Market Reforms

At Issue

The business of health insurance is primarily regulated at the state level of government. Currently, state health insurance markets are both extremely diverse and complex, with no two states sharing the exact same regulatory environment. Certainly, market reforms that work well in one state might not work as effectively in another. Furthermore, no one state has what could be termed the perfect health insurance climate. However, some health insurance market reforms have been adopted in the majority of states, such as small group rating bands, and are working in all of these states quite effectively. In addition, some state health insurance markets work much more efficiently than others. In general more carriers compete in these markets, costs are lower and there are fewer uninsured. Creating a more level playing field across the states in terms of health insurance regulation is a goal of many in order to decrease costs and improve market access and efficiency.

NAHU's Position

NAHU believes that state health insurance markets need to be vibrant and competitive, allowing for a wide range of health insurance options for consumers. To achieve this goal, state markets need to:

• Allow for the use of medical underwriting in health insurance policies, which keeps health insurance costs low, instead of calling for the costly community and modified community rating mechanisms.
• Limit the number of mandated benefit requirements, which contribute to overall increased health insurance costs.
• Provide a balanced degree of health plan regulation to encourage a competitive marketplace.
• Allow for a wide range of health plan choices to accommodate the varying needs of different types of consumers, including allowing Health Savings Account products to be sold in both the individual and group markets.
• Have a guaranteed access mechanism in place, such as a high-risk health insurance pool or a designated carrier of last resort where people with catastrophic medical conditions can purchase coverage in the individual market.

NAHU also opposes proposals to create Association Health Plans (AHPs) that are exempt from health insurance benefit mandates and state rating laws. We are concerned that such AHPs would have a pricing advantage over the fully insured small group health insurance markets already operating in the states, thus creating an unlevel playing field. This pricing advantage could have a negative impact on reforms already passed at the state level and existing small employer markets.

NAHU is also concerned about AHP proposals that would make coverage available to one-person groups on a guarantee-issue basis. Allowing business groups of one to purchase guarantee-issue group coverage has proven disastrous to small group markets in the states that have tried it, due to problems with both adverse selection and fraud. Allowing one-person groups to purchase AHP coverage will prove equally problematic, increasing the likelihood of plan failure and resulting in significant cost increases for all state small-group market participants.

Congressional Action

NAHU is pleased that a federal health insurance market reform bill, S. 1955, the Health Insurance Marketplace Modernization and Affordability Act of 2005, has been introduced.

• S. 1955 aims to create small-group market rating and mandate uniformity and a level playing field nationwide, and would achieve these objectives without harming state-based regulation.
• It would allow AHPs only if they are fully insured, and if they play by all market rules that apply to other plans, including state rating and mandate requirements.
• The bill also would allow plans with limited mandates to be sold nationwide.
• In addition, changes to rating, consumer protection, mandates and certain other state laws would be required to provide uniformity nationwide on a phased-in basis.

Additional Resources

NAHU's Position on Association Health Plans

NAHU's Analysis of State Health Insurance Market Reforms

Massachusetts Health Care Reform - Governor Mitt Romney (R) of Massachusetts signed a bill that when implemented, will transform the health insurance market. It combines the individual and small group market and requires people to obtain health insurance coverage.

NAHU's Comparison of Small-Group Market Health Insurance Rates in Select States, March 2006

NAHU's Analysis of State Individual and Small-Group Market Health Insurance Reforms, February 2006

For more information, please contact Jessica Waltman.

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