Obamacare: Lower Health Insurance Premiums in New York, and Higher Premiums Most Everywhere Else


credit: Werner Kunz / Foter.com / CC BY-NC-SA

Good news for Obamacare? A new report finds that individual health insurance premiums will drop in New York state. Consultants at Deloitte conclude that the potential for "significant" individual market premium savings within the state in every scenario they examined.

So does this mean that the health law might actually help ease premiums after all? Probably not in most states. We've seen similar estimates for New York before, and we shouldn't expect such savings everywhere. Indeed, one implicit takeaway from the report is that premiums will rise in the majority of states that don't already have New York's strict insurance regulations in place.

Several reports have predicted that New York's individual health insurance market premiums would drop. For example, a Society of Actuaries study last month found that premiums were expected to drop in New York by about 14 percent following the implementation of the health care law. But the same report found that, on average, the cost of insurance claim costs would rise about 32 percent of the law.

Indeed, what the Deloitte report really confirms is that in the relatively few states that already have extremely high individual insurance premiums thanks to regulations governing how insurers can charge based on health history, the institution of a health insurance mandate helps take the edge off the cost increase associated with those regulations. Greater cost savings could be achieved by repealing those regulations entirely. Instead, Obamacare will make similar cost-increasing requirements the law of the land in every state.

New York has an unusual individual insurance environment thanks to a 1993 law requiring insurers to abide by two regulations: guaranteed issue, which forces insurers to sell to all comers, and community rating, which heavily restricts how insurers can charge based on individual health history. The idea behind the law was to force insurers to cover everyone at reasonable prices. But as I noted for The Wall Street Journal back in 2009, the actual outcome was a health insurance "death spiral."

Health premiums went up, and healthy individuals dropped out of the insurance pool—leaving a sicker, smaller pool and causing premiums to rise even higher, which in turn caused more individuals to drop out, and so on and so forth. In the end, New York was left with a very small, very sick, very expensive individual insurance market. Adding Obamacare's health insurance mandate to the existing policy mix will bring more relatively healthy people back into the insurance pool, lowering average premiums costs, (while also, of course, requiring many people to pay premiums they didn't pay before).

We saw the same effect in Massachusetts after Romneycare passed. The state already had community rating and guaranteed issue requirements on the books, so when the mandate went into effect, and more healthy people started paying into the insurance system, premiums went down.

All this really tells us, though, is that in the handful of states that already have highly regulated, highly expensive individual insurance environments, adding a mandate—requiring healthy individuals to pay for insurance that they had previously chosen not to buy—reduces the cost of insurance somewhat.

But not as much as getting rid of the initial regulations entirely. Repealing community rating and guaranteed issue could achieve substantially larger cost savings than adding a mandate: In 2009, the Manhattan Institute estimated that getting rid of the community rating and guaranteed issue requirements would reduce average individual premiums in New York state by 42 percent. In comparison, the Society of Actuaries and the Urban Institute have both estimated that the mandate will reduce average Empire State premiums by about 14 percent.

The vast majority of states don't have New York's insurance market regulations now. But they will once Obamacare is fully implemented: The health law will enforce versions of community rating and guaranteed issue in every state. And when that happens, overall claims costs will rise—by an average of about 32 percent nationally, according to the Society of Actuaries study. And while a few states, like New York, will see reductions, others will feel outsized impact: Ohio and Wisconsin are projected to see spikes of 81 and 80 percent, respectively, while Alabama and Indiana are estimated to rise by 60 and 67 percent.