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New York: Model or Warning?

by Paul Howard, Nov 09, 2009
 

What does health care reform mean for New York?

The better question might be what New York’s strict insurance regulations and high spending on Medicaid means for the nation. If Congress follows in our footsteps -- as key bills in the House and Senate seem to do -- New York's situation might not get any worse, but certainly won’t get any better.

And the status quo is simply unsustainable in the long run.

New York’s world class hospitals and physicians offer cutting edge health care -- at least if you have good health insurance. Currently, there are about 2 million uninsured in the state, about 14 percent of the non-elderly population (residents over 65 are covered by the federal Medicare program).

Regulating and Spending

But Albany has not ignored the problem of the uninsured. New York’s private, individual health insurance market is among the most heavily regulated in the nation. New York state laws mandates "guaranteed issue" of private health insurance, meaning that insurers cannot deny coverage because of health status, such as pre-existing conditions. The law also mandates community rating, which requires insurance companies to charge policyholders the same premium, regardless of age, gender or health.

These policies were intended to make insurance more affordable for New Yorkers who are older or who have chronic health conditions. Instead, prices have shot up, as young, healthy people were charged higher premiums and decided they were better off without expensive coverage they would probably never use.

In fact, the market for individual, unsubsidized health insurance has nearly disappeared, plummeting by 96 percent since 1994, after the reforms were implemented. New York City residents can expect to pay at least $9,036 a year for individual coverage, or $26,460 for family coverage -- hardly the "affordable" premiums reformers expected.

As the private market atrophied, Albany responded by expanding coverage through public programs like Medicaid. But New York’s Medicaid spending (projected to be over $49 billion in 2010) is breaking the state budget. We spend far more on Medicaid than any other state in the nation, in part because the program has become heavily politicized in Albany by powerful union lobbyists. Gov. George Pataki, for instance, cost tax-payers billions when he cut a backroom deal giving raises to workers in the powerful Service Employees health care union in return for their support for his 2002 re-election bid.

To their credit, Gov. Eliot Spitzer and then Gov. David Paterson recognized that Medicaid spending was out of control and the state wasn’t getting above average health outcomes for our much higher levels of spending. But fixes to date have been largely cosmetic -- in fact, Albany has used federal stimulus funds to expand Medicaid coverage. Paterson projects that nearly one out of every four New Yorkers may be on the Medicaid rolls by 2013.

In New York's Footsteps

The reform plans being considered in Washington, D.C. closely follow New York’s flawed strategy, including guaranteed issue and community rating requirements, increasing Medicaid coverage (to cover people with incomes of up to 150 percent of the federal poverty level) and billions in new taxes on health insurance companies along with heavy subsidies to help the uninsured buy government-mandated coverage. The only twist is a requirement that the uninsured must buy coverage, and employers must offer coverage or pay a penalty, moves that advocates hope will help keep young and healthy residents in insurance pools and so lower costs.

The problem is that this approach has already been tried in Massachusetts, which added an individual mandate in 2006. Since then, state spending has skyrocketed, and the Bay State has the most expensive insurance premiums in the country -- projecting double-digit increases again next year.

If Congress continues on its current trajectory, we’ll see more of the same: higher insurance costs, higher health care costs, more taxes and more deficit spending. That’s bad news for New York, which is already grappling with a severe fiscal crisis.

Looking at the Alternatives

If we’re going to get control of our health care costs, lower the number of uninsured and reform safety-net programs like Medicaid, we need to get beyond the screaming matches and finger-pointing that characterizes so much of the health care debate.

Here’s how:

-- Let markets do what markets can do well: set prices and allocate resources. In a recent report from the Manhattan Institute’s Empire Center for New York State Policy, researchers Stephen Parente and Tarren Bragdon advocate for a handful of market-based reforms that could make private health insurance much more affordable.

They found that repealing the community rating and guaranteed issue laws would reduce the number of uninsured by 18 percent and 19 percent respectively, and lower premiums by 42 percent. Letting New Yorkers buy health insurance plans licensed in Connecticut and Pennsylvania, where policies can cost 25 percent less than in New York, could allow as many as 26 percent of the uninsured to buy their own policies. Overall, these market reforms would lead up to 780,000 New Yorkers back into the private market.

-- Set up a safety net for New Yorkers with high-cost, chronic illness. Parente and Bragdon advocate creation of a pool for high-risk New Yorkers who would otherwise have to pay high premiums. Today, 35 states have such pools.

-- Tell Congress to focus on real, bipartisan reforms that gradually bend the cost curve of health care. The president promised not to sign any health-care bills that cost more than $900 billion or increased the deficit by one dime. The current bills meet that pledge -- but only through fiscal gimmicks, such as assuming that Medicare will slash physician reimbursements by more than 20 percent starting in just two years. That will never happen, pushing the House and Senate versions of reform well north of $1 trillion. New Yorkers will pay for those costs through higher taxes, lower wages, and higher insurance premiums.

A better approach is to start with basic, fundamental reforms -- like fixing the tax treatment of health insurance. Economists generally agree that excluding employer-provided health insurance from income taxes is unfair (the rich get more of a benefit than the poor), arbitrary (why link insurance to employment?) and expensive (by making health insurance seem free, workers ask for generous plans that drive up health-care spending).

Replacing that exclusion with a universal tax credit or standardized tax deduction for all Americans would help millions of the uninsured afford coverage, put money back in people’s pockets through higher wages, and slow the growth in health care costs that is crippling private and public budgets.

The basic idea has been embraced by everyone from Sen. John McCain to one of Obama’s health care advisors, Jason Furman. By mixing a safety net for those with chronic illness to market incentives that put patients and families in control of their own portable health insurance, we can help slow the rise in health-care costs and cover the uninsured.

We have tried time and again to fix health care by relying on top-down solutions cobbled out behind closed doors in Albany and D.C. They have failed every time. We need a different approach.

Mr. President, do you still have that reset button?

Paul Howard is the director of the Center for Medical Progress at the Manhattan Institute and managing editor of MedicalProgressToday.com.


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