Challenges of Partial Reform: Lessons from State Efforts to Reform the Individual and Small Group Market Before the ACA


In the early 1990s and through the mid-2000s, a number of states attempted to reform their individual and small group health insurance markets. This paper by PricewaterhouseCoopers primarily focuses on the experiences of Kentucky, Massachusetts, New York, and Washington. (While California is included, it is not a main focus since California’s reforms were limited to the small group market.)

During this era, most states pursued approaches that offered what authors call “partial” or “piecemeal” solutions: They regulated insurance carriers, but did not always level the playing field by applying standards across the whole market. They also did not couple regulation with incentives for large numbers of consumers to purchase and maintain health insurance (such as penalties for going uninsured or substantial subsidies to make insurance more affordable). Without strong incentives for broader participation, the consumers who took advantage of newfound access tended to be sicker than the overall population, leading to adverse selection, premium increases, and health plan market exits.

Although the authors could not analyze all of the factors at play, experiences in the states profiled illustrate the challenges of pursuing partial reform of insurance markets. In particular, the three states that enacted partial reforms — Kentucky, New York, and Washington — saw little or no positive impact on uninsured rates and individual market enrollment, but did see substantial reduction of consumer choice when plans exited the market. Only Massachusetts, which took a more comprehensive approach by combining incentives and penalties for broad consumer participation along with market reforms, succeeded in increasing its insurance rate and maintaining a stable market with consumer choice.

The full report is available under Document Downloads.