Health care reform advocates have taken, in recent weeks, to noting that insurance premiums on the individual market in Massachusetts—the state where a variant on proposed national reforms is already in place—have fallen in recent years. And if you look at data provided by America's Health Insurance Plans taken immediately before the 2007 reforms were enacted, the average premium for an individual plan cost $8,537. Now, according an AHIP report released last month, that price has dropped to $5,143.
But upon closer examination, this isn't quite the point in favor of reform that its advocates seem to think. Here's why: In 1996, Massachusetts passed an earlier set of reforms—community rating and guaranteed issue—that required insurers to take all comers, and to sell plans to individuals at the same price, regardless of their individual health status.
For pretty obvious reasons, those sorts of reforms drive up premium prices tremendously. In New York, for example, similar reforms have driven up individual insurance premiums enough that the Manhattan Institute estimates that premium prices would drop 42 percent if they were repealed. And going back to AHIP's reports, sure enough, New York and Massachusetts are the states with the two most expensive individual market premiums.
So what the 2007 reforms in Massachusetts did was to bring more people into a very expensive pool, adding about 45,000 people to the individual market. That brought the prices down from their initial inflated position, but, it should be noted, they're still the second highest in the nation.
More to the point, given that the individual markets in most of the country are not already regulated by community rating and guaranteed issue provisions, this effect is unlikely to show up across the country. And if enough people choose to pay the penalty and opt out of coverage, it's possible that the effects of reform could actually lead to both premium increases and decreased coverage.
Either way, I suspect that, as in Massachusetts, under reform legislation, the overall average price for premiums will rise significantly and overall levels of health care spending will grow to be even more of a problem than they are now. Indeed, many reform advocates have more or less explicitly admitted this, touting the "buy now, pay later" strategy in which we guarantee coverage now and worry about costs down the road once everyone is locked into the system.