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32 U. Mich. J.L. Reform 685 (1998-1999)
The Competitive Impact of Small Group Health Insurance Reform Laws

handle is hein.journals/umijlr32 and id is 699 raw text is: THE COMPETITIVE IMPACT OF SMALL GROUP HEALTH INSURANCE REFORM LAWS Mark A. Hall* This Article reports on findings from an extensive study of small group health in- surance market reforms in seven states, enacted during the early 1990s. After summarizing the content and purpose of these reforms, this evaluation focuses on the impact these reforms have had on the nature and degree of market competition. The principal findings are: (1) small group health insurance markets are highly competitive, both in price and in product innovation and diversity; (2) although some insurers have left some or all of these states in part because of these reforms, an ample number of active competitors remain, even in heavily regulated states; (3) in some of the more heavily regulated states, competition is very thin in less populated areas, especially for indemnity insurance; (4) the rapid growth in man- aged care in the small group market may have been precipitated by these reforms; (5) standardized benefit plans have not achieved their objectives; and (6) competi- tive forces still focus to a considerable extent on risk selection techniques and hardly at all on the quality of care. INTRODUCTION AND METHODOLOGY This study evaluates how small group health insurance reform laws have affected the nature and extent of competition among insurers.' The study focuses primarily on selected state laws * Professor of Law and Public Health, Wake Forest University. J.D. 1981, University of Chicago Law School. An earlier version of this Article was presented at the University of Pennsylvania Institute for Law and Economics Roundtable on Managed Care, and this article was substantially written while I was a visiting professor at the University of Pennsylva- nia Law School. This research was supported by a grant from the Robert Wood Johnson Foundation. The findings, conclusions, and analysis are my own and do not necessarily re- flect the views of the Foundation. Many people, too numerous to name, gave me thoughtful comments and critique during various phases of this research. My colleague and collabora- tor, Elliot Wicks, deserves special thanks for helping me to think more clearly about these issues and for making this work so enjoyable. 1. As we begin, a word or two is required about terminology. Health insurance, like any other industry, has a specialized vocabulary with terms of art that sometimes differ from common understandings and that often are used inconsistently within the industry, due in part to regulatory differences among the states. For our present purposes, simplicity is val- ued over precision, so this Article will use a lay vocabulary that glosses over many of the distinctions that are important within the industry. Thus, insurer includes, generically, both indemnity and HMO plans. Managed care refers primarily to HMO plans, including point-of-service plans. In contrast, indemnity means both traditional unconstrained fee-for- service plans as well as more managed forms of indemnity such as preferred provider or- ganizations (PPOs). Insurance agents refers mainly to independent agents, sometimes 685

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