Check the estimates of what will happen to individual health insurance costs across the country under ObamaCare, and New York seems like a rare bright spot. After the exchanges open Tuesday, rates here will drop nearly 30%.
Then you realize the reason: We already have some of the highest health costs in the nation.
Thanks to well-meaning “reforms” passed during Mario Cuomo’s administration, the state of New York requires extremely generous coverage in the individual insurance market that is unaffordable for the vast majority of healthy uninsured.
Limits on what insurers can charge sick applicants and requirements that no one be denied coverage have resulted in insurance that only the very sick or wealthy buy. The 32,000 or so New Yorkers who do so pay premiums of more than $1,000 per month.
So while the good news that rates will go down under ObamaCare, the bad news is that many uninsured New Yorkers won’t benefit from subsidies, and the state’s health care system as a whole will remain bloated, expensive, and subject to excessive regulation.
And taxpayers and businesses will still have to pay for one of the nation’s most expensive Medicaid programs — which will grow even more under ObamaCare.
Approximately 2.7 million people — 16% of New York state’s population — are uninsured. According to estimates from the Urban Institute, nearly half (1.3 million) of them fall below 138% of the poverty line, making them eligible for ObamaCare’s Medicaid expansion (though only 470,000 are expected to take advantage of that coverage).
This leaves a total of around 1.4 million uninsured who will be ineligible for Medicaid and may look to the newly formed insurance exchange.
The 32,000 who purchase coverage on their own today will undoubtedly search for more affordable coverage on the exchange, and will likely find it.
But roughly 900,000 live in households that make $50,000 or more a year, limiting their eligibility for federal tax credits. They’re likely to sit out of the exchange the first year and just pay the penalty — $95 or 1% of income, whichever is greater. And they can still buy coverage later if they come down with a serious illness.
In other words, the exchange will be most attractive (at least for the first year) for people in less than pristine health and who benefit the most from subsidies — making the exchange risk pool sicker, and thus more expensive, and less attractive for healthier risks.
New York’s Medicaid program is the other elephant in the room. Today, close to 1 in 3 New Yorkers is enrolled in Medicaid, and the state remains burdened by an expensive, hospital-centric health care system. Fixing the state’s costly Medicaid program to provide beneficiaries with better quality services will also be an uphill battle. With only 7% of the nation’s population, New York’s Medicaid program accounts for more than 13% of national Medicaid spending — about $54 billion, more than Florida, Illinois and Ohio combined.
Under Governor Cuomo, the state has taken some important steps to rein in Medicaid spending, including a global cap on growth (4%) for most categories of Medicaid spending and shifting the entire program towards a managed care approach. Still, Medicaid spending is still growing faster than Gross State Product growth and faster than the budget as a whole — a recipe for an ever growing tax-burden on a state that already holds the dubious honor of having the third-highest tax burden in the country of (about $6,300 per capita).
Is there anything to be done?
* First, Albany should expand the state’s risk band away from pure community rating and embrace the ObamaCare’s maximum allowed 3-to-1 variation between the rates charged to older and younger applicants. If younger New Yorkers can find better rates on the exchange, more of them will sign up for coverage, keeping rates lower for everyone. Indeed, a 2009 Manhattan Institute study found that allowing broader underwriting based on age could reduce the uninsured by about 40%.
* Second, the state can allow insurers to charge up to 50% more for tobacco use. Given the state’s other initiatives to reduce smoking related illness and mortality, giving enrollees another financial incentive to quit smoking would reduce health care costs and lower rates for healthy applicants even further.
Much more can be done to encourage Medicaid enrollees to take better responsibility for their own health, to avoid costly complications from obesity, diabetes, and smoking. The state can also experiment with conditional cash transfers or enhanced program benefits for enrollees that practice smarter health behaviors and keep medical appointments (modeled after similar programs in Idaho, West Virginia, and Florida). The state could even require modest premiums for some able bodied enrollees with higher incomes, which it could refund when health and wellness goals are met.
New York is, in many ways, the model for ObamaCare. Which means if costs aren’t brought under control, the rest of the country could face the same high prices — and high taxes — as we do.
Remaking the system requires a sea change in Albany, or even in Washington. But incremental reforms can still provide a temporary lift for what is otherwise a slowly sinking health care system burdened by excessive regulations, high costs, and entrenched interests.
Paul Howard and Yevgeniy Feyman are researchers at the Manhattan Institute.