A Primer On The Impact Of Regulations On Health Insurance Costs

Here’s a thought-provoking article from Fortune comparing health insurance costs in New York and Arizona, and analyzing how the regulatory regimes in those states have affected those costs.  The article notes that health insurance costs in New York are far higher, and the available options are far fewer, than in Arizona.  It attributes the cost difference, at least in part, to two regulatory requirements that exist in New York but not Arizona.

One of the regulatory requirements is “guaranteed issue,” which means plans operating in New York must accept all applicants regardless of their medical condition.  Health insurers therefore cannot exclude applicants because of “pre-existing conditions” — an approach which, as I have noted previously, encourages people to wait to apply for health insurance until they are immediately facing significant health care costs.  The second regulatory requirement is called “community rating,” which means that all applicants must pay the same amount regardless of their health condition.  So, young healthy people who have low health care costs pay the same amount as older people who make much greater use of health care.  As a result, the younger and healthier participants in the insurance pool are directly subsidizing the health care of older and less healthy participants.

New York imposes the “guaranteed issue” and “community rating” requirements, and as a result the health insurance costs for young healthy people are much higher than they are in Arizona, which does not impose those requirements.

What does that mean for the rest of us?  It is relevant because the “health care reform” legislation recently enacted by Congress and signed into law by President Obama imposes both the “guaranteed issue” and “community rating” concepts, although the “community rating” requirement is not as stringent as that which exists in New York.  The question is whether those two requirements will operate to push up health insurance premium costs.  The experience in New York — and common sense — suggest that that is exactly what will happen.  And the increased burden will fall most significantly on the shoulders of young, healthy individuals who use health care the least.

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