ICYMI: Leap of Faith and Health Care Costs
Posted by The Campaign on April 19, 2010 at 5:43 AM
Much has been written and discussed about the impact of the new reform laws on costs and in particular premiums. The NY Times continues this discussion by looking at New York state and the impact of reforms implemented several years ago on premiums, costs and coverage.
Here are some key highlights from the article:
"New York’s insurance system has been a working laboratory for the core provision of the new federal health care law — insurance even for those who are already sick and facing huge medical bills — and an expensive lesson in unplanned consequences. Premiums for individual and small group policies have risen so high that state officials and patients’ advocates say that New York’s extensive insurance safety net for people like Ms. Welles is falling apart."
"The problem stems in part from the state’s high medical costs and in part from its stringent requirements for insurance companies in the individual and small group market."
The article then lays out specifically how premiums began to increase -- a combination of adverse selection and skyrocketing medical costs. From the article "Healthy people, in effect, began to subsidize people who needed more health care. The healthier customers soon discovered that the high premiums were not worth it and dropped out of the plans. The pool of insured people shrank to the point where many of them had high health care needs. Without healthier people to spread the risk, their premiums skyrocketed, a phenomenon known in the trade as the 'adverse selection death spiral.'"
These policies have led to two very serious problems:
- "Since 2001, the number of people who bought comprehensive individual policies through HMOs in New York has plummeted to about 31,000 from about 128,000, according to the State Insurance Department."
- "At the same time, New York has the highest average annual premiums for individual policies: $6,630 for single people and $13,296 for families in mid-2009, more than double the nationwide average, according to America’s Health Insurance Plans, an industry group."
So surely policymakers at the national level must have taken some lessons from New York when writing the new reform law? Sort of. The article does mention the coverage requirement that is part of the new law but notes "...analysts say that provision could prove meaningless if the government does not vigorously enforce the penalties, as insurance companies fear, or if too many people decide it is cheaper to pay the penalty and opt out."
And for this to work, Mark Hall a professor at Wake Forest University says "You have to sort of take a leap of faith..."
