Tags: wsj | nyc | insurance | market | obamacare

WSJ: New York Destroyed Its Insurance Market Using Obamacare Rules

Tuesday, 23 Jul 2013 10:17 PM

By Todd Beamon

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President Barack Obama touted last week how much insurance rates on the Obamacare exchange in New York "will be at least 50% lower next year than they are today.”

But the reality is that New York “ruined its individual insurance market two decades ago by imposing the same regulations that Obamacare is about to impose on every other state,” The Wall Street Journal reports. “If the Empire State's premiums do now fall, it will be because the Patient Protection and Affordable Care Act partially deregulates New York insurance.”

New York has a regulation known as "community rating" that hides in higher premiums the income transfers from one group to another. “Insurance works best when people pay rates that are tied to their expected health risks over time,” the Journal reports. “But a few states limit how much premiums can vary from person to person.

“Obamacare takes this community rating national. The law says that no individual can pay more than three times what the least expensive person pays, regardless of risk,” the Journal reports. “Today, 42 states have rating bands that are five to one or more.

“New York's ratio is one to one. This means that insurers must vastly overprice coverage for, say, a 28-year-old who exercises regularly and doesn't smoke but vastly underprice coverage for a 55-year-old with high-cost chronic illnesses.”

The rule was adopted by Democratic Gov. Mario Cuomo in 1992, the Journal reports.
As a result, premiums shot up as much as 40 percent on average in the first year, often much more, and continued to spike.

“Insurers shed books of business, while customers cancelled their policies,” the Journal reports. “Enrollment fell 38 percent 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.

“Bad incentives caused the exodus. The majority of people under 65 with low risks can avoid community rating's economic distortions by not buying coverage, especially because another rule called "guaranteed issue" lets them wait until they are sick before they buy coverage.
“And that is what they do,” the Journal reports.

The newspaper noted how Mutual of Omaha, New York largest indemnity carrier at the time, saw the average age of its membership increase by 11 and a half years before it became the last one to leave the state. The average age of people who dropped coverage was 37.5, the Journal reports.

“Liberals claim community rating is a fair trade for subsidizing the needy and to counter the lotteries of disease and accidents,” the Journal reports. “But this forces young, generally low-income people starting their careers to pay hundreds of dollars more every month for insurance, rather than simply subsidizing the needy directly.”

Individual per person premiums now average about $500 a month, far more in New York City and slightly less farther upstate. By contrast, in less-regulated Connecticut, the comparable figure is $306, and in far-less-regulated Pennsylvania, it is $225.

In New York, insurance is available to anyone, only the price is unaffordable for millions.
With Obamacare, the goal is to avoid a national reprise of New York by requiring and subsidizing individuals to buy insurance, the Journal reports.

“The White House is planning a national campaign to persuade the young adults and minorities most likely to lack insurance to sign up,” but “even with subsidies, Obamacare's plans will sometimes be cheap to consumers, sometimes not, but never free.

“Low- to moderate-income people with little net worth are highly sensitive to month-to-month finances,” the Journal reports. “Some 17 percent of all workers already decline insurance that is sponsored by their employers, preferring more take-home pay. The figure for young workers is 40 percent.

And, “more than one in four of the uninsured are also ‘unbanked,’ meaning they lack a checking account or credit card,” the Journal reports.

“The Obamacare gamble is that these Americans will act against their financial self-interest and buy insurance that is more expensive than what they need. But the great liberal fear is that they won't, and that premiums will then have to increase and some exchanges might fail.
“New York is less a model than a warning,” the Journal concludes.


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