The Competitive Impact of Small Group Health Insurance Reform Laws

This Article reports on findings from an extensive study of small group health insurance 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 managed care in the small group market may have been precipitated by these reforms; (5) standardized benefit plans have not achieved their objectives; and (6) competitive forces still focus to a considerable extent on risk selection techniques and hardly at all on the quality of care.