Lessons from New York
While the Obama administration is pointing to New York as an example of how well the health insurance exchanges might work, the Wall Street Journal editorial page is raising the possibility that the New York individual market today could be where the rest of country is headed. Since 1992, individual health insurance in New York has been guaranteed issue and community rated. Insures have been forced to sell to any willing buyer and they must charge the same premium, regardless of health status. As a result:
Premiums shot up 30% to 40% on average in the first year, often much more, and continued to spike. Insurers shed books of business, while customers cancelled their policies. Enrollment fell 38% in three years. About a dozen major insurers at the time sold the dominant style of indemnity coverage, similar to traditional fee-for-service Medicare. By 1996, everyone had fled the state…
In 1996 Albany tried to fix Mr. Cuomo’s mess by requiring any managed-care insurer doing business in New York to also sell on the individual market, but the market never recovered. In 1992, some 1.2 million New Yorkers bought individual plans, which fell to 128,000 by 2001, and a mere 31,000 today. Think about that: Out of 19.5 million residents, and with three out of every 15 nonelderly adults uninsured, 0.0016% of the population uses this market.
Prices matter. People need to think beyond stage one.
It is largely commonly thought that we can “have everything”. Even people who know economics think that we can manipulate its laws.
Laws is the correct word. Many of these reforms that try to subdue, manipulate or circumvent the laws of economics are akin to thinking that if you jump off a different cliff, this time you won’t get hurt.
I think that fits here. They’re following too much “if at first you don’t succeed, try, try again” and too little “insanity is doing the same thing over and over and expecting different results”.
It is not a good idea to point out this insanity as the “model” of going forward on the right path.
Indeed, a proper market system is always needed.
“In 1996 Albany tried to fix Mr. Cuomo’s mess by requiring any managed-care insurer doing business in New York to also sell on the individual market, but the market never recovered.”
For the record, I don’t know if this really could save the market, although, he’s right that it could ameliorate some of the damage.
“Think about that: Out of 19.5 million residents, and with three out of every 15 nonelderly adults uninsured, 0.0016% of the population uses this market.”
I bet a lot of money was thrown at it, too, despite the fact that this is something that doesn’t seem like it would need much public money.
Imagine how bad this will be when/if there isn’t an alternative. The only way out would be to leave the country
Unfortunately, having no alternative is probably what they are going for. For some reason these things are still pushed under the assumption that the government knows better than you do, that if we all just submit, we’ll be better off. That just isn’t the case. So many people will get hurt.
When enough producers leave the country we’ll hit a tailspin that we can’t recover from. I don’t know how close we are to that, but eventually that will happen.
New York’s elderly are all living in Florida!
I wonder why Florida hasn’t turned into New York? Maybe the makeup of those who move to Florida is more reasonable than those who stay behind…
True, they all migrate to the south.
The purpose of the individual mandate and the generous exchange subsidies is to alleviate this perverse tendency for an adverse selection death spiral. However, I don’t like the idea of taxpayers subsidizing people to that degree. Also, as extreme as the adverse selection problem is in individual markets with guaranteed issue/community rating, I don’t believe the mandate will help much.
I don’t want to get bogged down bashing liberals because I’m not convinced that is productive. But, one has to wonder what they were thinking. Was it not self-evident that healthy people would bail out of the market while sick people would remain the only ones who thought high premiums were a good value? Did it not to occur to the Dudley Doo-Rights of the health policy world that healthy people could always sit on the sidelines only to buy coverage when they had a costly medical problem?
Good lesson.
Folks:
The GAO recently published a paper providing rates for individual policies in each state.
While 5 states have some type of guaranteed issue environment, the balance require proof of insurability. So, the prices you see for most states are probably the “starting point.”
I focused on famiy of 4, age 40.
My “favorite” states were NY and NJ.
You’ve got to see it tio believe it!
http://www.gao.gov/assets/660/656121.pdf
I can’t wait for National Prosperity Life and Health, our newly formed insurer, to compete with the Big boys in 49 states next year, with our patented product design.
Don Levit
For every chronically ill person who buys health insurance, you need somewhere between 7 and 10 healthy persons in the pool in order for rates to be affordable.
In his wonderful book. Health Care Will Not Reform Itself, George Halvorson cites a study which states that if every single person under age 65 was in one health insurance pool, the premium would be $300 a month.
The individual market might never reach that point by itself. Right away there are millions of healthy workers in self-funded corporate plans. The individual market is largely for people who have retired early, or lost their job, or cannot find a full time job. This is not a healthy pool to begin with.
I am not sure what actually constitutes the individual market, and I am pretty sure neither do you.
One thingI can state with confidenc: other than the 5 states with guaranteed issue, people have to prove health to obtain the insurance.
Proving health will not occur with the ACA, so we can reasonably expect rates to be much higher in the individual market under ACA than what is provided today.
The study I cited cited many examples of a family of 4,age 40, with median premiums around $14,000 and median family deductibles of around $25,000.
Now, I can see why subsidies will be needed on the Exchanges. Now, I can see how the subsidies will serve as an incentive for insurers to increase prices.
I am looking forward to National Prosperity Life and Health competing with the big boys in 2014.
They will be shaking their heads while placing them in betweeen their legs wondering why their business-as-usual-model will cease working once “real” competition appears.
We are going to lower the subsidies, not raise them, and expect the federal government to share their new-found bounty with our policyholders.
Don Levit