Obamacare: New York State Shows the Fiscal Peril

The New York Times business section has run a story demonstrating the peril of Obamacare’s anti insurance underwriting provisions that could ultimately make insurance unaffordable.  From the story:

The problem stems in part from the state’s high medical costs and in part from its stringent requirements for insurance companies in the individual and small group market. In 1993, motivated by stories of suffering AIDS patients, the state became one of the first to require insurers to extend individual or small group coverage to anyone with pre-existing illnesses. New York also became one of the few states that require insurers within each region of the state to charge the same rates for the same benefits, regardless of whether people are old or young, male or female, smokers or nonsmokers, high risk or low risk.

Healthy people, in effect, began to subsidize people who needed more health care. The healthier customers soon discovered that the high premiums were not worth it and dropped out of the plans. The pool of insured people shrank to the point where many of them had high health care needs. Without healthier people to spread the risk, their premiums skyrocketed, a phenomenon known in the trade as the “adverse selection death spiral.”

The consequence has been higher premiums and a consequent plummet of individual health insurance purchases:

“You have a mandate that’s accessible in theory, but not in practice, because it’s too expensive,” said Mark P. Scherzer, a consumer lawyer and counsel to New Yorkers for Accessible Health Coverage, an advocacy group. “What you get left clinging to the life raft is the population that tends to have pretty high health needs.” Since 2001, the number of people who bought comprehensive individual policies through HMOs in New York has plummeted to about 31,000 from about 128,000, according to the State Insurance Department. At the same time, New York has the highest average annual premiums for individual policies: $6,630 for single people and $13,296 for families in mid-2009, more than double the nationwide average, according to America’s Health Insurance Plans, an industry group.

The mandatory purchase provision is supposed to prevent the death spiral:

The new federal health care law tries to avoid the death spiral by requiring everyone to have insurance and penalizing those who do not, as well as offering subsidies to low-income customers. But analysts say that provision could prove meaningless if the government does not vigorously enforce the penalties, as insurance companies fear, or if too many people decide it is cheaper to pay the penalty and opt out. Under the federal law, those who refuse coverage will have to pay an annual penalty of $695 per person, up to $2,085 per family, or 2.5 percent of their household income, whichever is greater. The penalty will be phased in from 2014 to 2016.

I think the mandatory purchase provision is unconstitutional, and if so, the entire edifice will collapse.  But even if it survives the Supreme Court, New York’s experience shows that the plan is not viable in the long term.  Besides, if people know they can obtain insurance as soon as they become sick—I don’t think there is even a waiting time provision in the law—then many will decide to pay the fine at a much lower cost then buying insurance- in the secure knowledge that they can obtain coverage whenever they want.

Cynics might think this is a case of failure by design, ultimately leaving single payer as the only other option.  Me?  I think it was just incompetence and wheeling and dealing.  This bill isn’t a well thought out plan, it’s a hodgepodge erected with the glue of political expediency. Oh, and the desire for hyper control.  But any way you look at it, Obamacare is a disaster.

Repeal. Reform. Replace. Defund.