- New York State is a cautionary tale of insurance regulation run amok.
- New York’s rates will still be three times higher than the premiums charged in California today.
- If enough young people do not enroll in the new health plans, premiums will rise even higher and savings will be cut.
President Obama went on national television today to sell health insurance. He told us prices under his health reform have been slashed — as much as 50 percent in New York. Health insurance at bargain prices, all thanks to Obamacare.
Unfortunately, the savings are not real. Insurance premiums in New York State are among the highest in the country, thanks to regulations that are even more biased against consumers than Obamacare. Other states with less draconian regulation will see substantial increases in premiums, and many of the uninsured will find that the federal subsidies they have been promised will not make that insurance affordable.
New York State is a cautionary tale of insurance regulation run amok. The state adopted guaranteed issue, which prevents insurers from turning down anyone due to pre-existing conditions, and pure community rating, which requires that everyone purchasing insurance on the open market pay exactly the same premium, whether they are young or old, healthy or sick. Mandated benefits were expanded, and cost-reducing practices were limited. Premiums soared but insurers were unable to sell on New York’s individual insurance market without incurring major losses.
Instead of more choice and lower prices, New Yorkers buying their own coverage faced less choice and higher prices. Does that mean Obamacare will bring relief to state residents who cannot afford to buy their own health insurance?
Not really. Avik Roy points out that New York’s rates will still be three times higher than the premiums charged in California today.
Other states will find that health insurance is more expensive under the President’s plan. The U.S. Department of Health and Human Services issued a report today showing that consumers can save on average $71 a month if they purchase the lowest-cost plan in their state compared with the premium that the Congressional Budget Office expected last year. New York’s savings came in at $73 a month — not much more than the other states, but a savings nonetheless.
Here again, the numbers reported by the administration fail to tell the whole story. First, the HHS report does not compare prices for the same insurance plans. The apples and oranges comparison favors the administration’s policy.
Second, if enough young people do not enroll in the new health plans, premiums will rise even higher and savings will be cut. HHS assumes that a quarter of the 7 million people they think will sign up for coverage will be under the age of 30. If those young and mostly healthy people decide that they don’t want insurance, an older and sicker group of purchasers will drive up the cost per person that has to be covered by premiums.
Third, the subsidies that have been promised to help pay for insurance will not make coverage truly affordable for many people. Subsidies are tied to the cost of insurance in each market, but anyone making more than about $23,000 a year — twice the federal poverty level — is likely to face high premiums for all but the least generous plans. That means enrollment, particularly among young people who have low incomes, is likely to fall far short of the administration’s expectations.
Fourth, and most important, those savings do not represent an actual reduction in the price of insurance. CBO estimated that the President’s reform would increase premiums by $2,100 a year. Even with the savings shown by HHS, premiums will still be almost $1,250 a year higher than they would have been without Obamacare.
The White House is beginning to show signs of panic that the President’s signature accomplishment might be in trouble. Pitching the plan in mid-July is a response to the persistent lack of public support for Obamacare. According to the Kaiser Family Foundation 43 percent of adults have an unfavorable opinion of health reform. Only 35 percent favor the plan.
Today’s speech might bolster the flagging support of liberal Democrats, but it will have no real impact on the uninsured and those who might buy insurance this Fall. The premiums are not even final in most states, and information on what plan options consumers will have is not available now. Consumers need to know what their choices are and what it will cost — including whether they will be able to see their personal physician and what they will have to pay out of their own pockets.
The public will rightly discount today’s events as more Washington hype. Nothing that was said today will help consumers decide whether to buy an insurance plan. No one should lose sleep over their insurance options until they can actually buy coverage, and that depends on whether the administration can get the insurance exchanges up and running. Whether that can happen by October is anyone’s guess.
Joseph Antos is the Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute.