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INTERNATIONAL JOURNAL OF DRUG POLICY

Volume 119, September 2023, 104143


RESEARCH PAPER
MEDICAL CANNABIS LAWS LOWER INDIVIDUAL MARKET HEALTH INSURANCE PREMIUMS

Author links open overlay panelAmanda C. Cook a, E. Tice Sirmans b, Amanda Stype
c
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ABSTRACT


BACKGROUND

To evaluate the impact of medical cannabis laws (MCLs) on health insurance
premiums. We study whether cannabis legalization significantly impacts aggregate
health insurer premiums in the individual market. Increases in utilization could
have spillover effects to patients in the form of higher health insurance
premiums.


METHODS

We use 2010–2021 state-level U.S. private health insurer financial data from the
National Association of Insurance Commissioners. We examined changes to
individual market health insurance premiums after the implementation of medical
cannabis laws. We employed a robust difference-in-differences estimator that
accounted for variation in policy timing to exploit temporal and geographic
variation in state-level medical cannabis legalization.


RESULTS

Seven years after the implementation of Medical Cannabis laws, we observe lower
health insurer premiums in the individual market. Starting seven years post-MCL
implementation, we find a reduction of $-1662.7 (95% confidence interval [CI
−2650.1, −605.7]) for states which implemented MCLs compared to the control
group, a reduction of -$1541.8 (95% confidence interval [CI 2602.1, −481.4]) in
year 8, and a reduction of $-1625.8, (95% confidence interval [CI −2694.2,
−557.5]) in year 9. Due to the nature of insurance pooling and community rating,
these savings are appreciated by cannabis users and non-users alike in states
that have implemented MCLs.


CONCLUSIONS

The implementation of MCLs lowers individual-market health insurance premiums.
Health insurance spending, including premiums, comprises between 16% and 34% of
household budgets in the United States. As healthcare costs continue to rise,
our findings suggest that households that obtain their health insurance on the
individual (i.e., not employer sponsored) market in states with MCLs appreciate
significantly lower premiums.


INTRODUCTION

In 2009, United States Deputy Attorney General David Ogden issued a memorandum
which advised that states attorneys general “should not focus federal resources
in your States on individuals whose actions are in clear and unambiguous
compliance with existing state laws providing for the medical use of marijuana”
(Ogden, 2009). While thirteen states had medical cannabis laws prior to 2009,
this memorandum demonstrated that there was judicial freedom to implement state
level medical cannabis laws (MCLs) without the logistic entanglement of having
state laws in opposition with federal laws. This edict reduced barriers for
states to legalize medical cannabis and, in turn, many states did implement MCLs
following this memorandum.

Proponents of MCLs suggest that legalized medicinal cannabis could broaden
treatment options for common ailments such as mental health disorders, chronic
pain, and nausea (see e.g., Walsh et al., 2013; Boehnke et al., 2019). Medical
cannabis consumption may have a positive societal impact by potentially reducing
crime (see e.g., Grucza et al., 2018; Morris et al., 2014; Huber III et al.,
2016), reducing the need for rehabilitative services to treat substance use
disorders (Chu, 2015), decreasing hospital admission rates (Pacula et al., 2014;
Shi, 2017), and/or reducing prescription drug expenditures since cannabis is a
substitute for other, often more addictive, prescription drugs (see e.g.,
Flexon et al., 2019; Lucas and Walsh, 2017). Conversely, some research indicates
that MCLs could have detrimental societal effects. The National Academies of
Sciences, Engineering and Medicine (2017) review the potential negative health
effects associated with cannabis use, including cancer, cardiac issues,
respiratory problems, mental health, substance abuse, cognition, and pregnancy
complications. Cannabis may exacerbate drug use (Gorfinkel et al., 2021),
increase chronic medical conditions and higher rate of mental health disorders
(Choi et al., 2021), worsen opioid-related mortality (Shover et al., 2019),
increase traffic fatalities (Hansen et al., 2020; Santaella-Tenorio et al.,
2017, 2020), or increase binge alcohol drinking (Wen et al., 2015).

All direct-purchase, individual market health insurance plans sold in the U.S.,
per The Patient Protection and Affordable Care Act (ACA) are subject to mandated
essential health benefits, including coverage for inpatient (and outpatient)
rehabilitative services for drug addiction. If cannabis serves as substitute for
drugs that are more likely to require expensive inpatient treatment, then MCLs
could effectively reduce healthcare costs, including health insurance premiums.
Health insurance companies do not cover medical expenses associated with the
direct use of medicinal cannabis (e.g., they do not cover the cost of purchasing
medicinal cannabis), since medical cannabis is federally prohibited. Individuals
pay out of pocket for medical cannabis.

