“Insurance companies shouldn’t be able to discriminate!” makes for a great sound bite, but expensive insurance.

New York and a few other states have the kind of insurance regulations that President Obama and others call for. They’re called “community rating” (limits on how much an insurance company can “discriminate” by charging the sickest people more) and “guaranteed issue” (nobody can be turned down for a policy).

Since these policies are already in place, it might be worth asking, before we apply them nationwide, how they’re doing in New York, a populated and wealthy state.

The answer: They’ve got some serious problems.

Stephen Parente and Tarren Bragdon look at the effects of these regulations in New York. The uninsured population there is about the same as that of the country as a whole. I suppose supporters of guaranteed issue and community rating could say “See! New York actually insures MORE of its people because of these regulations.” I suspect that a more likely explanation is the state’s generous Medicaid program. If you haven’t noticed, the state is nearly broke.

Parente and Bragdon suggest four reforms:

  1. Repeal of community-rating and guaranteed-issue laws
  2. Approval of Health Savings Accounts for New York’s individual-insurance market
  3. Permission to individuals to shop for approved and affordable health-insurance policies across state lines
  4. Approval of “mandate-lite” plans, which permit insurers to offer plans with narrower coverage for sale in New York

Parente and Bragdon use survey and focus-group data from Zogby International to estimate the effects of these reforms. Taken together, these reforms would have a significant impact. Repealing community rating and guaranteed issue requirements would drive the price of individual insurance policies down 42% and encourage 37% of those without insurance to get it.

Cross-posted from State House Call.

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