Controlling for market structure (as well as individual characteristics), we also find impacts of state regulation on small employer coverage, and these impacts are in general consistent with earlier research. First, guaranteed issue of all products has a positive impact on coverage, all else being equal raising the probability of small employer coverage by as much as 26 percent. This result was consistent across both firm sizes, although its statistical significance was moderate (90 to 95 percent). In contrast, states that enacted guaranteed issue of only some products did not affect coverage significantly.
Second, among workers in firms with fewer than 100 employees, composite rate bands affected small employer coverage. In the absence of guaranteed issue, narrower composite rate bands (in the limit, pure community rating) raised the likelihood of coverage by as much as 15 to 17 percentage points. However, when coupled with guaranteed issue, very narrow composite rate bands had no appreciable net impact on coverage: that is, the positive effects of either guaranteed issue or very narrow rate bands disappear when implemented together. These offsetting effects are not apparent among workers in the smallest firms: among workers in firms with fewer than 25 employees, guaranteed issue of all products raised the probability of coverage, and any offsetting (negative) impact of rate constraints was statistically insignificant. The difference that we observed between effects of regulation on employees in “larger” small firms versus very small firms is consistent with insurers practicing conventional price discrimination in the small-group market (where demand among very small employers is arguably more price-elastic than demand among “larger” small employers).
In summary, we conclude that guaranteed issue of all products in the small-group market, such as HIPAA requires, probably has expanded small employer coverage. States that also enacted rate constraints may have offset the coverage impact of guaranteed issue on larger small groups (25 to 99 employees), but on net, coverage in those states was not lower than in the absence of regulation. Among workers in the smallest firms, all-product guaranteed issue had an especially strong positive impact on coverage, and the impact of very strict rate regulation was insignificant. Notably, other forms of access regulation — shortened preexisting condition exclusion periods, guaranteed renewal, narrower rate bands on either age or health (but not both, and either alone or in combination with guaranteed issue) — had no significant impact on coverage.