Private Health Insurance:

Problems Caused by a Segmented Market

HRD-91-114: Published: Jul 2, 1991. Publicly Released: Jul 2, 1991.

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Pursuant to a congressional request, GAO provided information on problems with the private health insurance market, focusing on the availability and affordability of such insurance for small business and limitations and practicality of reform attempts proposed by interested organizations.

GAO found that: (1) competition among insurers to insure low-risk and low-cost groups and the decline in community rated health insurance products have made insurance for groups with higher-risk employees expensive and potentially unaffordable; (2) insurers of small firms and others in the commercial insurance market face state insurance regulation, premium taxation, and mandates to offer specific coverage, while larger firms self-insure and are exempt from these requirements; (3) restrictive underwriting practices have made insurance impossible for some individuals and groups to obtain or retain, hurting those with expensive medical conditions, logging companies, physicians' offices, and beauticians, which are expected to have high medical costs; (4) small businesses lack the clout that large firms have in negotiating discounts with providers and do not receive the same tax treatment for their employee health benefit expenses, resulting in higher health insurance costs; and (5) although private groups and states have proposed and implemented reforms targeted toward the small group health insurance market, aimed at making insurance more affordable, they do not address the problem of increasing health care costs or the regulatory treatment of health benefit plans resulting from the Employee Retirement Income Security Act. GAO also appended a testimony it presented in May 1991 regarding health insurance options and the reform of private health insurance.