The Impact of Health Insurance Market Reforms on Market Competition

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OBJECTIVES: To assess the impact of state and federal health insurance market reforms on the nature and extent of market competition. STUDY DESIGN: Qualitative, comparative case studies in 7 states. METHODS: Two rounds of in-depth interviews were conducted with over 100 key informants from the insurance industry. In each state, these sources included 2 to 4 regulators, 5 to 6 independent agents, and several sources at each of 4 to 5 of the top insurers. Extensive documentary data relating to market activity were also collected. These multiple sources of information and data were analyzed with both qualitative and quantitative techniques. RESULTS: (1) Small-group health insurance markets are highly competitive, both in price and in product innovation and diversity. (2) In some of the more heavily regulated states, there is very little competition in less-populated areas, especially for indemnity insurance. (3) The rapid growth of managed care in the small-group market may have been precipitated by these reforms. (4) Standardized benefit plans have not achieved their objectives. (5) Competitive forces still focus to a considerable extent on risk selection techniques. CONCLUSION: Small-group market reforms have not harmed market competition and may have improved competition in several respects. However, these reforms do not alter the fundamental orientation of competitive insurance markets, which is to focus on risk selection factors and techniques to the extent feasible.

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