Guaranteed Renewability in Individual and Group Health Insurance: Functioning and Future Prospects

If private insurers can be encouraged to improve the protection offered by their products, is it possible that those improvements can benefit consumers and obviate the need for regulation with undesirable side effects? This project focused on the individual and small group insurance markets; namely, the sharp increases in premiums which occur when an individual incurs large medical expenses. The researchers carried out three research tasks, summarized as follows: 1) Estimated the age profile of premiums for an “optimal,” benchmark guaranteed renewability (GR) policy that would cover claims (including the expenses of high-risk insureds) but not be priced so high that low-risks would leave for a cheaper policy. 2) Used data from MEPS, longitudinal claims data bases, and the Health and Retirement Survey to calibrate an empirically based, “exploratory” model derived from the optimal policy described in (1) that they can use in task #3. 3) Simulated hypothetical case studies that members of the Society of Financial Service Professionals, participating in “virtual focus groups,” evaluated on the basis of degree of realism. This study determines the effects of guaranteed risk on public policy, (particularly if GR could provide protection to high risks in a population) and informs insurance firms and insurance regulators on how to make GR work better.