Obamacare’s Success in New York is in Part a Testament to the Insanity of the Policy that Preceded it

Fans of Obamacare are cheering the massive drop in individual health insurance premiums in New York State. But it should be acknowledged that Obamacare looks so good in the Empire State in part because the health insurance policy that came before it was so bad.

Sarah Kliff helpfully details New York’s prior health insurance law:

For years New York has had one of the most heavily regulated insurance markets in the country. The 1993 reforms not only required insurers to accept all customers; they also mandated that insurers charge everyone the exact same price. Young or old, healthy or sick, it doesn’t matter in New York: Everyone gets the same deal.

No doubt this policy was an applause line for politicians: We will make the mean, rich insurance companies pay for everyone’s healthcare and not let them have the income stream that would make such coverage sustainable. You won’t need to buy insurance until you are really, really sick and then the fat cats will have to sell it to you cheap and pay all your massive health care costs! That’ll show ‘em, right? Wrong:

New York has, for 20 years now, been a long-running experiment in what happens to universal coverage without an individual mandate. The result: a small insurance market with very high insurance premiums.

New York’s prior law highlights one of politicians’ worst impulses, which is to allow the private sector to have control of some domain and then try to suspend resultant market realities through legislation. If the health insurance companies in New York had not jacked up premiums in response to having to cover all applicants at the same price, they would have gone bankrupt.

Obamacare fixes the problem by being realistic about how markets work. Private companies can provide health insurance for everyone and make a profit doing so (The model in several Western European countries) but only if everyone has to enroll. This was for years a Republican talking point against New York State-style popular-but-economically-crazy health insurance regulation; I myself first heard it at a pre-Obama American Enterprise Institute seminar.

But Obamacare’s appreciation of what markets can and can’t do in the health insurance domain came from within Democratic ranks with no Republican support. Substantive health care policy debate is now something the liberal wing of the Democratic Party engages in with the moderate wing of the Democratic Party because the Republican Party, sadly enough, has largely abandoned the field.

Comments

  1. Anonymous says

    Right. I didn’t fully understand adverse selection until the arguments pro & con about the ACA started. Prior, I was against the mandate – I thought it icky. Problem is that the whole thing doesn’t work without the icky bit. Maybe working for an insurance company (not health) made it easier for me to grasp.

  2. Brett Bellmore says

    Obamacare “fixes” the problem the government itself creates, by turning the insurance companies into government agencies in all but name. It’s not allowing the market to work, because in a market, people have a choice about buying a product.

    It would be far more honest of the government to institute single payer, than to conscript insurance companies into being welfare offices and tax collectors. But that would require the expense of this to show up in the budget, and be paid out of taxes which were actually CALLED taxes. And so the politicians would get blamed for the expense. This way, insurance companies get blamed for all the problems, but the truth is, the insurance companies are being turned into government finger puppets.

    • calling all toasters says

      “in a market, people have a choice about buying a product.”

      Brett is apparently of this, but the vast majority of Americans who receive health insurance from someone other than the government get their health insurance through their employer. Which means that they don’t have a choice, or have an extremely narrow choice, about their heath care product (“well, they could quit!!!!!” the cons will sob). Of course Obamacare will not change this, preserving the lack of free market, but then Brett would never complain about something that is not the doing of Democrats.

      The rest of his paranoid rant is beneath comment.

      • Brett Bellmore says

        Yes, my employer pays, in part, for my health insurance. Until Obamacare, I could turn the offer down. Now it’s one of those classic “offers you can’t refuse.” I have to take it, or be fined.

        And the reason for this, is that in order to enable the insurance companies to provide some people with subsidized insurance, without the government having to openly pay a subsidy, the government is forcing other people to buy insurance at jacked up rates. That’s the point of the mandate: To keep the insurance companies from going bankrupt due to the subsidies they’ve been legally mandates to provide some people.

        The mandate was a provision intended to force people to buy over-priced health insurance, so that other people could get UNDER-priced health insurance, all without the costs showing up in the federal budget. They’ve turned the health insurance companies into pseudo-market combined tax and welfare agencies.

        • Katja says

          Yes, my employer pays, in part, for my health insurance. Until Obamacare, I could turn the offer down. Now it’s one of those classic “offers you can’t refuse.” I have to take it, or be fined.

          This is not entirely correct. You can opt out of employer-provided coverage, but will then have to obtain coverage yourself. And I realize that you may not be happy with that option, either.

          The mandate was a provision intended to force people to buy over-priced health insurance, so that other people could get UNDER-priced health insurance

          Yes. It’s called the solidarity principle. You think of it as a bug, others consider it a feature.

          all without the costs showing up in the federal budget. They’ve turned the health insurance companies into pseudo-market combined tax and welfare agencies.

          Also correct. This is in principle how it works in, say, Switzerland and Germany (except that insurance providers there are subject to greater constraints with respect to designing and pricing plans). I’m not really sure where you get the idea that a health insurance system has to be managed by the federal government.

          • Brett Bellmore says

            “Yes. It’s called the solidarity principle. You think of it as a bug, others consider it a feature.”

            Yeah, it’s not like fascism doesn’t have it’s adherents. And that’s what this is, economic fascism: Retaining the appearance of a market economy, while so regulating the nominally privately owned businesses that they become extensions of the government, their products and price dictated, and the public ordered to purchase the product.

            You can get “solidarity” while being on budget, with an honest welfare program. What the ACA is all about is creating a welfare program that’s off budget, and not admitted to be one. It’s about avoiding transparency, a goal which seems to be the defining characteristic of this administration.

          • Katja says

            O…kay. Universal healthcare via regulated insurance companies is a crypto-fascist conspiracy?

            I’ll just let that stand.

          • J. Michael Neal says

            My guess is that Brett really does believe that we should allow people who get seriously sick without health insurance to just die. That seems to fit with the rest of his belief structure. That the rest of us find this attitude as appalling as he finds the fascism of Obamacare doesn’t elude him; it’s why he never comes right out and says that.

            The problem is, once you don’t accept that model, you have completely broken any idea of health insurance as a good that can be provided by a free market. Obamacare isn’t really anymore fascistic than any other approach you can come up with to prevent that market failure. They will ALL involve coercing people either into buying health insurance or into paying for health care provided to those that don’t.

            And I find Brett’s claims to find the idea of single payer to be preferable to Obamacare to be oh, so precious. Does anyone here believe that if single payer were implemented he would object any less strenuously?

    • Katja says

      It would be far more honest of the government to institute single payer, than to conscript insurance companies into being welfare offices and tax collectors.

      I think there are a great many Democrats who would have loved nothing more than a single payer system. But that we didn’t get one has little to do with will, and a lot with feasibility. Replacing the existing system with single payer would have been a major upheaval. Even if they could have gotten the votes for it in Congress, it would have wiped out the existing health insurance industry. At a minimum, it would have made hundreds of thousands unemployed, and quite likely caused an economic contraction.

      For better or worse, the US economy is built around a high degree of wastefulness [1]. Healthcare makes up 17.6% of the US economy, as opposed to 9%-12% in Western European countries with single payer systems (or systems that are functionally equivalent to single payer). Do you have an idea what would happen if the GDP dropped by 7% overnight [2], not even counting the closures or downsizing occurring in the insurance industry because of that much business going away and being handled by the government?

      As for other countries before, this necessitated a more gradual transition, for better or worse. That meant building a system around the existing institutions and industries, but with better regulations. And while I’m not crazy about the exact implementation details of the PPACA, it is an improvement over the status quo ante, and I do realize that politics is the art of the possible.

      [1] It’s not just healthcare. For example, we’re throwing lots and lots of money away to finance the prison-industrial complex (where we’re paying tens of billions of dollars annually to destroy productivity). For another example, we somehow manage to have a higher net social spending (source) than any other OECD country except France, yet end up with a massively crappier welfare system than most of them.
      [2] It might not have happened literally overnight, but the writing would have been on the wall.

      • NCG says

        I agree single payer would (will be?) a major upheaval. But I still think it’s worth doing. At some point, people are going to notice the wastefulness of having health insurers.

        And I think (though I may be wrong … ) that a single payer plan could be voluntary, since it would naturally tend to cost less.

        While I’m whinging …. one of my beefs with ACA is that we are keeping MediCal. Why? If we are supposed to be all equal now, in access to care at least (and yes, I realize, that was not really anyone’s actual intention…), then why keep poor people separate? Why have a separate government health care system? Why not shove those people into Medicare, at least? They’re already being shoved into managed care, so how much more of an upheaval would it really be?

        ACA is a kludge, the kludge of kludges. I know I’m supposed to feel grateful, and I do, maybe a little. It is progress. But it is such grudging progress.

        • J. Michael Neal says

          No, a single payer system can’t be voluntary. If there is no mandate to buy coverage, you have exactly the adverse selection problem that New York has had. If there is no mandate, there is no universal coverage at a reasonable price. The latter absolutely requires the former under any model. That’s the nature of insurance.

