The New Health Dialogue

The New York Times had a gloom and doom story (which also compared apples and oranges, but we are getting ahead of ourselves) over the weekend about how New York's experience teaches us that national health reform will make insurance unaffordable because it will require insurers to cover sick people. It left out, or glossed over, dozens of ways in which New York's version of piecemeal insurance reform is different from the comprehensive national health reform plan.

This doesn't mean that we shouldn't pay attention to, and learn from, New York's experiences. (Or Massachusetts, Vermont, Minnesota, Wisconsin, Hawaii etc.) Of course we should. But we shouldn't assume that history is going to repeat itself, particularly when some of the lessons -- like the need for mandates -- have already been absorbed.

New York enacted "guaranteed issue" and "community rating." That means insurers have to cover anyone, and they can't charge some groups more than other groups. Nobody has to buy insurance though, nor do they have to buy it when they are healthy in order to be eligible when they get sick. No surprise really that New York prices went up. Affordable health insurance means that the risk pool has to be balanced out -- everyone should buy insurance, not just the sick people who already know they need insurance now and are often more costly to insure. And the NYT story says, enforcement of state law regarding limits to insurers profits were not well-enforced.

The story finally mentions the individual and employer mandates in the federal legislation somewhere around the 13th paragraph, and it notes, legitimately, that some experts and some insurers worry that the federal penalties for not complying with mandates going into effect in 2014 are too low, and that they may not be aggressively enforced. Those are fair questions. Massachusetts, of course, doesn't have huge mandate penalties, but the state is covering 97 percent of its population -- including large numbers of "young invincible" who have not been getting covered in New York. (We are not unaware that Massachusetts is still struggling with costs. But Massachusetts's health reform initiative was really a coverage initiative, without a comprehensive cost control strategy. Its state government and its health care sector are addressing costs now -- and that too is a process that the rest of the country should watch and learn from).

The federal law has numerous elements addressing cost, coverage and quality that the New York state law does not. Here are just a few:

• The federal law allows some price differential allowed between older and younger people (3:1 ratio), and between smokers and nonsmokers (1.5:1)
• The federal law sets up state exchanges or marketplaces that will regulate plans, define basic benefits, and have consumer protections.
• Federal rules on how much insurers have to spend on medical care, rather than administrative costs and profits, are more stringent than New York's.
• The federal law has mandates and requirements for both individuals and businesses, and subsidies and tax credits to make it easier for people to get covered and for small businesses to offer coverage. If everyone is in the pool, you don't have the self-selection of only sick expensive people getting insurance.
• The federal law takes some steps -- not all that we would have liked, but some significant ones -- to incentivize more efficient and higher quality care, which will squeeze some of the waste out of the system. And New York is one of the states with particularly high health spending.

None of this means we don't have to worry about prices and affordability. We do. The Senate HELP committee, in fact, this week is holding a hearing on "unjustified premiums hikes." The Washington Post, however, had a good story by David Hilzenrath on how the insurers' calculations about what to charge and who to cover -- before the new laws go into effect in 2014 -- may be subtler and more complex than we may imagine. It may turn out to be a race to jack up prices as much as possible as quickly as possible. But the insurers, at least some of them, may be thinking about how to position themselves for the new world and the new marketplace of health coverage for all. He writes:

Insurers might conclude that they should "get our prices up while we can because after the revolution we're not going to be able to," said Mark V. Pauly, a health-care economist at the Wharton School at the University of Pennsylvania.

But for all the incentives to get more aggressive in the short term, there are also counter-incentives, and it is hard to tell how they balance out.

From an economic standpoint, raising rates could cause insurers to lose business, especially in the more competitive markets.

As Pauly noted, in reference to the proposed rate hike in California earlier this year, "They are very good at shooting themselves in the foot."