Health insurance, which is the primary mechanism used to pay for healthcare
expenditures in the U.S., operates by collecting premiums from all enrollees and
paying expenses for the subset of enrollees who need medical treatment. So, by
design, within the insurance pool, few individuals pay the full cost of their
own health care. If health care usage decreases, then health care expenses, paid
for largely by health insurance, will decrease. Insurance companies subsequently
adjust premiums to reflect higher (lower) expenses. If medical cannabis reduced
aggregate medical expenditures, we would expect to see lower premiums in states
which had enacted MCLs, all else equal.

American households with health insurance in the individual market, where the
average monthly premium was $580/month in recent years (Fehr et al., 2020) pay
approximately 20% of their household budget to finance health care, including
insurance premiums (Carman, Liu, & White, 2020). According to the U.S. Bureau of
Labor statistics, health insurance premium payments comprise over 60% of all
household healthcare expenses (Chalise, 2020). In this paper, we exploit
variation in state MCLs to compare individual market health insurance premium
changes between states with and without MCLs which allows us to estimate the
impact of MCLs on health insurance premiums. Any reduction in premiums is
welcome as healthcare expenses, including premiums, continue to rise faster than
inflation and take up an increasingly sizeable portion of household budgets. By
comparing premiums in and out of MCL states, we measure the financial impact of
medical cannabis on the pocketbook of the average individual market enrollee. We
find a statistically significant decrease in health insurance premiums starting
in year seven post-MCLs and this downward trend is persistent for following
years. We provide evidence that medical cannabis laws lower individual market
health insurance premiums. Due to the nature of insurance pooling, in states
where medical cannabis is legal, lower premiums are beneficial both to medicinal
cannabis users and non-users alike.


SECTION SNIPPETS


BACKGROUND

From the literature, we describe three broad mechanisms through which MCLs could
impact health insurance claims which could, in turn, change premiums in
subsequent periods. We highlight some of the literature related to potential
mechanisms through which average utilization and, thus, premiums may decline.
Anderson and Rees (2023) provide an in-depth review of the literature on medical
cannabis laws and public health. The first mechanism is a substitution from
prescription medications to


DATA AND METHODS

Data on individual market health insurance premiums were drawn from the
Supplemental Health Care Exhibit – Part 1 (SHCE) using the S&P Capital IQ
Pro-database for insurers with individual market business from 2010 to 2021. The
SHCE is an exhibit on the annual statutory insurance company filing required by
state insurance regulators and compiled by the National Association of Insurance
Commissioners (NAIC). The SHCE is used to track annual financial and enrollment
data for all insurers that have


RESULTS

We consider that the impacts of MCLs may not be consistent across time and may
take time to manifest. To investigate if there are short- or long-term effects
of MCLs on health insurance premiums, we conduct an event study utilizing a
traditional OLS DiD estimator (represented on the figure as OLS), the SA ‘never
treated’ estimator (represented on the figure by Sun-Abraham_never) and the SA
‘not yet treated’ estimator (represented on the figure by Sun-Abraham_last) by
estimating Eq. (1). In


DISCUSSION

In this study, we provide evidence of a statistically significant reduction in
individual market premiums starting seven years after the implementation of
medicinal cannabis laws. Because of the pooled nature of insurance, the lower
premiums benefit cannabis users and non-users alike in medical cannabis states.
Our results are important as health care expenses, including health insurance
premiums, have been growing faster than inflation and comprise an increasing
share of a household's budget.




CONCLUSION

In this paper, we evaluate changes to U.S. individual market health insurance
premiums following the legalization of cannabis for medicinal purposes. Since
states have legalized cannabis over time (i.e., not uniformly) in the last few
decades, we employ a difference-in-differences approach designed for variation
in treatment timing. We provide evidence that although the effect does not begin
until seven years post-medical cannabis law implementation, there is a
significant and sizeable


AUTHOR CONTRIBUTIONS

The authors certify that we did not use AI in writing this paper.


ETHICS APPROVAL

The authors declare that they have obtained ethics approval from an
appropriately constituted ethics committee/institutional review board where the
research entailed animal or human participation.


CREDIT AUTHORSHIP CONTRIBUTION STATEMENT

Amanda C. Cook: Conceptualization, Methodology, Validation, Formal analysis,
Data curation, Writing – original draft, Writing – review & editing,
Visualization. E. Tice Sirmans: Visualization, Resources, Project
administration, Methodology, Investigation, Funding acquisition, Formal
analysis, Data curation, Conceptualization, Writing – original draft, Writing –
review & editing. Amanda Stype: Writing – original draft, Writing – review &
editing.


DECLARATION OF COMPETING INTEREST

The authors declare that they have no known competing financial interests or
personal relationships that could have appeared to influence the work reported
in this paper.


FUNDING SOURCES

This research received funding from the following sources: The data are compiled
by the National Association of Insurance Commissioners and sourced through S&P
Global Capital IQ Pro. The authors thank the Katie School of Insurance and Risk
Management at Illinois State University for access to the data and for partial
support of this research. This research was supported in part by the Center for
Family and Demographic Research, Bowling Green State University, which has core
funding from the




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