Shawn Tulley, a senior editor at Fortune magazine, narrates the following tale:
A week ago, a good friend -- let's call him Anthony -- related a remarkable story about shopping for health insurance in two states, New York and Arizona.
For Anthony and millions of other consumers, New York represents the ultimate nightmare for finding affordable coverage, pairing outrageously high prices with a tiny roster of offerings. By contrast, Anthony found fabulous bargains and a rich variety of policies in Arizona's desert sun.
So it would be wonderful for folks like Anthony if the historic health-care reform law scuttled the rules that created the disaster in New York, and made America's insurance markets a lot more like Arizona's. But amazingly, the bill imposes a New York-style regime on the rest of the nation, then makes a gigantic bet that the results won't mimic those of the Empire State.
What's wrong with New York's system, you ask, that Obamacare will be imposing on the rest of the nation in 2014? Tulley explains:
Two regulations enormously inflate prices in New York (and, incidentally, rates aren't much lower in Albany or Syracuse than in Manhattan), especially for young, healthy folks such as Anthony -- just the kind of people who must buy in for the insurance pools to succeed.
The first regulation is Guaranteed Issue. In New York, and several other states including Vermont, Massachusetts, and New Jersey, carriers must accept all customers regardless of their medical condition. It would be illegal in New York to offer the deal Anthony got in Arizona -- a lower rate in exchange for lowering your cholesterol.
The second premium-swelling rule is Community Rating. In New York, all customers pay the same rate regardless of either their age or medical status. As a result, someone Anthony's age or younger pays an identical premium for the same policy as a 64-year-old customer, although they actually cost a fraction as much in medical claims. So older patients effectively get a big subsidy, and the young pay far more then their actual cost.
It gets worse. Because of guaranteed issue, patients know they can enroll in a plan anytime they get cancer or diabetes, so they have little incentive to sign up when they're healthy. Community rating assures that they can re-enroll at premiums far lower than the actual costs of the tests and procedures they require. Hence, the pools of the insured in states like New York and Vermont consist of an extremely high proportion of sick people.
The article goes on to explain why these kinds of regulations are distorting the economic incentives for both the buyer and the seller of insurance. Let us rejoice in the fact that this is the system we'll all be living under now that Obamacare is the law of the land.
RLC
