Regulatory Redistribution in the Market for Health Insurance

Abstract:     
In the early 1990s, several U.S. states enacted community rating regulations to equalize the private health insurance premiums paid by the healthy and the sick. Consistent with severe adverse selection pressures, I find that their private coverage rates fell by 8-11 percentage points more than rates in comparable markets over subsequent years. By the early 2000s, however, much of these losses had been recovered. The recoveries were coincident with substantial public insurance expansions (for unhealthy adults, pregnant women, and children) and were largest in the markets where public coverage of unhealthy adults expanded most. The analysis highlights an important linkage between the incidence of public insurance programs and redistributive regulations. When targeted at the sick, public insurance expansions can relieve the distortions associated with premium regulations, potentially crowding in private coverage. From an incidence perspective, such expansions will look particularly attractive to participants in community-rated insurance markets when a federal government shares in the cost of local public insurance programs.

Number of Pages in PDF File: 60

Keywords: Community Rating, Medicaid, Health Insurance, Social Insurance, Redistribution, Fiscal Competition

JEL Classification: H51, H11, H53, I11, I18, I38

working papers series