The structure and enforcement of health insurance rating reforms

Requiring health insurers to cover everyone who applies regardless of health status--an approach called "guaranteed issue"--is severely hampered without accompanying rating restrictions that keep insurance affordable for higher-risk people. The degree of rating flexibility also determines how much insurers can continue to compete based on their skills at risk selection, and how well they can counter adverse selection. Therefore, the structure and enforcement of rating reforms are essential to how insurance market reforms function. Based on an in-depth qualitative study in seven states with insurers, agents, and regulators, this article explains the factors that determine the stringency of rating reforms, and details how various aspects of rating restrictions can be used strategically to engage in greater risk segmentation than first appears possible. The article concludes by reflecting on the appropriate degree of complexity in rating rules, and it offers recommendations for crafting rating reforms that avoid unintended consequences.