Speaking Monday to New York’s powerful health-care union, SEIU 1199, Governor Andrew Cuomo declared his intention to preserve, protect, and defend the Affordable Care Act at all costs. Joining other Democratic governors, Cuomo announced his intention to replicate Obamacare at the state level, thus circumventing the federal government’s attempts to reform the law. More significantly, Cuomo announced that he is directing the Department of Financial Services (DFS), which oversees New York’s insurance rates, to reject any proposed premium increases submitted by insurers participating on the state health-care exchange. According to Cuomo, the proposed rate hikes—an average 24 percent across the state—would result in an increase of $1,500 per policyholder and provide a “bonanza to the private insurance companies.” Echoing a common refrain, Cuomo attributes these premium increases to the Trump administration’s alleged “sabotage” of Obamacare.
But Cuomo’s posturing not only mischaracterizes efforts to reform the Affordable Care Act; the governor also ignores what’s really driving up premiums in New York, and what may push insurers out of the market altogether. Obamacare proponents have long argued that the individual mandate is necessary to fund comprehensive, guaranteed health coverage for low-income individuals. Without the mandate, they say, younger and healthier people will drop out of the market and insurers will be forced to raise premiums to cover the sicker, more expensive patients left behind. Cuomo is borrowing this logic, saying that he won’t allow insurers to “profit” off the repeal of the mandate by raising premiums (which they’re doing in part because of the cost of New York’s inordinate coverage requirements).
The problem with Cuomo’s argument is that the individual mandate doesn’t work that way. As Manhattan Institute senior fellow Chris Pope has shown, the individual mandate as implemented is both unnecessary and unfair, since Obamacare’s guarantee of coverage is due entirely to the law’s generous subsidies, which expand automatically in response to insurer-driven premium changes. The structure of these subsidies can yield strange results, as during this past year, when many who qualified for subsidies found that it would be cheaper to buy a more expensive gold plan, as opposed to the mid-tier silver plan. Meanwhile, 79 percent of households that pay the mandate penalty have annual incomes of less than $50,000.
Despite predictions that the health-insurance market would collapse without the individual mandate, 2019 promises to be the first year since Obamacare went into effect that a mass insurer exodus isn’t in the offing. In fact, insurers are planning to expand their presence in Obamacare markets. Premiums increased an average 32 percent in 2018; next year, they are projected to rise only 15 percent. This renewed participation is driven primarily by the fact that, after years of raising premiums in the face of uncertainty, insurers finally understand how to navigate the exchanges and feel confident that they can enter the individual market without sustaining heavy losses.
Given this growing confidence and stability, why are insurers in New York proposing to increase premiums so sharply? Last year, the Department of Financial Services instructed insurers to file their proposed hikes as if Obamacare would remain on the books in 2018, even as the possibility of a full repeal seemed likely, thereby preventing them from adjusting for uncertainty. This is a common theme in New York, where a 2010 “prior approval” law gives DFS the power to approve, reject, or adjust premiums in the individual market. For years, DFS has used this prerogative to suppress premiums artificially in the individual market. Each year that DFS pushes premiums down, it guarantees that insurers will come back next year with a higher rate hike.
This brings us back to the governor’s gambit. By instructing DFS to reject requests for premium increases, Cuomo is not only perpetuating this vicious cycle of price suppression—he’s also playing a dangerous game of chicken with the insurance companies. DFS may have the last word on setting premiums, but by refusing to negotiate, Cuomo may wind up pushing insurers out of the individual market altogether, leaving New Yorkers to face higher premiums along with fewer choices. Insurer exits would be particularly nasty, thanks to the executive order that Cuomo signed last year, which prohibits any insurer who exits the individual market from participating in other marketplace plans, including Medicaid and Child Health Plus. Clearly, the governor is betting that insurers would rather bow to his demands than give up their place in such a large market. He shouldn’t take that bet.
Instead, Cuomo should focus on substantive efforts to keep premiums low, as Alaska did in 2017. Left with only one exchange insurer and facing a 42 percent increase in premiums, Alaska established a reinsurance fund that would subsidize the most expensive claims, reducing insurer costs. In the end, premiums rose just 7 percent, and Washington agreed to reimburse the state for what it spent on the reinsurance fund, since it saved the feds nearly $48 million in 2018 alone.
Governor Cuomo has made it clear that he intends to put politics before policy when it comes to health care. He should reconsider: in the long run, he can score more political points by working with the insurers than by dictating terms that could destroy the state’s insurance market.
Photo: New York Governor's Office