The Effect of State Policies on the Market for Private Non - Group Health Insurance Anthony

In the 1990s states were particularly active in efforts to improve perceived inefficiencies in their non-group health insurance markets. Among the reforms that were implemented the strongest measure, which was adopted by several states, was community rating. Our goal is to identify the impact of community rating in state non-group insurance markets on 1) the decision to purchase non-group insurance throughout the 1990s, 2) the composition of the risk pool changed as a result of the reforms, and 3) insurer behavior in the form of offering HMO products to segment the risk pool. Using data from the Survey of Income and Program Participation we find that community rating was associated with older, unhealthier individuals being more likely to be covered by non-group health insurance. By contrast, among younger, healthier individuals community rating was associated with a reduction in the likelihood of being covered by non-group insurance. Conversely, we find that community rating was associated with a rise in the rate of uninsurance for younger, healthier individuals and a reduction in the rate of uninsurance for older, unhealthier individuals. These results are further supported by using the National Health Interview Survey to examine the impact of community rating on the health status and health utilization of persons with non-group insurance before and after community rating. Our results suggest that the enrollees as a group were sicker after community rating was implemented. We also find evidence supportive of the fact that insurers attempted to alter the products they offered in order to regain a measure of risk selection ability after community rating eliminated medical underwriting as a tool to segment the market. We find that HMO penetration in the non-group market increased disproportionately in states that implemented community rating relative to states that did not implement community rating.