Adverse Selection in New York State

Currently New York State’s individual insurance market is structured with only one of three major components of the Obamacare exchange products.  New York state requires insurance companies to sell insurance to anyone who applies for it.  This is community rating and it is a shared policy with Obamacare.  However, New York state has no mandate so the only people who are looking to buy insurance are those who are either currently sick or very strongly believe that they will soon be using a lot of medical services.  New York also has no subsidies to help people pay for their insurance.

Predictably, the New York state individual insurance market is dominated by people who are ill as no one else sees the value in buying insurance that is way too expensive for regular risk.  Below is a screenshot of the individual market rates for a single county for September 2013.  The rest of the file is here: 



The New York Times last June reported on the projected Exchange policy’s premiums.  The cost differential is significant:

State insurance regulators say they have approved rates for 2014 that are at least 50 percent lower on average than those currently available in New York. Beginning in October, individuals in New York City who now pay $1,000 a month or more for coverage will be able to shop for health insurance for as little as $308 monthly. With federal subsidies, the cost will be even lower…

 Because the cost of individual coverage has soared, only 17,000 New Yorkers currently buy insurance on their own. About 2.6 million are uninsured in New York State.

State officials estimate as many as 615,000 individuals will buy health insurance on their own in the first few years the health law is in effect. In addition to lower premiums, about three-quarters of those people will be eligible for the subsidies available to lower-income individuals….

The politicians are praising the competitive aspect of the exchange marketplace.  That is most likely a mild factor, but it is a secondary factor.  The big difference between Obamacare individual policies and current New York community issue without mandate policies is the composition of the risk pool.  The current risk pool is older and much sicker than the general population.  The new Obamacare Exchange risk pool is relatively young and relatively healthy.  These people will be jumping into the risk pool because they are mandated to do so and the subsidies in Obamacare makes it possible for them to do so. 


26 replies
  1. 1
    tybee says:

    any idea on when those of us who live in states that have refused to set up exchanges will know how much insurance will cost?

  2. 2
    lojasmo says:

    Now that my employer has pulled their collective head out of their ass, my $4900 in medical bills (coinsurance) are being accepted by my wife’s insurance.


    ETA: My employer is also my health care provider.

  3. 3
  4. 4
    MomSense says:

    Thank you Richard for another great post.

  5. 5
    Richard Mayhew says:

    @tybee: The states that are not building their own exchanges are using the Federally built exchange. Those exchanges should be going live October 1st.

    My recommendation is to look around that first week, do some serious comparison shopping and wait a little bit before actually buying.

  6. 6
    Dead Ernest says:

    Only surprise is that given the marked decrease in cost, and the availability of subsidies, that (even in just the first year) only 615,000 out of 2.5 million, will buy.
    Richard, why do you figure the number joining up in the first year isn’t higher?

  7. 7
    Xantar says:

    @Dead Ernest:

    I figure a large part of the answers is sheer ignorance. I work for a non-profit in Maryland which is contracted to do outreach for the Affordable Care Act. 90% of people here still don’t know what Obamacare does or and are unaware that they qualify for tax credits. I’ve had a lot of sessions in which I had to correct people asking, “How do I get some Obamacare?”

    And it’s not as if the benefits of the law are really easy to explain, either. In the office, we make a lot of fun of the commercials that the Maryland Health Connection is running, but truth to tell, I couldn’t do any better if I only had 30 seconds to sell someone on the exchange.

  8. 8
    cvstoner says:

    As predicted, this will make a vast improvement in the quality of millions of peoples’ lives.

    The trick, going forward, will be to enact further improvement once the system has been adopted by all of the states. This is not the end of the war, just one more battle in the long fight to improve health care in this country.

  9. 9
    Dead Ernest says:


    I’m certain you’re right X.
    I was wondering if that was what the NY Times was figuring when they made that estimate, or if there was some other factor in play (in their opinion anyway).

  10. 10
    Yatsuno says:

    @Xantar: I’ve heard a few radio commercials in WA, and pretty much all they do is direct to the main exchange website. But at least our socialist football team is involved as well.

  11. 11
    David in NY says:

    Thank you. That’s perhaps the most enlightening example of why a mandate works that I’ve seen in the “debate” on Obamacare.

  12. 12
    Xantar says:


    The Ravens are involved, too. Our commercial ran during their game, and they are apparently going to have their players do a PSA.

    It could be pretty helpful, actually. A survey found that 70% of the uninsured in Maryland have watched at least one Ravens game.

    Joe Flacco is still a douche, though.

  13. 13
    PurpleGirl says:

    Richard — Have you done any exploration of the situation in New York City? Here you have a pretty good municipal hospital system which, in effect, has its own (sort of) insurance program.

    I’m an uninsured who goes to a hospital clinic for my health care and prescriptions. I pay a nominal amount for both. I haven’t bought insurance from one of the state sponsored companies because even from them the premiums looked to be close to my monthly rent and I’m living on savings. (Long story.)

  14. 14
    ChrisNYC says:

    I bought insurance individually in NY until last January. NY does have a plan for people with pre existing conditions — the NY Bridge Plan (the bridge to Obamacare). It is subsidized. It was $426 a month as opposed to the regular $700.

