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How do state health insurance regulations affect the price of high-deductible policies?

Posted Dec 01 2009 10:00pm

A paper by Kowalski, Congdon and Showalter (2009) examines how state health insurance regulations affect the price of health insurance.  The four regulations are the following:

  • Community rating regulations limit premium differences across policies.  The most stringent form requires insurers to offer the same premium to every individual, regardless of age, gender, or health status. These regulations are usually motivated on equity grounds. However, such regulations may lead to adverse selection, thereby making policies prohibitively expensive for healthy individuals.
  • Guarantee issue regulations limit the ability of insurers to deny coverage to potential and existing customers. Insurers could circumvent guarantee issue requirements by offering only very expensive policies to high-risk individuals. In practice, however, guarantee issue regulations usually accompany community rating regulations.
  • Any willing provider regulations restrict the ability of insurers to exclude hospitals and doctors from their networks. Typically, such regulations are motivated by a desire to offer consumers more choice and flexibility. However, such regulations may hinder insurers’ ability to contain costs.
  • Mandated benefits regulations require insurers to cover particular treatments.  The states with the fewest number of mandates were Idaho (6), Alabama (10), and Iowa (12).  Those with the highest number of mandates were Maryland (48), Connecticut (40) and Minnesota (37).

Using non-group insurance policy data from eHealthInsurance and Golden Rule, the authors find that “the existence of community rating regulations raises premiums by 10.2 to 17.1 percent for individual policies, and 20.9 to 33.1 percent for family policies. We also find that guarantee issue regulations that accompany community rating regulations in New Jersey are associated with premium increases of well over 100 percent for individual and family policies. The effects of mandated benefits and any willing provider regulations tend to be positive, but these results are sensitive to the econometric specification. We also find that the terms of the insurance contract—deductibles, coinsurance rates, stop loss limits—are also affected by the regulatory regime.”

It is also likely that these regulations affected the policies available to consumers.  “Of the eight states in which eHealthInsurance sold no policies in 2003, four states—Maine, Massachusetts, New York, and Vermont—had guarantee issue and community rating regulations. Furthermore, Golden Rule does not offer policies in any states with guarantee issue or community rating regulations.”

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