Let’s hold off on the celebration for a little while.
The Obama administration has been quick to seize on a report last week in The New York Times that the Affordable Care Act, otherwise known as ObamaCare, will reduce premiums for individually purchased insurance in New York from $1,000 per month to just $300, a phenomenal 70 percent reduction. ObamaCare is a success! Happy days are here again.
Start with that $1,000 monthly premium for a single individual buying insurance in the individual market. The Times implies that this is a typical New York City premium, but never fully explains how it calculated that number. In fact, this appears to represent a high-end estimate for residents of Manhattan — the highest-cost area of the state. Notably, the Times apparently excludes policies offered through Healthy NY — partly subsidized plans that run as little as $260 per month for New Yorkers with family incomes below $58, 875 (for a family of four).
“ObamaCare essentially bails New York out by mandating that young healthy people buy insurance no matter how bad a deal it is for them.”
Upstate and in the suburbs, any savings will be far less. In fact, some estimates suggest that people living in the city’s suburbs could see premium increases. So we may be seeing less of a premium cut than a premium shift, with people living in the suburbs paying more to decrease the premiums of their city-dwelling brethren.
Note, too, that New York premiums were already so high — so even the reductions the Times cites would leave premiums in the state still some of the highest in the nation.
The bigger issue, though, is that state lawmakers already pretty well destroyed the individual insurance market in New York: It’s now so tiny as to be almost nonexistent, with fewer than 18,000 enrolled. Most New Yorkers will still get their health insurance through work, and so are unlikely to see significant savings, and could even see increases. All in all, there is a lot less here than meets the eye.
It’s important to understand why some New Yorkers are likely to see lower premiums.
Many of the provisions that are likely to increase premiums for much of the rest of the country are already law in New York. As far back as 1992, the state imposed “community rating,” prohibiting insurers from charging different premiums based on age or health — in essence raising premiums on the young and healthy to subsidize the older and sicker. Plus, New York has a “guaranteed issue” requirement: Insurers can’t decline to sell insurance to an individual because of a pre-existing condition. Finally, the state mandates that all plans cover a specified set of benefits, and restricts certain cost-sharing practices.
These regulations drove up premiums for young and healthy New Yorkers, by some estimates doubling premiums within just a few years. As a result, younger, healthier people stopped buying coverage.
This left the “insurance pool” — the people who still bought policies — sicker and more costly. And since they inevitably ran up higher bills on average, insurers had to raise premiums to avoid taking a loss — which led more healthy people to drop out, leading to even higher premiums and so on. (Wonks call this an “adverse-selection death spiral.”)
ObamaCare essentially bails New York out by mandating that young healthy people buy insurance no matter how bad a deal it is for them (or pay a fine). So it may indeed reduce average premiums in New York — but only by forcing healthy people into the insurance pool after the state’s own lawmakers had driven them out.
States with less dysfunctional insurance markets are unlikely to see such savings. In fact, even an ardent defender of ObamaCare, The New Republic’s Jonathan Cohn, has warned, “Things won’t work out so neatly in states like Florida or Texas, which don’t have as many insurance regulations on the books already.”
In fact, Indiana just announced that ObamaCare would lead to a 72 percent hike in individual premiums there. You won’t hear the administration talking quite so much about that.
And none of this takes into account the more than $1 trillion higher taxes that ObamaCare imposes. Many of those taxes will fall on those same New Yorkers benefiting from any premium reductions. Nor does it consider the impact on employment and economic growth, or potential problems for patient care.
Given the glut of bad news ObamaCare has endured recently, its advocates can be forgiven for cheering even the dimmest glimmer of light. But this celebration is a bit premature.