Why is health insurance so expensive in NY and what does this mean for health reform?

Here are the current health insurance premiums for individuals purchasing health insurance in New York. The cheapest HMO bought by an individual is $774.46 this month.

There are a few implications of health reform that are extremely important to the future cost of health insurance:

  • Insurance companies cannot deny patients due to age or pre-existing condition (essentially, they cannot risk stratify)
  • Mandates to cover more minimum health services like preventive measures
  • Insurance companies cannot employ a lifetime cap on your medical claims (more risk)

All three of these mandate a much larger offering from insurance companies.

New York is one of the few states that has both “guaranteed issue” and “Community Ratings:”

Community Rating, as a basis for premium calculation, is fundamentally different from the usual method of determining insurance premiums, i.e. risk rating. In a risk rated insurance market, an insurer calculates the premium payable by a potential policy holder in order to enter into an insurance contract on the basis of various factors particular to that individual, such as the risk of a claims occurring, and the value of any such a claims during the term of an insurance policy. In a Community Rated market, the insurer may not calculate premium on the basis of the risk factors attaching to the partiular person wishing to effect an insurance contract, but rather the risk factors applying to all persons within the market as a whole. Thus, in a Community Rated market, the insurer evaluates the risk factors of market population, and not those of any one person when calculating premiums.

Yesterday, I went to lunch with a gentleman who lives here in Williamsburg. He told me his insurance premium is $75 a month. I looked at him strangely and he immediately said, “I purchase my health insurance through my employer in Alabama.”

Alabama does not have community ratings. Nor does California.

The new mandates from the federal government within the current main health reform bill essentially eliminates risk rating and mandates community ratings across the board. Therefore, the cost of health insurance in all 50 states will very likely quickly increase to the cost of health insurance in NY. A resonable plan in NY at the moment is $215 per individual per month with a $5,000 deductible. And you must be a member of the Freelancer’s Union for six months to get this. An equivalent plan in California is $70 a month, bought as an individual in the free market without having to be a member of a group.

People in Alabama and the rest of the United States, enjoy it while it lasts. Your insurance premiums will likely double. And people in NY, be glad your premiums will probably only increase by 10-20%. Because the insurance companies can.

For more information, see this post (and don’t forget to read this comment). Also, here’s a great article in the WSJ called “The Truth about Health Insurance:”

ObamaCare would impose on all 50 states rules that have already proven to be failures in numerous states. Because these mandates would raise the cost of insurance, ObamaCare would then turn around and subsidize individuals to buy the insurance that the politicians made more expensive. Only in government could such irrationality be sold as “reform.”

No wonder the insurance companies are salivating.