Behind New York State's Obamacare Insurance Rates

Photograph by Timur Emek/Getty Images

New Yorkers who don’t get health insurance through their jobs will be able to buy individual health plans next year at rates about half the cost of current policies, New York State announced on Wednesday. That’s not surprising because the way the state’s insurance market was previously structured had driven the price of coverage among the nation’s highest.

Small businesses shopping for next year’s health policies won’t enjoy a similar drop in costs. They can expect to pay roughly from $300 to $600 a month to buy employees a mid-range “silver” health policy, according to a table of rates (PDF) released by the state. Small employers may see a modest increase, says Craig Hasday, chief operating officer of New York benefits broker Frenkel & Co. “It’s not going to be earth-shattering,” he says.

New York’s rates offer the latest window into what employers can expect from the first year of Obamacare. Several other states, including Oregon, Colorado, and Washington, have published the prices insurance companies want to charge for coverage next year. They’re generally similar to, or slightly less than, current premiums. California has released rates for individual policies but not for small employers.

New York Governor Andrew Cuomo’s news release says it’s unfair to compare New York’s small group plans for 2014 to policies offered in the past:

In 2013, insurers offered more than 15,000 different small group plans that significantly varied in terms of the quality and level of coverage provided. This year, insurers are offering standardized contracts and product offerings within metal tiers (bronze, silver, gold, and platinum).

The approved small group rates, however, are generally lower than indicated by the estimates of other independent forecasters.

Nine insurance companies are offering small group plans on the state’s new health benefit exchange created by the Affordable Care Act. Another 13 will sell small employers policies only outside of that marketplace.

Aetna, Empire, and United are among the big insurers steering clear of the exchange. While all three will use the exchange to market plans to individuals, who can qualify for subsidies if they can’t afford coverage, they’ll only insure New York businesses outside the new marketplace.

That may be because of how the market is structured. Employers who sign up for exchange coverage can choose multiple plans to offer their workers. The fear is that only the sickest workers will buy the most comprehensive coverage, Hasday says. “[Insurance] carriers are concerned about putting their best plans forward and not being able to control the risk,” he says. Off the exchange, insurers sell policies that cover a company’s entire workforce, so they don’t have to worry as much about adverse selection.

The same dynamic explains why rates in New York’s individual market were so high. Only about 17,000 New Yorkers buy individual health plans in a state that has 2.6 million uninsured, Bloomberg News reports. State rules forced insurers to offer coverage to everyone, regardless of how sick they were, without forcing healthy people to buy insurance. That created an insurance market in which  the people buying policies tended to be sick people who needed lots of medical care. The resulting coverage “was so expensive that nobody ever bought it,” Hasday says. “It was really the last recourse. I’m sure that the risk pool was horrendous.”

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