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State reforms in the 1990s to guarantee health insurance for employees of small firms had little effect on offer rates

In the early 1990s, over 40 States passed laws designed to limit a number of exclusionary practices by insurers in the small group market. Included in such legislation were measures to guarantee the issue and renewal of health insurance policies to small firms, regulate premiums and their rate of increase, constrain the time limits associated with preexisting condition exclusions, and ensure continuity of coverage for small firm employees and their families.

It is difficult to predict the impact of small group reform on insurance coverage because the overall effect of reform will depend on the behavior of individuals who initially lack coverage relative to individuals who currently have coverage, explains Barbara Schone, Ph.D., of the Center for Financing, Access, and Cost Trends, Agency for Healthcare Research and Quality. Dr. Schone and Alan C. Monheit, Ph.D., of the University of Medicine and Dentistry of New Jersey, used several econometric tests to investigate the effects of reforms. Overall, they found that these reform efforts had little effect on insurance offer rates. However, in States with the most stringent reforms, employment-based coverage and policyholder rates increased for workers at high risk for health care use (less healthy workers) relative to low-risk workers.

In their research, Drs. Schone and Monheit used variation in reforms across States and changes in insurance outcomes over time to identify the effects of the policy among employees in small firms. In other models, they used large firm employees as an additional control group under the assumption that they were unaffected by the reforms. Further, they tested their results using alternative definitions of reform. They found that the effects of reform varied significantly by the extent to which States adopted guaranteed issue.

See "How has small group market reform affected employee health insurance coverage?" by Drs. Monheit and Schone, in the Journal of Public Economics 88, pp. 237-254, 2003.

Reprints (AHRQ Publication No. 04-R030) are available from the AHRQ Publications Clearinghouse.

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