the Individual Health Insurance Market. Major Regulations

12/01/2008

Every state has adopted certain basic standards for health insurance that apply to all types of health insurance products.  These standards protect consumers by requiring insurers to be financially solvent and capable of paying claims, pay claims promptly, and adhere to certain market conduct requirements.  Regulation begins with the licensing of entities that sell insurance within the state.  Licensing involves reviews of finances, management, and business practices to ensure an entity can provide coverage promised to policyholders.  States also license agents and brokers who sell insurance within the state.

Examples of several financial standards include periodic financial reporting and minimum capital requirements, or amount of net worth that an insuring organization must have in order to operate.  This minimum must be available to pay for claims submitted by policyholders.  States also examine investment practices and may perform on-site financial examinations.  As another measure of financial protection for policyholders, states have established guaranty funds which are non-profit organizations set up to pay claims of insurers that become insolvent.  These non-profit organizations are created by statute and financed by imposing assessments on insurers in the market.

Market conduct requirements relate to claims and underwriting practices, advertising, marketing, rescissions of coverage, and payment of claims.  These allow states to address unfair trade and claims practices, such as failure to pay claims fairly or promptly, and perform market conduct examinations to make sure insurers are complying with state regulations such as describing products accurately, avoiding deceptive advertising, and using sound actuarial principles to price products.  Insurers must adhere to requirements of prompt claim payment and claims appeals processes.  They must also have policy forms (i.e. the documents that establish the contractual relationship between the insurer and purchaser) reviewed and/or approved by the state to conform to standards of definition and content.  Most often, states review forms issued to individuals and small groups, presuming larger groups are more knowledgeable and need less state oversight.

Other aspects of regulating the business of insurance vary by state and by type of coverage. Although most states have instituted patient protection laws like access to emergency services and specialists, these standards vary by state.  An example of state variation exists with external review laws [2]; while most states have external review laws, different standards exist as to the types of disputes eligible for review, the amount of applicable fees, filing time frames, etc.

Other types of health insurance regulations that can vary by state can be grouped into several major areas including access to health insurance, rating, and covered benefits.  The following paragraphs describe these regulations as they apply to the individual insurance market.

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