Health Insurance Articles
How State Laws Change Your Health Insurance Premiums
2010-08-11
How state laws change health insurance premiums is largely misunderstood. State insurance law doesn't get a lot of media coverage and health insurance premiums are generally forgotten after policy paperwork is signed. State legislators and health insurance regulators, sworn to help establish fairly distributed prices, are behind the legalese in policy contracts. Controlling price variations for health insurance is the main goal of state oversight. Health insurance quotes might vary greatly if not for state oversight.
The authority of many states extends to regulating individually purchased insurance, fully funded employer insurance plans and multiple employer welfare arrangements. State governments generally do not regulate self-funded, private, employer-based health insurance plans. State insurance law regarding health insurance premiums primarily focuses on improving the leverage of small business groups and individuals to negotiate more favorable pricing. State oversight of health insurance costs for large businesses with 50 or more employees is not generally seen as necessary. Large companies have plenty of leverage in negotiations with health insurance providers to make health insurance quotes reasonable since they represent many policyholders.
With only a few exceptions, most states regulate health insurance costs to prevent health insurance companies from astronomically raising prices on sick people. This form of state insurance law focuses on tying health insurance premiums to a scale, region or formula. State oversight of health insurance costs resulted in rate bands being created in some states. These bands were essentially ceiling and basement premium charges the state would allow companies to charge individuals meeting certain checklist criteria. Most checklists address criteria, such as: general health, age, gender, previous illnesses, etc. In this way, health insurance cost remains constant according to similar checklists.
Pure community rating is another regulatory framework developed through state insurance law. Dividing the map into regions, some states have created pure community ratings which generalize health insurance premiums for a particular area. In this way, state oversight results in prices being constant geographically. A variation on this method is called adjusted community rating which still uses geographic areas; however, prices are also allowed to fluctuate based on checklists as in the rate band method of state regulation.
Some people claim that state insurance law raises the cost of health care. While this may be true, the goal of most state oversight is to moderate, regulate and control variations in health care costs. Without regulation, health insurance companies could drastically raise the prices of those people who cost them the most. Policyholders costing the health insurance providers the most are sick people using health care. State oversight of health insurance premiums is an attempt to help the people who need it the most.
