Academic journal article Journal of Risk and Insurance

Consumer Response to a National Marketplace for Individual Health Insurance

Academic journal article Journal of Risk and Insurance

Consumer Response to a National Marketplace for Individual Health Insurance

Article excerpt


The objective of this analysis is to simulate the difference between national and state-specific individual insurance markets on take-up of individual health insurance. This simulation analysis was completed in three steps. First, we reviewed the literature to characterize the state-specific individual insurance markets with respect to state regulations and to identify the effect of those regulations on health insurance premiums. Second, we used empirical data to develop premium estimates for the simulation that reflect case-mix as well as state-specific differences in health care markets. Third, we used a revised version of the 2005 Medical Expenditure Panel Survey (MEPS) to complete a set of simulations to identify the impact of three different scenarios for national market development. (National market estimates are based on the simulation model with competition among all 50 states and moderate impact assumptions.) We find evidence of a significant opportunity to reduce the number of uninsured under a proposal to allow the purchase of health insurance across state lines. The best scenario to reduce the uninsured, numerically, is competition among all 50 states with one clear winner. The most pragmatic scenario, with a good impact, is one winner in each regional market.


The McCarran-Ferguson Act (15 U.S.C. [section][section] 1011-1015) was adopted in 1945 after extended controversy over the jurisdiction of state and federal governments in regulating the business of insurance. The principal objective of the Act was to establish the primacy of the states in regulating the insurance industry. The "purpose clause" of the Act states that regulation and taxation of the business of insurance by the states is in the public interest. As a result of McCarran-Ferguson, each health insurer must be licensed in each state in which it intends to sell insurance.

Today most large employers that offer health insurance are exempt from McCarran-Ferguson by virtue of another federal law, the Employee Retirement Income Security Act (ERISA), which states that self-insured firms, that is, those that provide insurance as an employee benefit without the assistance of a risk-bearing insurer, are not subject to state regulation. Only the individual (nongroup) and fully insured group markets, composed mostly of small- and medium-sized employers, are regulated by the states. States have approached the regulation of health insurance differently, which has led to extensive variation across states in the benefit designs and premiums charged by health insurers in these regulated markets.

Federal lawmakers are interested in changing the law that prohibits nongroup/individual health insurance from being sold across state lines. For example, Representative John Shadegg's (R-AZ) and Senator Jim DeMint's (R-SC) Health Care Choice Act of 2005 (H.R. 2355 and S.1015) would amend the Public Health Service Act to allow for interstate commerce in health insurance while preserving the states' primary responsibility for regulation of health insurance. More recently, the proposal for interstate commerce in health insurance was featured by Senator John McCain (R-AZ) in his 2008 presidential campaign, as well as by Senator Tom Coburn (R-OK) described as The Patients' Choice Act of 2009 (S.1099). Advocates of this reform argue that state-level mandates for providers, benefits, and coverage, as well as other types of regulations (e.g., guaranteed issue, community rating, and any willing provider status) lead to higher prices and that permitting national competition for such insurance has the potential to strengthen competition, reduce prices, and increase demand for individual health insurance policies.

The recent passage of sweeping health insurance reform in March 2010 has altered the policy landscape. With the passage of P.L 111-148 (The Patient Protection and Affordable Care Act), states can enter into compacts that could permit the sale of insurance across state lines through insurance exchanges that will be fully operational by 2014. …

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