Federal health insurance laws have a major impact on the insurance industry, and in the health care debates of the last few years, much of the nation's focus has been on federal laws and their implications. However, state health insurance law is just as important, especially for health insurance buyers and policy holders. State law can greatly affect insurance rates and how insurance contracts are interpreted and used. Understanding the effects of state law is crucial when choosing any health insurance policy.

State health insurance laws often give definitions for important terms that come up again and again in insurance contracts. One example is preexisting conditions; while most health insurance contracts will have multiple terms relating to preexisting conditions, the insurance companies have to abide by state definitions of the term. What can seem like a minor distinction can have major implications. Residents of one state might see changing health insurance premiums due to preexisting conditions that wouldn't be considered to be preexisting in another state. Insurance companies typically provide term definitions with their contracts, and these contracts are kept accurate to the state in which the policy holder lives, in order to avoid confusion.

Some states have complex health insurance systems that don't allow insurance companies to operate in a completely free market. Massachusetts law has provisions which compel every person in the state to buy health insurance, and this so-called "mandate" is probably the best-publicized example of state health insurance law. Other states may have programs designed to help children and the unemployed stay insured, which affects the cost of health insurance by driving up demand. Several states also have imposed specific regulations on how insurance companies interact with customers or how much time they have to respond to insurance claims. These regulations drastically change policy holders' rights.

Any regulation affects the cost of health insurance. Generally, the more health insurance laws that a state has, the higher the cost of health insurance for that state's residents, although this may not be true in certain cases. For instance, state programs designed to help low income families find insurance will lower the cost of insurance premiums for those families. In any case, every policy holder should consider state health insurance laws when buying a policy. Many state insurance commissions can provide basic facts for understanding policy holders' rights, along with information on what to do when an insurance company is acting illegally. State health insurance laws are a powerful tool for consumers, and regardless of their effect on health insurance costs, understanding and using laws is an important way to control coverage.