What Have States Done to Regulate Variation in Premiums?
The Small Group Market
Almost all states have passed laws that limit variation in insurance premiums or that prohibit insurers from using some of the factors listed above to set premiums for small groups (usually, groups of 2 to 50 people). As of 2005, only a few states had not restricted variation in insurer premiums in the small group market: Alabama, the District of Columbia, Hawaii, and Pennsylvania (for carriers other than Blue Cross/Blue Shield and HMOs).
The Individual Market
Regulation of premiums charged to individuals is less common. According to a 2005 survey, 18 states limited variation in premiums or prohibited the use of some of the factors listed above in setting premiums for individuals. The other 32 states and the District of Columbia had no such rating limits in the individual insurance market.¹
Techniques States Use to Limit Premium Variation in the Individual and Small Group Markets
States can use three approaches to limit variation in premiums: 1) rate bands, 2) pure community rating, and 3) adjusted community rating.
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¹Ibid. The 31 states that do not use rate bands, community rating, or adjusted community rating in the individual market are as follows: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Kansas, Maryland, Michigan, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Virginia, Wisconsin, and Wyoming.
