New York shows how not to do health care reform"Do no harm" is the physician's first order of business. It should also be the first rule of health care reform.
September 23, 2009
Unfortunately, Congress stands poised to enact sweeping new regulation of private health-insurance markets that will drive up costs, particularly for young and healthy applicants, causing them either to drop coverage or require massive government subsidies to make health insurance affordable.
Democrats' health reform bills contain regulations called "guaranteed issue" (GI, requiring insurers to offer coverage to all applicants, regardless of health status) and community rating (CR, requiring insurers to offer the same price to all applicants). Only five states currently have both GI and CR regulations. The requirements are most stringent in New York.
In a recent study for the Manhattan Institute, researchers Steve Parente and Tarren Bragdon found that these regulations help drive up the cost of private health insurance in New York, and that repealing them would lower premiums and help as many as 37 percent of the uninsured there to buy private, unsubsidized coverage. It would also help reserve scarce tax dollars for the poorest and sickest New Yorkers.
Flexible, affordable individual-insurance markets are the first "safety net" for Americans who don't get insurance through their employer or qualify for public programs like Medicaid. But in New York, the individual insurance market is broken.
Since the state passed guaranteed issue and community rating laws in 1993, the number of individual-insurance policyholders has plunged from 752,000 to just over 34,000. Such policies are simply too expensive.
In their report, Parente and Bragdon use data from a Zogby survey of New York's uninsured to test the effects of several market-based reforms on the willingness of the uninsured to buy private coverage.
The reforms include repealing GI and CR laws; allowing individuals to shop for affordable health-insurance policies across state lines in Connecticut and Pennsylvania; and permitting the sale of "mandate-lite" plans, which enable insurers to offer plans with fewer coverage and provider requirements (New York is currently awash in such mandates).
Almost all of Parente and Bragdon's proposed reforms reduced the cost of insurance and the number of uninsured by significant margins. For instance, if everyone in the market considered shopping across state lines for individual insurance, premiums would decline about 24 percent, with up to 26 percent of the uninsured buying private coverage.
Selling "mandate-lite" plans to the young, healthy uninsured (18-45) could lower premiums by 18 percent, with up to 9 percent of the uninsured buying coverage.
But the biggest effect came from repealing GI and CR and allowing underwriting in the individual-insurance market. Repealing both policies could lower premiums by 42 percent and encourage up to 37 percent of the uninsured to buy coverage—adding more than 780,000 new policyholders to the individual market.
Parente and Bragdon's report offers several lessons. While recent legislation—like the draft Senate Finance bill—would require all Americans to buy insurance, GI and CR regulations will drive up the cost.
In Massachusetts, the first state to mandate individual health insurance, state costs are up nearly 70 percent since 2006. Middle-class families there must spend thousands of dollars out-of-pocket every year for health insurance or pay a penalty. As one resident told the Wall Street Journal: "I can't use up all of my savings just to buy mandatory insurance ... it's like penalizing the homeless for refusing to buy a mansion."
A better approach is to make private, individual insurance markets as affordable and flexible as possible and then offer subsidies to the small number of Americans who can't afford private coverage or who have pre-existing conditions.
Congress' mistake is trying to make 90 percent of the insurance market fit the 10 percent of people who need help. These efforts are well meaning, but they'll wind up making a bad situation worse.
Paul Howard, senior fellow and director of the Manhattan Institute's Center for Medical Progress and managing editor of MedicalProgressToday.com. The Manhattan Institute report, "Healthier Choice: An Examination of Market-Based Reforms for New York's Uninsured" is available at www.manhattan-institute.org.