General HI Regulation

States historically have regulated health insurance in various ways, principally on consumer protection grounds. Regulation has included solvency regulation and review of rate filings to ensure they can be justified and are not taking advantage of consumers. This same sort of regulation has also been applied to HMOs (more focused regulations on patient protection and similar sorts of managed care regulation aimed at ensuring quality are discussed in a later section). In lieu of income taxes, states traditionally have levied premium taxes on insurance carriers, including health insurance carriers. While taxes normally would not fall under the domain of regulation, in health insurance such taxes have been used as an instrument of policy, not just for revenue collection. That is, many states accord their nonprofit Blue Cross or Blue Shield plan a lower premium tax rate than commercial insurers. Likewise, states sometimes favor domestic or out-of-state firms when determining the premium tax to be paid. The McCarran-Ferguson Act enacted in 1945 makes clear the primacy of state authority to regulate the insurance business, including health insurance.

States generally regulate health insurance through licensure, business practices, financial standards, access to coverage (discussed earlier under insurance market reforms) or services requirements (discussed earlier under mandated benefits), and premium pricing/rating. Licensure typically entails a review of the company’s financial status to assess current and future solvency. Business practices would encompass marketing, advertising and claims processing systems. Some states regulate pricing through minimum loss ratios whereas others simply review rates to confirm that increases can be justified by underlying medical trends (Schneiter, Riley and Rosenthal 2002). Typically, the regulatory requirements for Blue Cross plans are different than for commercial carriers, e.g., requiring a public hearing to discuss rate approvals, requiring community rating or expecting the plan to serve as payer of last resort. All states regulate health insurance carriers and HMOs to varying degrees.

The Duke Center for Health Policy has developed a draft working paper assessing the costs and benefits of general insurance regulation, including the topics listed below:

  • General insurance regulation (solvency/rates)
  • General HMO regulation (solvency/rates)
  • Premium taxes

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