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It’s their market, we just shop in it.

Posted by: Kathleen Stoll on Jul 22, 2008

These days, no one needs convincing that an unregulated marketplace is a danger to the economy and puts individuals at risk. Just look at the housing crisis, where mortgage lenders and brokers took advantage of an unregulated system to inflate their profit margins, with no regard for the home buyers. Well, buying health insurance is no different - at least that was our conclusion after taking a closer look at how consumers fare in the individual insurance market, which is inadequately regulated and has few protections for individuals. According to our recent report, Failing Grades: State Consumer Protections in the Individual Health Insurance Market, consumers in the individual market are left largely at the mercy of insurance companies, and in an unregulated market, the consumer faces a David vs. Goliath battle:

We found that protections vary greatly across the country, and in many states, because of a lack of consumer protections, insurance companies can deny people coverage, raise premiums significantly, refuse to cover treatment for certain conditions, and even revoke the coverage of policyholders who have been paying premiums for years.

We think the government should act as a watchdog for consumers and prohibit these egregious practices. But the insurance industry argues that consumer protections will hurt competition and drive up premiums, and they point to states that have enacted these reforms.

Their arguments don't hold up. Ironically, we found that several of the states with the highest premiums have very few consumer protections. Clearly the lack of protections in those states has done nothing to lower premiums. On the other hand, two of the states with strong protections have among the lowest premiums.

What does this tell us? Premium prices are influenced by many factors, above all the skyrocketing cost of medical care.

The health insurance industry's excuse for avoiding the most basic protections is inadequate. Reform is necessary to create a functional market that works for, not against, consumers shopping for an affordable, reliable individual health insurance policy that meets their health needs.