President Obama went on national television today to sell health insurance. He told us prices under his health reform have been slashed — as much as 50 percent in New York. Health insurance at bargain prices, all thanks to Obamacare.
Unfortunately, the savings are not real. Insurance premiums in New York State are among the highest in the country, thanks to regulations that are even more biased against consumers than Obamacare. Other states with less draconian regulation will see substantial increases in premiums, and many of the uninsured will find that the federal subsidies they have been promised will not make that insurance affordable.
New York State is a cautionary tale of insurance regulation run amok. The state adopted guaranteed issue, which prevents insurers from turning down anyone due to pre-existing conditions, and pure community rating, which requires that everyone purchasing insurance on the open market pay exactly the same premium, whether they are young or old, healthy or sick. Mandated benefits were expanded, and cost-reducing practices were limited. Premiums soared but insurers were unable to sell on New York’s individual insurance market without incurring major losses.
Instead of more choice and lower prices, New Yorkers buying their own coverage faced less choice and higher prices. Does that mean Obamacare will bring relief to state residents who cannot afford to buy their own health insurance?
Not really. Avik Roy points out that New York’s rates will still be three times higher than the premiums charged in California today.
Other states will find that health insurance is more expensive under the President’s plan. The U.S. Department of Health and Human Services issued a report today showing that consumers can save on average $71 a month if they purchase the lowest-cost plan in their state compared with the premium that the Congressional Budget Office expected last year. New York’s savings came in at $73 a month — not much more than the other states, but a savings nonetheless.
Here again, the numbers reported by the administration fail to tell the whole story. First, the HHS report does not compare prices for the same insurance plans. The apples and oranges comparison favors the administration’s policy.
Second, if enough young people do not enroll in the new health plans, premiums will rise even higher and savings will be cut. HHS assumes that a quarter of the 7 million people they think will sign up for coverage will be under the age of 30. If those young and mostly healthy people decide that they don’t want insurance, an older and sicker group of purchasers will drive up the cost per person that has to be covered by premiums.
Third, the subsidies that have been promised to help pay for insurance will not make coverage truly affordable for many people. Subsidies are tied to the cost of insurance in each market, but anyone making more than about $23,000 a year — twice the federal poverty level — is likely to face high premiums for all but the least generous plans. That means enrollment, particularly among young people who have low incomes, is likely to fall far short of the administration’s expectations.