Supporters of President Obama’s health care law were buoyed Wednesday morning by a report in the New York Times claiming that individual insurance premiums in the state would be “at least 50 percent lower on average” once the law kicks in next year. David Axelrod, former senior advisor to Obama, tweeted the story, boasting, “Another blow to naysayers: Rates in NY indy market to drop by 50 percent thanks to new health care exchanges.” So, does the news finally vindicate Obamacare? Not exactly.
To start, New York is a special case, because it is already one of the most regulated — and expensive — insurance markets in the country. The state’s regulators dictate the benefits that must be offered in every individual policy sold in the state, and according to the Council for Affordable Health Insurance, there are 62 such regulatory requirements on each policy in New York.
On top of this, New York is one of a few states that already forces insurers to cover those with pre-existing conditions. In other words, the current New York market already has in place the key Obamacare regulations that will drive up costs in most states. What the state does not have, however, is an individual mandate aimed at compelling more young and healthy people into the market to offset the costs of insuring older and sicker New Yorkers.
Once Obamacare adds a mandate and subsidized insurance exchanges, it’s totally plausible that premiums will be lower in New York under Obamacare than they are now. But it’s only because New York is already highly regulated. Even given this, a 50 percent reduction in premiums is unlikely. A Deloitte analysis released in March predicted premiums for individuals purchasing insurance on their own would fall 13.9 percent in the state. Another study, released by the Urban Institute last year, found that under Obamacare, average individual premiums would fall in New York, but from $5,620 annually to $4,860 — or roughly 13.5 percent.
If the goal were to bring down premiums in New York, the best way to go about it would have been to remove existing regulatory barriers that are driving up the cost of insurance by preventing individuals from buying policies that best fit their medical needs. It would have also helped if the federal government ended the discrimination in the tax code against individuals purchasing insurance on their own (rather than through their employers). Instead, Obama decided to impose New York-style burdens on insurance consumers in the rest of the country.