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Does the U.S. Really Have a Free Market for Health Insurance?

Posted Oct 25 2011 3:03am

Conventional wisdom holds that the U.S. has a free market for health insurance and Europe relies on a state-run, socialist health care system.  The U.S. ‘free market’ for health insurance, however, is in fact strictly regulated.  States exert significant authority over what benefits plans can offer and what premiums they charge.  Consider the following evidence compiled by the GAO regarding the State regulatory environment in 2010 .

  • The McCarran-Ferguson Act provides states with the authority to regulate the business of insurance, without interference from federal regulation, unless federal law specifically provides otherwise.
  • Nearly all—48 out of 50—of the state officials who responded to the GAO survey reported that they reviewed rate filings.
  • Insurance departments in 19 states were authorized by their state to approve or disapprove proposed premium rates in all markets before they went into effect—known as prior approval authority
  • Insurance departments in another 10 states were authorized to disapprove rate filings in all markets, but not to approve rate filings before a carrier could begin using the premium rate or rates proposed in the filing. [In 9 of these states, carriers were required to submit rate filings prior to the effective date of the proposed rate—known as file and use authority. In one state, carriers could begin using a new premium rate and then file it with the state—known as use and file authority.]
  • In 6 states, insurance departments were not authorized to approve or disapprove rate filings in any market.
  • In 1 state, carriers were not required to file rates for approval or disapproval each time the carrier proposed to change premium rates.
  • In the remaining 15 states, authority to approve or disapprove rate filings varied by market. For example, a state insurance department may have prior approval authority in the individual market, but have information only authority in the small-group and large group markets subject to their regulation.

With health insurance premiums rising by 20 percent in 2010, the call for even more regulation is growing.

More information on State regulations is provided below

  • Medical trend: 92%
  • Rate history (for rate changes only): 92%
  • Reasons for rate revision (for rate changes only): 90%
  • Benefits provided: 83%
  • Medical loss ratio: 83%
  • Utilization of services: 67%
  • Carrier administrative costs: 67%
  • Enrollee risk profiles/ rating characteristics: 58%
  • Cost sharing: 58%
  • Carrier profit: 56%
  • Carrier reserves (i.e., liabilities): 50%
  • Carrier capital levels compared with state minimum requirements: 38%
  • Carrier capital levels compared with an upper threshold: 17%

The top 5 States in terms of the percentage of rate filings that were disapproved, withdrawn or resulted in lower rates.

  • North Dakota: 75%
  • New York: 71%
  • Connecticut: 63%
  • Utah: 60%
  • Iowa: 55%


The bottom 5 States in terms of the percentage of rate filings that were disapproved, withdrawn or resulted in lower rates.

  • North Carolina: 1%
  • Hawaii: 4%
  • Kentucky: 4%
  • New Jersey: 4%
  • Texas: 5%
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