Unbiased Analysis of Today's Healthcare Issues

Does the U.S. Really Have a Free Market for Health Insurance?

Written By: Jason Shafrin - Oct• 25•11

Conventional wisdom holds that the U.S. has a free market for health insurance and Europe relies on a state-run, socialist health care system.  The U.S. ‘free market’ for health insurance, however, is in fact strictly regulated.  States exert significant authority over what benefits plans can offer and what premiums they charge.  Consider the following evidence compiled by the GAO regarding the State regulatory environment in 2010.

  • The McCarran-Ferguson Act provides states with the authority to regulate the business of insurance, without interference from federal regulation, unless federal law specifically provides otherwise.
  • Nearly all—48 out of 50—of the state officials who responded to the GAO survey reported that they reviewed rate filings.
  • Insurance departments in 19 states were authorized by their state to approve or disapprove proposed premium rates in all markets before they went into effect—known as prior approval authority
  • Insurance departments in another 10 states were authorized to disapprove rate filings in all markets, but not to approve rate filings before a carrier could begin using the premium rate or rates proposed in the filing. [In 9 of these states, carriers were required to submit rate filings prior to the effective date of the proposed rate—known as file and use authority. In one state, carriers could begin using a new premium rate and then file it with the state—known as use and file authority.]
  • In 6 states, insurance departments were not authorized to approve or disapprove rate filings in any market.
  • In 1 state, carriers were not required to file rates for approval or disapproval each time the carrier proposed to change premium rates.
  • In the remaining 15 states, authority to approve or disapprove rate filings varied by market. For example, a state insurance department may have prior approval authority in the individual market, but have information only authority in the small-group and large group markets subject to their regulation.

With health insurance premiums rising by 20 percent in 2010, the call for even more regulation is growing.

More information on State regulations is provided below:

Information Considered when States Review Rate Filings (% of States)

  • Medical trend: 92%
  • Rate history (for rate changes only): 92%
  • Reasons for rate revision (for rate changes only): 90%
  • Benefits provided: 83%
  • Medical loss ratio: 83%
  • Utilization of services: 67%
  • Carrier administrative costs: 67%
  • Enrollee risk profiles/ rating characteristics: 58%
  • Cost sharing: 58%
  • Carrier profit: 56%
  • Carrier reserves (i.e., liabilities): 50%
  • Carrier capital levels compared with state minimum requirements: 38%
  • Carrier capital levels compared with an upper threshold: 17%

Most Regulated States

The top 5 States in terms of the percentage of rate filings that were disapproved, withdrawn or resulted in lower rates.

  • North Dakota: 75%
  • New York: 71%
  • Connecticut: 63%
  • Utah: 60%
  • Iowa: 55%


Least Regulated States

The bottom 5 States in terms of the percentage of rate filings that were disapproved, withdrawn or resulted in lower rates.

  • North Carolina: 1%
  • Hawaii: 4%
  • Kentucky: 4%
  • New Jersey: 4%
  • Texas: 5%

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  1. Dorica Hill says:

    Free-market health care is a plan where health care is bought and sold without government regulation, oversight, approval, and licensing. Some peoples believe that this plan may increase health care quality and lower health insurance costs. I believe that there is no free market in health care.With health care as an unregulated service increases market failures that does not have government regulations and that selling health care as a product hints to both unfair and disorganized systems with individuals with less income being unable to afford preventive care.

  2. dantong yang says:

    I don’t agree that there is a free market exists in the US for Health Insurance either.
    Although that U.S. doesn’t rely on a state-run health care system and obtain health insurance directly from the government like other socialist countries, the current system is still far from a free market. Insurance companies are under numerous government constraints about what sorts of services they must or must not offer, who they can or cannot exclude, what sorts of prices they can charge, when they must accept customers, etc. Based on the evidence compiled in the article, such as “Nearly all—48 out of 50—of the state officials who responded to the GAO survey reported that they reviewed rate filings” and “Insurance departments in 19 states were authorized by their state to approve or disapprove proposed premium rates in all markets before they went into effect”, we can see that how deep the federal and state regulations has been penetrated in the insurance market.

  3. Reanna Jones says:

    I believe there are free markets for health insurance because it’s already not affordable for many in the U.S.. I think the laws and regulations were put in place to cover up whats really happening. That’s why so many politicians are against free healthcare for all americans. It’s profitable and everybody needs it.

  4. Shantell Rolle says:

    I believe that the free market can be viewed two sided. On one hand, it is a free market because health insurance has not yet been imposed upon citizens to posses health insurance, however as we know, insurance companies are regulated by the government (health reform), which in a sense make the market ” not so free after all”. I do believe that because the government is power , that it should put implement a “universal” health care plan, even if its only basic health care services, but apparently the war in Iraq, which neither of us know why we are still fighting, is more important and will continue to be funded by the government with millions of dollars spent out of the federal budget, as they continue to neglect citizens and their well being. This also lead to more debt upon hospitals and those who receive care from them.

  5. Carlina Franguel says:

    I believe that although to a certain extent health insurance providers are able to pretty much do as they please which would certainly make it a free market. But the government still plays an active role in regulating how much these providers are able to do. As my classmate mentioned above the health care reform has imposed regulations that the insurance providers are forced to abide to. Regulations have not only been imposed on a federal level but also on a state level. As the article mentions 48 of the 50 state require some form of reporting in regards to the changes in premium rates. On a larger scale in relations to other countries the U.S. does not have a free trade market.

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