There is some good news out of New York. Insurance premiums on the state’s small individual market are expected to drop by 50 percent as a result of the Affordable Care Act. This happened because the New York’s tiny individual insurance market suffered from a quasi-death spiral since the state required guaranteed issue and community ratings but didn’t offer subsidies to help people buy insurance. Only the sick bought coverage and premiums grew. Once the market grows beyond this small group of sick people the average will obviously drop.
Unfortunately this news has caused some to again spread the myth that it is individual mandate and not the subsidies which are mainly responsible for stopping this problem. For example Sarah Kliff in the Washington Post wrote:
A headline about the health care law driving down premiums, by this level of magnitude, is a rarity. But it shouldn’t be shocking: New York has, for two decades now, had the highest individual market premiums in the country. A lot of it seems to trace back to a law passed in 1993, which required insurance plans to accept all applicants, regardless of how sick or healthy they were. That law did not, however, require everyone to sign up, as the Affordable Care Act does.
New York has, for 20 years now, been a long-running experiment in what happens to universal coverage without an individual mandate. It’s the type of law the country would have if House Republicans succeeded in delaying the individual mandate, as they will vote to do this afternoon. The result: a small insurance market with very high insurance premiums.
This is not an accurate comparison because the subsidies are really what makes the big difference between what New York has and Obamacare, not the mandate. We know subsidies alone can and do stop this issue because there are plenty of examples.
Think of a large company that self-insures. They offer community ratings and guaranteed issue. Yet most of their employees, both the sick and the healthy, sign up for coverage even though there is no mandate. The reason most people sign up is because the companies normally offer a large huge subsidy to sign up, which makes getting insurance a good deal even if you are healthy.
The subsidies are doing the bulk of the work making sure a significant number of healthier people choose to sign up. The individual mandate is merely serving as added encouragement but is of secondary importance. Completely eliminating the mandate would produce a modest increase in the average price of premium but cause only a very tiny increase in what the average person would actually pay.
The fact that the mandate penalty will be almost non-existent next year is farther proof that the subsidies are what is mainly responsible for this development in New York.