  15. 15
    Richard Mayhew says:

    @PurpleGirl: I don’t know enough about the details of NY City or State individual programs to comment intelligently about any of them — sorry about that.

  16. 16
    PurpleGirl says:

    @Richard Mayhew: Thank you for responding.

  17. 17
    tybee says:

    @Richard Mayhew:

    thanks for the info. i’ll keep my eyes peeled….

  18. 18
    Seanly says:

    Getting rid of community rating was one of the worst scams of insurance companies in the early 90’s (maybe earlier). In ’91, I was still fresh out of college and working at my first job for a small engineering firm (well, medium size back then). They switched from community rating to whatever they call rating for just the people in our firm. It was goign to save us so much money because we were all so healthy the last few years. The next year, one guy had a heart attack and my department head’s daughter was found to have brain tumor. The rates doubled the next year.

    At the time of the happy happy meeting about moving off community rating I remember thinking that it didn’t jive too well with what I understood of how insurance worked, but I was just a 23 year old snot-nosed kid.

  19. 19
    PopeRatzo says:

    This is community rating and it is a shared policy with Obamacare. However, New York state has no mandate so the only people who are looking to buy insurance are those who are either currently sick or very strongly believe that they will soon be using a lot of medical services. New York also has no subsidies to help people pay for their insurance.

    This has been another episode in “Why Obama’s Health Care Reform” blows. Who couldn’t foresee that health care reform designed by hundreds of legislators would be an absolute cluster-fuck. Remember Rahm telling us that the public option was “off-the-table”? Remember “big pharma’s input”? Remember, “leading from behind”? Fucking Obama… he could have at least fought for a public option.

    In light of everything that’s happened since Obamacare passed, I think it’s fair to re-evaluate his “administration’s greatest success”. It’s the same story with everything he does.

  20. 20
    MattR says:

    @PopeRatzo: Huh? This points out how the lack of a mandate has led to high costs in NY state’s current system and how the changes in policy resulting from the implementation of Obamacare will cut those costs in half. Yet this is somehow proof that Obamacare sucks?

  21. 21
    Tissue Thin Pseudonym (JMN) says:

    @PopeRatzo: So, you start from your conclusion that Obama sucks and work backwards, ignoring the information in the post so that you don’t have to revise your opinion?

  22. 22

    The big difference between Obamacare individual policies and current New York community issue without mandate policies is the composition of the risk pool. The current risk pool is older and much sicker than the general population.

    Yes, but it’s older and sicker simply because the industry collectively raised the price of coverage, in an effort to change the law, as has happened in other states where local government has committed the crime of regulating health insurers to their dissatisfaction.

    If the price of an individual policy for a single, thirty-year-old male hadn’t skyrocketed from an annual average of $1,200 to $3,200 the month after guaranteed issue became law (March, 1993), then the individual market wouldn’t have shrunk by 4% that year, as people facing the prospect of those bills decided to take their chances, instead.

    But these prices didn’t rise on their own, nor are the price increases the natural result of rational calculations into the exact moneys required to meet the risk of claims. Having twisted back-room arms successfully against the legislative possibility of price controls, a well-established industry –enjoying a federal anti-trust exemption– was able to raise prices en masse in a single month, in an effort to force the state to repeal guaranteed issue over the coming few years (election cycle). That’s it.

    The reason why guaranteed issue was catastrophic wasn’t because of a theoretical “adverse selection,” it was by design, as collective punishment usually is.

  23. 23
    Tissue Thin Pseudonym (JMN) says:

    @Stuart Zechman: Uhm, no. What saw was adverse selection at work. The reason the cost of policies shot up is because the insurance companies were about to have to insure everyone at the same price.

  24. 24
    lojasmo says:


    Bin Laden would like a word with you.

  25. 25
    PopeRatzo says:


    Bin Laden would like a word with you.

    That’s a new one: “Bin Laden is dead, so the ACA is a great law!” Even by Loyalist standards, that’s pretty bold.

    And by the way, the 50 civilians who have been killed as collateral damage for every terrorist Obama has splashed with a drone would like a word with you, friend.

    (and yes, I have a citation for that number, and it happens to be the President’s alma mater:

  26. 26

    @Tissue Thin Pseudonym (JMN): That’s what AHIP claims, certainly. They say that they’re just reacting to market conditions, not colluding or price-fixing. The only difference between the insurance industry and any other market participants is that insurers are some of the most over-regulated businesses in the US, in AHIP’s way of telling it.

    I, on the other hand, agree with what President Obama’s Administration said about the situation back in February of 2010, when Robert Gibbs declared

    T]oday the President announced the administration’s strong support for repealing the antitrust exemption currently enjoyed by health insurers. At its core, health reform is all about ensuring that American families and businesses have more choices, benefit from more competition, and have greater control over their own health care. Repealing this exemption is an important part of that effort.

    Today there are no rules outlawing bid rigging, price fixing, and other insurance company practices that will drive up health care costs, and often drive up their own profits as well.

    I’m afraid that the notion of New York State health insurers simply facing prices in a perfectly competitive marketplace is naive at best, Stuart Butler policy premise at worst.

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