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The Effect of State Policies on the Market for Private Nongroup Health Insurance (WP-04-09)

Anthony T. Lo Sasso and Ithai Z. Lurie

In the 1990s, several states adopted community rating to improve perceived inefficiencies in their nongroup health insurance markets. Using data from the Survey of Income and Program Participation, Lo Sasso and Lurie find that community rating was associated with older, unhealthier individuals being more likely to be covered by nongroup health insurance. By contrast, among younger, healthier individuals, community rating was associated with a reduction in the likelihood of being covered by nongroup insurance. Conversely, they find that community rating was associated with a rise in uninsurance rates for younger, healthier individuals and a reduction in uninsurance rates for older, unhealthier individuals. The results suggest that the enrollees as a group were sicker after community rating was implemented. The authors also find evidence of insurers trying to alter their products to regain a measure of risk selection ability after community rating eliminated medical underwriting as a market segmentation tool. They find that HMO penetration in the nongroup market increased disproportionately in states that implemented community rating relative to states that did not.

Anthony T. Lo Sasso, Institute for Policy Research, Northwestern University; and School of Public Health, University of Illinois at Chicago

Ithai Z. Lurie, Research Associate, Institute for Policy Research, Northwestern University

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