          • SamChevre says

            If there is no mandate to buy coverage, you have exactly the adverse selection problem that New York has had.

            That’s what underwriting is for. It’s the ban on underwriting that caused NY to have such a mess of a market–you can require insurers to offer coverage to everyone at some price, and they will be perfectly able to do so; it’s “at the same price” that’s the problem. (This has always been my preference for health insurance reform–standard coverage, at an underwritten price–with subsidies for anyone who’s cost was more than 25% higher than the average as a percent of income.)

          • NCG says

            Actually, in my scenario, there are no insurers in the public option. Doesn’t that save a huge chunk of change? There’s no profit. There’s less paperwork.

            And if the price were reasonable, you’d see lots of healthy young people signing up. If we changed our lifestyles and stopped getting diabetes — which should be completely doable, if we really wanted it — that would save money too.

            Has anyone figured out what the price for this might be? I still think we should be trying to do this in California. I don’t care how long it takes.

          • J. Michael Neal says

            That’s what underwriting is for. It’s the ban on underwriting that caused NY to have such a mess of a market–you can require insurers to offer coverage to everyone at some price, and they will be perfectly able to do so; it’s “at the same price” that’s the problem.

            This is bullshit. Price discrimination WILL make it impossible for some people to buy health insurance. Take it from someone who has multiple pre-existing conditions.

          • J. Michael Neal says

            Actually, in my scenario, there are no insurers in the public option.

            If there is no insurer, then there is no insurance. The public option means that the government is the insurer. You can’t escape that.

            And if the price were reasonable, you’d see lots of healthy young people signing up.

            Sure, but a price that is reasonable for the young and healthy will not cover the costs of the entire population if you charge that same price to everyone. Our health insurance system is inefficient, but I think you have a vastly overblown sense of how inefficient it is. Eliminating every single piece of insurance overhead, which even the public option couldn’t do, would not eliminate this problem.

            There is no way around the problem of adverse selection. IF you want to provide insurance for everyone and IF you want it to be priced such that everyone can get it, even those who have been diagnosed with serious diseases and IF you want it to be actuarially sound rather than relying on a huge subsidy from the government (which is really just a different form of a mandate) THEN there is no alternative to requiring everyone to purchase it. That’s the nature of insurance.

            We can get away without a mandate for car insurance because we are prepared to live with the idea that some people will not be able to get it and thus cannot drive legally.

    • byomtov says

      It would be far more honest of the government to institute single payer, than to conscript insurance companies into being welfare offices and tax collectors.

      Yes. I well remember how hard conservatives and libertarians and Republicans worked to try to get a single-payer system instead of Obamacare.

      • Brett Bellmore says

        The fact that I’d rather not do A OR B doesn’t keep me from recognizing that one is more honest than the other.

    • Rob in CT says

      It would be far more honest of the government to institute single payer

      Excellent, let’s do it.

    • Francis says

      Unless you’re planning on getting a tattoo on your forehead that says “Do Not Treat”, there is no market for healthcare, because your fellow citizens have decided to give it to you even if you’re such a jerk as to refuse to finance the cost of it yourself. The only way to opt out of this obligation is to leave the country or elect a different government. The door is right over there —>

      While there are more rationale ways of financing this obligation — like directly thru tax dollars — path dependency plus unshakeable Republican opposition made Obamacare the only available option to start the process of creating a more sane approach for financing health care.

      • Brett Bellmore says

        Much like, unless I’m planning on starving myself to death, there’s no market in food?

        • J. Michael Neal says

          No. The nature of the payment structure for food is utterly unlike the payment structure for health care. No one will ever get hit with a six or seven figure food bill that they weren’t expecting.

  3. politicalfootball says

    A single-payer system would, cf course, be even more realistic about how markets work, and would make Obamacare look bad in comparison.

  4. Rob in CT says

    It’s pretty simple. A free/unfettered market in healthcare results in quite a few people who will simply not receive healthcare. Many of us reject this, so the free market approach is out. The libertarian does not mind the “some people won’t get care” issue, and so they prefer the free market approach. Of course, this tends to be popular with something like 5% of the population, if you really lay it out for them.

    • NCG says

      This is one of my many beefs with the right. I get that they don’t like the safety net to help poor or brown people. Fine. That’s where you are, whatever.

      Well, I don’t like war. Yet I would never dream of trying to make the military buy planes that can’t fly straight. That would be unpatriotic and disloyal.

      It would just have been nice to get the same level of cooperation. But, no.