Amy H. tweeted this this article from Reason, which talks about what happened to private health insurance in states that already implemented Obamacare-like policies.
Excerpt:
Delaying the individual mandate might seem like an obvious response to the ongoing failure of the federal exchange system. But it’s a rather drastic step. And, in isolation, a potentially problematic one.
That’s because the premiums that health insurers calculated for the exchanges this year were determined based on the assumption that the penalty for remaining uninsured would be in effect, and would encourage people to buy into the market.
If you change the enrollment requirements—by, for example, ditching the mandate—while leaving the law’s preexisting condition rules in place, health plan participation will likely be lower. The result, as one insurance official told NPR yesterday, is that insurers will want to change their premiums. And in this case, “change” means “raise.”
That’s where the real trouble starts. Insurers raising prices as a result of lower than anticipated enrollment is an early step toward an insurance death spiral, in which premiums spike and enrollment figures drop until the only participants who remain in the market are very people paying very high premiums. We know because we’ve seen it before—in New York, Washington, and handful of other states that enacted preexisting condition regulations similar to Obamacare’s but without an individual mandate.
New York state’s guaranteed issue and community rating rules—the two regulations that limit how insurers can charge based on health history and require them to sell policies to all comers—took effect in 1994. At the time, there were about 752,000 policyholders in the state’s individual market, or about 4.7 percent of the non-Medicare population. But by 2009, according to a Manhattan Institute report by Stephen Parente and Tarren Bragdon, the state’s individual market had practically disappeared, leaving just 34,000 participants, or about 0.2 percent of the non-elderly population. Individual insurance premiums, meanwhile, were among the highest in the nation—about $388 on average in 2007, compared with just $151 in California, another big Democratic-leaning state. In New York City, the annualized premium cost for individuals was more than $9,300 and more than $26,400 for a family.
The result, in other words, was a combination of sky-high premiums and far fewer insured individuals.
Around the same time that New York was overhauling its insurance market, Washington state was implementing a similar set of health plan rules. Insurers faced new regulations regarding plans sold to individuals with preexisting conditions, and the requirement that they sell to everyone. For a brief period, there was a coverage mandate, but that never went into effect. The state’s individual market deteriorated. One insurer raised premiums by 78 percent in a three year period. As premiums rose, relatively healthier people left the market, and insurers were left covering a lot of very sick, very expensive individuals. In the end, many insurers simply dropped out of the market rather than lose money. According to a report on the reforms commissioned by the insurance industry, there were 19 carriers in the individual market in 1993. By 1999, there were just two—and they weren’t taking new applicants.
The individual market was effectively killed off by the reforms.
Why do these policies of “community rating” and “guaranteed issue” cause the death spiral?
Investors Business Daily has a look at the chain of causation.
Excerpt:
For years, ObamaCare critics focused on its least popular feature — the mandate that everyone buy insurance — taking their fight all the way to the Supreme Court.
But as ObamaCare’s official launch date approaches, even its backers are beginning to admit that the law could actually create powerful incentives for millions of people and thousands of businesses to drop their coverage, despite the mandate.
There is growing concern, for example, that the law’s market reforms will cause a huge “rate shock,” particularly for those young and healthy.
A February survey of major health insurance companies in five cities across the country found that they expect premiums for this group to climb an average 169%.
The cause of this rate shock is simple: ObamaCare imposes what is called “community rating” on insurance companies, effectively forcing them to charge the young and healthy more so they can charge older and sicker consumers less.
The five-city survey, for example, found that while the law will jack up rates for the young, it will lower them an average 22% for older and sicker customers.
At the same time, ObamaCare also forbids insurance companies from turning anyone down — a reform called “guaranteed issue” — which also will provide an incentive for some to drop coverage, knowing they can get it back any time.
“Even with the tax penalty … some healthy people would avoid purchasing coverage until they are sick,” Howard Shapiro, director of public policy at the Alliance of Community Health Plans, told regulators .
The problem is that if the young and healthy drop coverage, the result would be what the industry calls a “death spiral.” Premiums will climb as the pool of insured gets sicker, causing still more to cancel their policies.
This is just what happened in states that imposed strict community rating and guaranteed issue reforms in the past. In fact, of the eight states that did so, most ended up either dropping the reforms or loosening the rules after they saw enrollment decline and premiums climb.
It’s very important to understand that what Obama did with his health care plan will not cause premiums to go down. On the contrary, they have gone up and they will go up.
WINTERY KNIGHT 