The political economics of health insurance market reform.

Our country’s system for financing health care cannot be fundamentally reformed without significant compromise by all affected interest groups. Providers must yield on cost containment; consumers must accept restrictions in benefits; personal injury lawyers must tolerate tort reform; employers must pay either higher employee compensation or taxes; and private insurers must change the way they do business. So far, the insurance industry is the only one of these groups to come forward with an unconditional offer to make a significant concession. The Health Insurance Association of America (HIAA) and the National Association of Insurance Commissioners (NAIC) have drafted model legislation that imposes extensive restrictions on the pricing, marketing, underwriting, and design of small-group policies. These reforms are also endorsed by the Blue Cross and Blue Shield Association. It is remarkable for any industry to invite such heavy regulation of itself. It is even more surprising, given the wide divergence of opinion among various interest groups on how best to carry out other aspects of health financing reform, that the basic structure of small-group market reform has broad political support in states and in federal policy circles. Hence, it is instructive to examine the social dynamic that prompted the industry to propose these reforms and that is influencing their likely acceptance by various political constituencies. This Commentary synthesizes a political and economic analysis of the insurance industry’s reform proposals based on interviews with and documents from a wide variety of industry, governmental, and interest-group sources.