Obamacare May Lower NY Health Premiums — Under Peculiar Rules and an Unlikely Scenario

Reason

Is there a place in the United States where the Affordable Care Act, now almost unversally known as "Obamacare," may actually bring health costs down? It's possible, but you might need very peculiar circumstances, such as those that prevail in New York state, where very interesting state rules that have helped hike insurance premiums sky high will, at least theoretically, be replaced by an economically more sustainable scenario under the new system.

From the New York Times:

Individuals buying health insurance on their own will see their premiums tumble next year in New York State as changes under thefederal health care law take effect, Gov. Andrew M. Cuomo announced on Wednesday.

State insurance regulators say they have approved rates for 2014 that are at least 50 percent lower on average than those currently available in New York. Beginning in October, individuals in New York City who now pay $1,000 a month or more for coverage will be able to shop for health insurance for as little as $308 monthly. With federal subsidies, the cost will be even lower.

That's everything the law's supporters promised, right? Well, for a few people. The Times cautions, "The new premium rates do not affect a majority of New Yorkers, who receive insurance through their employers, only those who must purchase it on their own. Because the cost of individual coverage has soared, only 17,000 New Yorkers currently buy insurance on their own."

Only 17,000 New Yorkers out of millions purchase their own health coverage? What has driven costs so high? And why is Obamacare placing such enormous downward pressure on rates? The Times covers that nicely, too.

For years, New York has represented much that can go wrong with insurance markets. The state required insurers to cover everyone regardless of pre-existing conditions, but did not require everyone to purchase insurance — a feature of the new health care law — and did not offer generous subsidies so people could afford coverage.

With no ability to persuade the young and the healthy to buy policies, the state's premiums have long been among the highest in the nation. "If there was any state that the A.C.A. could bring rates down, it was New York," said Timothy Jost, a law professor at Washington and Lee University who closely follows the federal law.

Basically, New York state did exactly what economists say you shouldn't do: Encourage people to wait to buy insurance until they're sick and need coverage. The forecasts of cost savings are based on the assumption that the Affordable Care Act's requirement that people buy insurance will actually force those young, healthy people to pay in instead of waiting until they're sick or injured.

Except…As Peter Suderman has pointed out, even the maximum fine of $695 for going uninsured under Obamacare is far less than the cost of the cheapest plan. That math is easy enough to grasp that many young people are likely to continue to do what New Yorkers have been doing, and go without coverage until they're in need of care. Tim Clifford, president of ADP Benefits & Talent Management Services, told CNBC that the fine under Obamacare "is probably not enough to change behavior."

Which means those "lower rates" in New York will probably prove to be illusory.

Update: Our own Peter Suderman has addressed the peculiarity of the New York health insurance market — and its comparability to the experience in Massachusetts under Romneycare.

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