The majority of Americans who have health insurance receive that insurance through the employer-sponsored system. In 2007 63.2% of non-elderly adults, ages 19-64, were covered in the employer market, 11% were covered under public programs, and 6% held non-group coverage. Almost twenty percent of non-elderly adults (19.7%) were uninsured (The Henry J. Kaiser Family Foundation, 2008). The market share of the non-group market has remained stable since 1994 at 6% to 7% of the non-elderly population (EBRI, 2008). Although policymakers talk about “the non-group insurance market” in reality it is 51 separate markets, regulated by the states and the District of Columbia. In states where regulations are weak insurers can deny or limit coverage, or charge higher premiums based on the individual’s risk profile. This makes it hard for older individuals and those with health conditions to find affordable coverage (Fuchs, 2004.)

In the early 1990s, officials in every state imposed regulations on the non-group market to make coverage more affordable and to enable higher-risk people to purchase coverage. These reforms varied by state and included requirements that insurers offer insurance to anyone who applies (guaranteed issue), prohibiting insurers from refusing to renew an individual’s policy (guaranteed renewal), and limiting insurers ability to refuse to cover health conditions individuals had at the time they obtained coverage (limiting pre-existing condition exclusions). Some states also imposed rules on the prices that insurers could charge people through rules that all applicants have to be charged the same premium or in modified form that all individuals of the same age or gender have to be charged the same rate (community rating), and limits on price ranges that insurers can charge for given policies (rate banding) (Fuchs, 2004). More recently some of these states revised their reforms decreasing protection for consumers after their non-group insurance markets collapsed or suffered other setbacks (Abbe, 2006).

In addition, 32 states run high-risk pools as a source of coverage for residents with health conditions that make it hard to buy policies on the non-group market. In some states high-risk pools are independent bodies, and in others they are part of the state’s insurance department (National Association of Health Underwriters, 2008). In general, individuals qualify based on an inability to buy adequate private coverage that is affordable. In some states individuals with certain medical conditions are automatically eligible to purchase insurance from the high-risk pool, in other states an individual must show proof that they have been denied private coverage or offered insurance that is considered inadequate where inadequate is defined by the high-risk pool’s rules. High-risk pools incur significant expenses since claims are higher than premium payments by members. Costs above what pool members pay in premiums are subsidized by a variety of sources including taxes on insurance companies operating in the state and direct funding from state governments. Due to the need for subsidies, in some states there are caps on enrollment in the pool (Pollitz and Bangit, 2005).

The nature of a state’s regulatory structure and whether a high-risk pool exists impact the supply of health insurance as well as demand for it. Typically having a high-risk pool is in place of having strong insurance market regulations, although some states have neither a high-risk pool nor strong regulations. For example, in New York insurance is strongly regulated: insurers must sell to all buyers, and can only vary premiums by geographic regions and whether coverage is individual or family (New York State Department of Insurance, 2008). Since insurers cannot deny people coverage based on health status or charge them higher prices a high-risk pool isn’t needed. In contrast, in Texas insurers are allowed to medically underwrite policies, and a high- risk pool makes insurance available to people who cannot otherwise purchase it because of medical underwriting (State of Texas, 2008). In Arizona insurers are allowed to medically underwrite policies, and no high-risk pool exists, likely making it difficult for older and sicker individuals to obtain insurance (State of Arizona, 2008).