Can Regulation Reduce Adverse Selection in Health Insurance in Small Firms?

According to the article (8) of the group supplementary health insurance regulation No. 74, which insurance companies are required to comply with it from the beginning of 2011, insurance companies are allowed to take medical check-up and examination from the small groups with less than 50 members, and with respect to the result of inspections, reject some of the firm’s employees, or not to provide coverage for maternity cost and illnesses that have a previous history. The purpose of this study is to investigate the effect of this regulation on adverse selection in small firms by using group health insurance administrative data during the period of 2011-2016. In order to investigate about the hypothesis of the research, which states that the implementation of the article (8) of this regulation reduces the amount of adverse selection in small firms, we use regression discontinuity design (RDD) method. Results of this study indicate that the implementation of this law has no effect on the reduction of adverse selection in small firms. Furthermore, our findings show that this law motivates insured groups to increase the number of applicants for insurance up to the level of the threshold (50 employees).