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The Individual Insurance Market

Experience with Marketwide Reforms


Adele Kirk, Senior Associate, Alpha Center, Washington, DC.

Fredric L. Bodner, J.D., Principal, Hinman, Straub, Pigors and Manning, P.C., Albany, NY.

Adele Kirk discussed the experience of three States that had implemented marketwide individual market reforms:

  • Washington.
  • Kentucky.
  • Massachusetts.

She described the context of reform in each State; Washington's and Kentucky's individual market reforms were part of comprehensive health care reforms, while Massachusetts passed targeted reforms several years after small-group reforms. She described the contents of the reforms, focusing on significant aspects other than guaranteed issue and modified community rating (such as the rate approval process and standardized benefits) and the role they may have played in shaping each State's experience. She also discussed the role of partial-repeal legislation in Washington and Kentucky and more recent developments in those States.

After describing each State's experience with individual reform, Ms. Kirk concluded with issues common to all three States' experiences and with possible lessons for other States. She noted that out-of-State commercial insurers left all three markets following reform but argued that because pre-reform markets are typically quite concentrated, policymakers should focus on who leaves more than how many leave.

Ms. Kirk emphasized the potential for insurers to underwrite maternity benefits in ways that segment the individual market (as exemplified by Washington's experience) and the resulting challenge to policymakers to ensure access to affordable maternity coverage. She observed that Washington and Kentucky provide examples of how markets can resegment following reform if they are permitted and discussed the pros and cons of using standardized benefits to prevent segmentation.

She concluded by pointing out that in these States, insurers reacted to reforms before they were implemented, greatly complicating the impact of the "decremental reform" (reform followed by partial repeal) that followed.

Mr. Bodner discussed New York's experience with individual market reforms since they became effective in 1993. Prior to reform, Empire Blue Cross/Blue Shield had served as the insurer of last resort in a significant area of the State, was experiencing large losses in the individual market, and had requested several large rate increases. He summarized the two major pieces of legislation affecting the individual market:

  • The law effective in 1993 that had made all products guaranteed issue and implemented pure community rating.
  • A point-of-service (POS) law effective in 1996 that required health maintenance organizations (HMOs) to offer a standardized HMO and POS product in the individual market.

Mr. Bodner also described New York's risk-adjustment mechanisms—a demographic pool and a specified medical conditions pool—that had accompanied the reforms, and he discussed plans to close the demographic pool. He discussed the effects of reform on access, rates, products, and market structure. Following the 1993 reforms, a number of smaller commercial insurers left the market, but the POS law effective in 1996 ensured the availability of products throughout the State. He cautioned that critics of community rating often make the effects on rates sound more drastic than they were in New York, noting that approximately 60 percent of the rate changes following the move to community rating were either decreases or increases of less than 20 percent. Following the law effective in 1993, he noted a trend toward higher deductible products, but the law effective in 1996 mandated the availability of very comprehensive standardized products.

In summarizing lessons for other States, Mr. Bodner argued that continuous open enrollment works well and that community rating is not a disaster. But he added that allowing limited age-rating might help States avoid large rate increases and decreases as a result of these reforms. He noted that although it is very hard to attract healthy individuals, especially at younger ages, the number of individual contracts over the past few years in New York has remained level. He urged policymakers to keep the benefit package as affordable as possible when designing standardized benefits. He said that risk adjustment can be effective in discouraging insurers from avoiding bad risks and subsidizing insurers who attract a disproportionate number of high-cost cases.


Kirk AM. Case Studies of the Individual Insurance Market: Riding the Bull: Experience with Individual Market Reforms in Washington, Kentucky and Massachusetts. Draft paper presented at The Evolution of the Individual Insurance Market: Now and in the Future, sponsored by The Robert Wood Johnson Foundation. 1999 Jan 20; Washington, DC.

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