Uninsured Rates Rise Dramatically in States With Strictest Health Insurance Regulations

During the heated debate on health care reform several years ago, some states jumped ahead of the rest by aggressively regulating their health insurance markets to speed reform. The data are now in, and they show that these attempts have backfired by harming the very citizens they were designed to help.

Between 1990 and 1994, 16 states passed the most aggressive laws designed to increase access to health insurance for their uninsured citizens. They imposed mandates and regulations on health insurance for small employers and individual citizens, implementing at the state level many of the provisions contained in the failed Clinton health care bill.

The results: In 1996, all 16 states experienced an average annual growth in their uninsured population eight times that of the other 34. In 1996, the one-year average growth rate in the uninsured population in the 16 regulatory states was 8.14 percent; in the other 34 states, however, it had fallen to only 1.02 percent. In 1990, before the blizzard of health care reform legislation, the two groups of states had been nearly equal at 4.6 percent and 3.9 percent, respectively.

Although the primary intention of insurance reforms is to make insurance coverage more affordable and available, thereby increasing the number of people covered by private health insurance, the 16 states that implemented these more comprehensive reforms have had the exact opposite experience. The result:

  • Morecitizens uninsured.
  • Fewer citizens covered by private insurance.
  • Fewer citizens covered by individual insurance.


Among the mandates passed by these 16 states were requirements that insurers sell policies to anyone who applies and agrees to pay the premium–even those who wait until they are already sick before buying insurance (guaranteed issue); prohibitions on such underwriting practices as excluding coverage for some medical conditions (pre-existing condition exclusions); and requirements that insurers charge the same price to everyone in a community, regardless of the differences in risk individual policyholders represent (community rating).

The 16-state study included Idaho, Iowa, Kentucky, Louisiana, Maine, Minnesota, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oregon, Utah, Vermont, and Washington State. These states were identified by the U.S. General Accounting Office as having passed aggressive regulations affecting both their small-employer and individual health insurance markets between 1990 and 1994.

The health sector is the most heavily regulated in the American economy. In every other industry, Americans recognize that regulation drives up prices, restricts innovation, dries up competition, and forces businesses to cater to regulators instead of consumers. This is exactly what is happening in the health sector.

These data show that Americans are paying a high price for the mistakes of well-intended but flawed legislation. The misguided efforts of lawmakers to over-regulate insurance markets have backfired, squeezing more and more people out of the system.


Lawmakers should focus on policies that allow individuals to purchase health insurance that they own and control themselves in a free, competitive, and well-informed marketplace. Such policies would enable consumers themselves to transform the health sector into a market driven by competition, innovation, value, and choice. There are several actions that states can take to help reach this goal. Among them:

  • Encourage changes in federal tax laws.
  • Initiate the delivery of state tax relief.
  • Review all currently enacted health care regulations and eliminate those found to be harmful.
  • Dismantle regulatory boards established with previous reforms.
  • Abolish pure community rating.
  • Stop expanding benefit mandates.
  • Promote experimentation of coverage for the uninsurable.

The results examined in this study show that regulation at the state and federal levels is counterproductive in responding to the challenge of increasing access to health insurance in the individual and private health insurance market. A far better approach would be to empower individuals and families to make health care choices that suit their own needs, restore the independence and integrity of the medical profession, and force insurance companies to compete for consumers’ dollars. The health care delivery system at all levels should be accountable directly to the individuals and families being served.

Melinda L. Schriver is a Senior Research Associate with, and Grace-Marie Arnett is President of, the Galen Institute, Inc., an Alexandria, Virginia, not-for-profit institute specializing in health and tax policy research. The authors are grateful to Robert E. Moffit, Director of Domestic Policy Studies at The Heritage Foundation, and Carrie J. Gavora, Health Care Policy Analyst at The Heritage Foundation, for their significant contributions to this study.

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