As envisioned by the drafters of the McCarran-Ferguson Act, the states have played the dominant role in regulating the health insurance products and their vendors that may be chosen by employers to provide insurance funded health benefits. Logically, regulation by 50 states permits considerable variation in the scope and intensity of regulation. This overview summarizes state regulation of insurance company formation and financial matters; insurance contracts and rates; unfair insurance practices; health insurer coverage and mandates; managed care; and so-called anti-managed-care laws.
Through laws on incorporation and laws on the licensing of insurance companies, states regulate the organizational structure and financial affairs of insurance companies. Most states permit insurance companies to organize under general corporate statutes and to comply with industry-specific requirements by obtaining a license, sometimes called a certificate of authority.
The purpose of licensing is to protect the public against ineptly managed or financially unsound insurance companies. Prospectively, regulators may condition initial licensure on compliance with requirements for minimum capital and surplus, security deposits with the state, and participation in a state guaranty association that allows a state to assess companies to make up some or all of the losses of a failed insurer. Once a company is licensed, state regulators use periodic reporting and audits to assess the current financial condition of a company. This monitoring focuses on loss and claim reserves, unearned premium reserves, and other financial indicators.
State regulation of health insurers also includes taxation on insurance companies and on the premiums paid by purchasers of health and accident insurance.14 Some Blue Cross and Blue Shield plans are exempt from taxation. However, in most states, Blue Cross and Blue Shield pay taxes or some equivalent to taxes.
States regulate health insurance contracts and seek to balance the interests of consumers in obtaining fair and reasonable coverage against the interests of insurers in avoiding unreasonable or undisclosed risks. However, the intensity with which state regulators pursue this objective may vary greatly from state to state. A representative approach to contract