In his annual State of the State Address in January, Wisconsin Gov. Jim Doyle (D) proposed a new measure, Healthy Wisconsin, to “help lower health care costs and pass along the savings to middle-class families.”
Doyle was proposing to replicate New York’s program for the uninsured, known as Healthy New York. The New York program combines a private “mandate-lite” benefit plan with a state reinsurance subsidy. It is available to lower-income workers only. Advocates across the nation are touting the purported success of Healthy New York, and “State Coverage Initiatives”–a Robert Wood Johnson Foundation project–published a profile of the program in January 2005.
But critics argue the program doesn’t really address the problem of the uninsured. They say New York policymakers are merely tinkering with a dysfunctional health insurance system of their own making.
High Insurance Costs
New Yorkers currently pay the country’s second-highest health insurance premiums. According to a 2004 eHealthInsurance report, only Boston tops New York City’s individual health insurance rates. On the state level, another eHealthInsurance report, published in October 2004, found New York state’s individual health insurance policy costs are second only to those of New Jersey.
In the group market, New York doesn’t fare any better. According to the book Destroying Insurance Markets, co-published by The Heartland Institute and Council for Affordable Health Insurance (CAHI) in 2005, New York is the second most expensive state for group family coverage.
That’s important because the more insurance costs, the more people choose to join the ranks of the uninsured. The U.S. Census Bureau reported that 14.7 percent of New Yorkers are uninsured–more than in neighboring states, including Pennsylvania (11.5 percent), New Hampshire and Connecticut (11 percent apiece), and Vermont (10.3 percent). New Jersey, where insurance usually costs a little more than New York, has about the same percentage of uninsured (14.6 percent).
New York’s health insurance affordability problem is largely self-made. In 1993, legislators responded to an Empire Blue Cross/Blue Shield financial crisis by imposing guaranteed issue and community rating on the small group and individual markets. By requiring insurers to accept any applicant regardless of health status (guaranteed issue) and forcing them to charge everyone the same premium (community rating), lawmakers hoped to make health insurance policies more affordable for people with pre-existing medical conditions.
They achieved that goal, but at the same time younger and healthier people were forced to pay much more than they would have if insurers had been allowed to underwrite the policies as before. As a result, younger and healthier people began canceling their policies. Those who remained in the pool saw their premiums rise significantly, making coverage unaffordable for most.
Thus the high cost of health insurance in New York and the inevitable growth of the uninsured–both products of previous government reform efforts–forced New York lawmakers to create yet another reform: the Health Care Reform Act of 2000, which established Healthy New York.
Healthy NY Program
Healthy New York limits enrollment to lower-income individuals (sliding scale up to $25,125) who have been uninsured for at least 12 months, or implementation by companies employing 50 or fewer persons. The program is heavily promoted through paid radio, television, and newspaper ads and other methods.
The program lowers premium costs in two ways. First, it limits costs by allowing insurers to offer “mandate-lite” plans not otherwise available in the private market. Second, it subsidizes the coverage by covering 90 percent of insurer claims between $5,000 and $75,000.
The reduction of mandates is an important aspect of the program. Mandated benefits, which require insurers to cover specified providers and treatments, can significantly increase health insurance costs. According to the CAHI report, Health Insurance Mandates in the States 2006, New York has 49 benefit mandates.
Unlike the private market, which is highly regulated in the state, Healthy New York (which uses private firms but is run by the government) is able to offer mandate-lite benefit plans that exclude mandated coverage for mental health services, alcohol and substance abuse treatments, chiropractic care, hospice care, and more. CAHI and many other health insurance groups, think tanks, and health policy experts have supported reducing or eliminating state mandates for years, and more than 10 other states offer some form of mandate-lite programs. What makes Healthy New York unique is that it limits access to mandate-lite policies to uninsured individuals and small businesses that meet the income criteria.
Despite the lower premium costs and heavy promotion, Healthy New York attracted fewer than 107,000 people by December 2005. The program’s 2005 budget of $58 million is expected to grow to about $125 million by 2007.
Does the program make health insurance premiums affordable? The savings for enrollees can be considerable. In Albany County, Healthy New York’s monthly plan rates range between $158 (Empire HealthChoice, Inc.) and $222 (Capital District Physicians’ Health Plan). The only plan available through eHealthInsurance’s Web site for a 25-year-old male would cost more than $335 a month.
Clearly, Healthy New York provides savings for its beneficiaries, but the high prices in the individual market exist primarily because New York’s 1993 health insurance reforms destroyed the state’s market for individual health insurance. The same person applying for coverage in Lacrosse, Wisconsin–named the most costly health care region in the country by the U.S. Government Accountability Office in September 2005–would receive quotes as low as $41 a month for a policy with a $5,000 deductible. A policy comparable to those from Healthy New York would cost $160 a month without any state subsidy necessary to induce firms to provide it. (See table.)
“Giving people access to less-expensive, mandate-lite policies is a good idea,” CAHI Director Merrill Matthews said. “But why restrict those policies to low-income uninsured people? Many New Yorkers who currently have insurance coverage have lower or moderate incomes. If mandate-lite policies increase access to affordable coverage, why not let every New Yorker have that opportunity?”
The attempt to subsidize coverage for lower-income, uninsured workers might be one way of doing that, Matthews said, but he questioned the tactic of doing it through the state government.
“A direct subsidy, perhaps with a tax credit applied toward an individual’s state income tax, would be more efficient and transparent,” Matthews explained.
Matthews says Healthy New York is a poor way to fix the state’s dysfunctional health insurance market. What the state should do, he suggests, is repeal its guaranteed issue and community rating laws, relax some of its mandates and regulations, and allow more choice and innovation in the health insurance market. Insurers would return to the state, premiums would drop, and the state wouldn’t need Healthy New York, he points out. Plus, New York would finally have a health care reform model worth imitating.
J.P. Wieske ([email protected]) is director of state affairs for the Council for Affordable Health Insurance.
For more information …
“Profiles in Coverage: Healthy New York,” a January 2005 report of the Robert Wood Johnson Foundation, is available online at http://www.statecoverage.net/newyorkprofile.htm.
“Health Insurance Mandates in the States 2006,” published in March 2006 by the Council for Affordable Health Insurance, is available online at http://www.cahi.org/cahi_contents/resources/pdf/MandatePub2006.pdf.
Destroying Insurance Markets: How Guaranteed Issue and Community Rating Destroyed the Individual Health Insurance Market in Eight States, published by the Council for Affordable Health Insurance and The Heartland Institute in 2005, is available for purchase in The Heartland Institute’s online store at https://www.heartland.org/apps/store/store.cfm. The full text can also be downloaded for free at http://www.heartland.org/books/destroying.cfm.