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There exists substantial amount of literature regarding the advantages and disadvantages of regulations in the USA economy, the initial attempts to approximate the general impact goes back to the 1970s. Basing on this work, it is understood that regulations inflict a significant burden on businesses as well as the consumers in the USA.

According to past estimates, the cost of regulation reached the $1 trillion mark in 2004. (Krugman 2006) with more than 185 millions of Americans being covered by health insurance,  the question of whether the health insurance industry should be regulated or not has been asked by different stakeholders. However, this question remains controversial since the costs and benefits of health regulation are debatable.

Debate on whether the federal government should regulate the health insurance industry or not is not new in America among the USA politicians or even amongst policy experts, reform advocates insurance companies and the common public.

My view on this subject is that the government should not regulate the health insurance industry since health insurance industry needs to regulate it self in accordance with the marketing forces to ensure that no external interference distorts the industry.

To further support my position I will pose several arguments as to why the government should not regulate the health insurance industry. I shall discuss several points in specific which are underlined below;


In many occasions, state-level regulations in an industry have resulted being an obstacle to competition which in turn hurts the final consumers. Previous Academic studies have shown that the markets which are left to compete amongst themselves without regulations serve the consumers better than those being regulated (Krugman, 2006).

In every case, competition has resulted in reduced prices while the quality remains equal if not improved. In a study carried out by on benefits of deregulation, it was established that, deregulation provided consumers with cost benefits amounting to almost $50 billion each year (Robert and Jerry, 1996)

Regulating health insurance industry will also result in considerable compliance as well as administrative expenses. The health insurance industry, for instance is being regulated through agencies in each state of America. The usual size of staff for the health insurance organizations was about 300 in 2004 resulting in an approximated budget of about 20.2 million. (Krugman 2006)

More so, the health insurance companies which take part in different state markets are forced to apportion huge resources to deal with the issues raised by the state regulatory bodies and state lawmakers. If the industry can regulate itself and political motivated regulations removed, the expenses the companies incur as a result of these regulation will be greatly be reduced.

Ever since the 70s, industry analysts have been rethinking their views regarding economic regulations in health insurance industry. The common viewpoint among all economists in the industry is that regulations lead to poor services to the consumers and that the possible benefits of not regulating the industry can be substantial (National Association of Independent Insurers, 1995)

 Joskow (2003) argues that, the huge costs of health insurance industry regulations have resulted in over seven million Americans missing health insurance, which translated to one out of six American being uninsured.

Furthermore, it is estimated that 4,000 more Americans people die annually from expenses related with health insurance regulation. The yearly total cost of health insurance regulation dwarfs any other expenses forced by government involvement in the health insurance industry. This expenditure is more than yearly consumer expenses on petrol in the USA.

Other advantages of deregulating the health insurance industry will be ensuring that the industry is more innovative since competition created by deregulation makes insurance companies to be come up with products which are more innovative to remain competitive.  This innovativeness will be seen also in new technology advancement in the industry.

Deregulating the health insurance industry will also allow more health insurance companies to join the industry easily. More companies in the industry will lead to consumers getting better services, which are of better quality at a reduced cost.

Looking for ways which can cut down or abolish this surfeit cost ought to be an imperative main concern for the policymakers in the industry. As Scott Harrington (P, 89) suggests, the best promising target to cut down regulatory cost is targeting specific access-oriented regulations such as accreditation and insurance.

The regulations are good

However, there are other observers who argue that regulations are good for the industry and base on the following arguments:

Consumer protection

There are several health insurance regulations which have been put in place by the federal government, among these regulations are access-interrelated health insurance regulations, cost-interrelated regulations and quality-interrelated health regulations.

These regulations are formulated and implemented in order to ensure that the consumers are protected from the complexities of the health insurance plans. A careful study carried out by Osborne (1996) has indicated that states are in a better position to provide health insurance regulations.

Quality control

Quality related insurance regulations for example Medicare plus Choice and different other health insurance regulations have been enacted as a concern of service being offered to the consumers by the insurance companies.

Thus, the regulations arguably are meant to ensure that the quality to the patient or customers receive are up to the required standards. These regulations have over the years ensured that the industry quality is maintained to the required standards.

Protect the industry itself

Even though people argue that regulating health insurance is costly, regulating the industry has brought about several benefits and has been successful.  It is estimated that the benefits which have rose from access-related regulation are about $72.4 billion. Through these cost benefits the health insurance companies have been able to improve their services which they offer.

As it has been noted before many American depend on health insurance for their medical care and it is important that the industry has to be regulated so that those companies which are small or upcoming are protected form the big players in the industry so that there is fair competition in the industry. (Joskow, 2003)


There is considerable amount of literature regarding the advantages and disadvantages of regulations in the health insurance industry, the initial attempts to approximate the general effects dates back to the 1970s. Basing on available literature, it is understood that regulations inflict a significant burden on businesses as well as the consumers in the USA.

After reviewing both the disadvantages and advantages of regulating health insurance industry, this paper concludes that in today’s business world, health insurance industry should not be regulated since this hinders competition in the industry; it is costly and leaves a number of people without insurance cover.

As Scott Harrington (2000) suggest, even if the federal government needs to continue with the regulations, it is important that the legislators should consider formulating a federal charter which is optional, which would present the insurance providers with an option of using federal or state regulations. This measure will improve competition in the industry as well as creating motivations for regulators at each level to make improvement to their individual regulatory arrangements.

However, the health insurance industry should not be regulated since deregulating the industry will create more benefits than regulating it.


Joskow, Paul L: Cartels, Competition, and Regulation in the Health-Liability Insurance Industry; Bell Journal of Management Science, 2003, vol. 4: 375 – 427.

Krugman, P: The Health Care Crisis and What to Do About It, Robin Wells, New York Review of Books; 2006; Pp 90-93

National Association of Independent Insurers: Over-reaching Authority: An Analysis of Regulatory Excess; November 1995, p. 8.

Osborne, D. K: Cartel Problems: American Economic Review, 66 (1996): 835-844.

Robert Crandall and Jerry Ellig: Economic Deregulation and Customer Choice: Lessons for the health Industry, Center for Market Processes, Fairfax, Va.: 1996. Pp 120-126

Scott E. Harrington: Insurance Deregulation and the Public Interest; AEI-Brookings Joint Center for Regulatory Studies: Washington; D.C.; 2000. Pp 65-71


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