NCPA - National Center for Policy Analysis

Overregulation Reduces Choice in Health Insurance

January 20, 2012

Many Americans complain that there is too little competition between health plans.  To some degree, this is true.  However, promises that the Affordable Care Act's (ACA) implementation will increase competition between plans are misleading.  On the contrary, concentration among health plans has largely occurred subsequent to government action.  A comparison of premiums in the small-group market in 2008 (before the ACA) and 2010 (after the ACA) demonstrates this point, says John R. Graham, director of health studies at the Pacific Research Institute.

  • Of the 37 states that had available data, 36 experienced an increase in the average premium paid after the passage of the ACA (the lone exception was Utah).
  • The median percent increase in premiums amongst the states was 20 percent.
  • The state with the highest percent change was Washington, which experienced a 68 percent increase in the average premium paid.

This before-and-after comparison demonstrates that the promised drop in premiums that would result from increased competition did not occur.  In fact, the opposite has occurred with insurance consumers in almost every state paying higher rates.

ACA advocates also point to the broadened use of "prior approval" as another means of controlling premium increases.  A prior approval rule will require insurance providers to obtain permission for premium increases from a state's insurance commissioner.  However, the aforementioned study of 37 states also demonstrates the inefficacy of this policy.

  • Of the 37 states, 18 already used prior approval, 16 were standard file-and-use states which merely required providers to file increases with insurance commissioner without seeking permission, and 3 states were completely unregulated.
  • The median increase over the period was 17 percent for states requiring prior approval, 22 percent for the file-and-use states, and 14 percent for completely unregulated states.
  • The highest increase in the file-and-use states was 50 percent (in Tennessee), the highest in the states that required prior approval was 68 percent (in Washington), and the highest unregulated state was 22 percent (Georgia).
  • Finally, the only state that experienced a decrease in premiums, Utah, is a file-and-use state.

These mixed results lend little credence to the argument that the ACA's spreading of prior approval rules will aid efforts to arrest premium increases.

Source: John R. Graham, "Overregulation Reduces Choice in Health Insurance: An Update Health Policy Prescription," Pacific Research Institute, December 2011.


Browse more articles on Health Issues