Perhaps the New York Times needs to change its well-known motto to All the News That’s Fit to Print … Eventually. In today’s edition, buried in its Regional section, comes an analysis of the health-insurance reforms imposed by the state of New York over fifteen years ago. Like ObamaCare, the state required insurance carriers to issue policies to people with pre-existing conditions as a means of making the industry more “fair” and imposed community pricing rather than risk-based premiums. How did that work for New Yorkers? About the way ObamaCare critics predicted:
New York’s insurance system has been a working laboratory for the core provision of the new federal health care law — insurance even for those who are already sick and facing huge medical bills — and an expensive lesson in unplanned consequences. Premiums for individual and small group policies have risen so high that state officials and patients’ advocates say that New York’s extensive insurance safety net for people like Ms. Welles is falling apart.
The problem stems in part from the state’s high medical costs and in part from its stringent requirements for insurance companies in the individual and small group market. In 1993, motivated by stories of suffering AIDS patients, the state became one of the first to require insurers to extend individual or small group coverage to anyone with pre-existing illnesses.
New York also became one of the few states that require insurers within each region of the state to charge the same rates for the same benefits, regardless of whether people are old or young, male or female, smokers or nonsmokers, high risk or low risk.
Healthy people, in effect, began to subsidize people who needed more health care. The healthier customers soon discovered that the high premiums were not worth it and dropped out of the plans. The pool of insured people shrank to the point where many of them had high health care needs. Without healthier people to spread the risk, their premiums skyrocketed, a phenomenon known in the trade as the “adverse selection death spiral.”
In fact, that death spiral has nearly wiped out the individual market insurance industry in New York. The state has the highest annual premiums for individual-market policies at over $6600 for single-beneficiary comprehensive plans and about double that for families. The employer-based market has fared better, but mainly because employers subsidize insurance and so keep healthy people in the plans.
ObamaCare supporters will argue that the federal insurance mandate will solve this problem, even though the mandate in Massachusetts hasn’t kept costs in line. Interestingly, the New York Times also sounds skeptical:
The new federal health care law tries to avoid the death spiral by requiring everyone to have insurance and penalizing those who do not, as well as offering subsidies to low-income customers. But analysts say that provision could prove meaningless if the government does not vigorously enforce the penalties, as insurance companies fear, or if too many people decide it is cheaper to pay the penalty and opt out.
Under the federal law, those who refuse coverage will have to pay an annual penalty of $695 per person, up to $2,085 per family, or 2.5 percent of their household income, whichever is greater. The penalty will be phased in from 2014 to 2016.
It doesn’t take much to do the math here. If one has to pay $6600 per year for a comprehensive policy one doesn’t really need or pay $2500 on a salary of $100,000, which one will healthy, younger earners take? That assumes, of course, that the government will actually enforce the mandate, which Democrats insisted the ObamaCare bill couldn’t do.
The rebuttal to this will be that most young, healthy people earn much less and will get federal subsidies, but that still depends on them deciding whether to pay anything out of pocket at all for a comprehensive policy that clearly doesn’t suit them. That argument neglects the fact that the actual costs will still skyrocket, but that taxpayers will be on the hook for the subsidies, which will have to increase to match the premium hikes to remain effective. Instead of just having premiums based on rational risk assessments, we have the young and healthy subsidizing premiums for the older and less healthy, who then subsidize the younger and healthier through federal handouts. It’s an insane feedback loop.
If nothing else, this proves a couple of points that critics have made all along. The mandates are nothing more than a way to get the young to create a proxy welfare state by forcing them into a usurious insurance model. It does nothing to reduce actual costs, and in fact makes cost increases both more likely and more amplified.
Finally, this problem has unfolded in New York for years. The premium problem in individual markets — the very kind that ObamaCare requires — were well known to the New York Times. They had almost a year to report this during the health-care debate before a vote was taken. Instead, they report it almost a month after Congress passed the bill, and stuck it in the Regional section where national readers might have missed it. Shameful.