This study investigates the impact of the states’ access regulation on health insurance coverage among adults in worker families. We offer several methodological improvements on past estimates of this type: (1) We estimate coverage among only adults in worker families, minimizing potential error in the measurement of key variables. (2) We introduce continuous measures of allowed rate variation and waiting periods for coverage of preexisting conditions. (3) We estimate the impact of regulations individually, rather than in “bundles.” (4) We introduce measures of market structure to control for supply-side variables that may influence the price of insurance (which is unobserved) and therefore the rate of private coverage.
Our results related to market structure are new to the literature. We find that states with more concentrated group insurance markets enjoyed higher rates of small employer coverage, all else being equal. This finding is consistent with diseconomies of small scale in states with more fragmented insurance markets, but also with potential differences in regulatory oversight that may be endogenous to market structure.
We also find that very few forms of regulation affected small-employer coverage independent of their primary impacts on market structure. However, all-product guaranteed issue (as HIPAA requires) significantly raised the probability of coverage among adults in worker families. Our earlier research indicated that all-product guaranteed issue also improved competition in the group market, increasing the number of insurers that participated.
We find that the impact of rate regulation on coverage was significant and relatively complex in the group market, but insignificant in the individual market. In states with a narrow composite rate band (or lacking a composite band, narrow bands on both age and health rating), small employer coverage was significantly higher among adults associated with workers in firms with fewer than 100 employees (although we found no impact on workers in firms with fewer than 25 employees). However, when both narrow composite rate bands and guaranteed issue were imposed, their combined effect on coverage was negative: employer coverage was significantly lower among adults associated with workers in firms with fewer than 100 workers.
We could discern no significant impact of rate regulation on coverage among workers in the smallest firms. This pattern is consistent with the conventional economic theory of price discrimination: if insurers enjoy some degree of monopoly pricing power and “larger” small firms demonstrate lower price elasticity of demand for insurance compared to the smallest firms, insurers may raise prices more for larger small firms than for the smallest firms for which average premium levels generally are higher.
Most significant for anticipating the possible results that HIPAA may have on coverage, we observed no negative impact on employer coverage either from guaranteed issue or shorter waiting periods on coverage for preexisting conditions. Indeed, it is likely that HIPAA’s provision requiring all-product guaranteed issue in the small-group market helped to extend insurance coverage to a greater number of employees and their dependents, all else being equal.
In the individual market, some states have implemented regulation that is much more extensive than HIPAA’s very modest provisions, but we found no evidence that most of the states’ access reforms in the individual market have affected the rate of individual coverage. Specifically, neither constraints on rating nor shorter preexisting condition exclusions had any apparent impact on coverage among adults in worker families with neither employer nor public coverage. In contrast, regulation requiring guaranteed issue of all products in the individual market may have substantially reduced individual coverage, although the statistical significance of this finding was weak. The availability of a high-risk pool — an alternative to guaranteed issue to ensure access in the individual market — had no significant impact on individual coverage.
Further research in this area, corroborating our findings and those of earlier studies, is essential. In this research as in earlier studies of this type, only a few observations of change drive all of the estimates of regulatory impact. Thus, it is essential that more recent years (after the states implemented regulations to comply with HIPAA) be studied to corroborate any conclusions about the impacts of access regulation on coverage.
Also, our results regarding the impact of market structure on coverage suggest that diseconomies of small scale in the supply of health insurance may be a problem warranting further investigation of insurance supply and its impact on coverage. Such research should examine further the extent of competition and scale economies in the production of health insurance as well as differences in the administration of regulations that may be endogenous to market structure.