The Impact of Medical Cannabis Laws on Commercial Health Insurer Individual Market Premiums, Claims, and Profitability

Abstract Higher administrative costs, adverse selection, and restrictive rating schemes all threaten the profitability of commercial insurers in the individual health insurance market. The uncertainty surrounding cannabis liberalization potentially exacerbates this risk. Individual insurance markets and medical cannabis laws (MCLs) rapidly expanded across the United States over the past decade. Using commercial insurerlevel data compiled by the National Association of Insurance Commissioners from 2010 to 2018, we use a difference-in-differences approach to examine the impact of medical cannabis laws on medical claims, premiums, and insurer profitability in the individual insurance market. We find that claims increase during the first year of legalization before declining and becoming negative after two years. We also find weak evidence of post-MCL reductions in premiums. These dynamic effects on insurer costs and revenues are reflected in insurer underwriting profits as the initially negative effects become positive and marginally significant as the legal medical cannabis market develops.