Thursday, November 5, AD 2009
Ezra Klein has a post up trumpeting a new paper from MIT economist Jon Gruber which purports to show that Massachusetts significantly reduced individual health care premiums through its 2006 health care reform bill — which in many ways was similar to the Democratic proposals currently moving forward in congress. (Needless to say, this would be contrary to what most people who have actually experienced health care in Mass., even this liberal speech writer, have experienced.) However, looking at all the findings is key:
In their December 2007 report, AHIP reported that the average single premium at the end of 2006 for a nongroup product in the United States was $2,613. In a report issued just this week, AHIP found that the average single premium in mid-2009 was $2,985, or a 14 percent increase. That same report presents results for the nongroup markets in a set of states. One of those states is Massachusetts, which passed health-care reform similar to the one contemplated at the federal level in mid-2006. The major aspects of this reform took place in 2007, notably the introduction of large subsidies for low-income populations, a merged nongroup and small group insurance market, and a mandate on individuals to purchase health insurance. And the results have been an enormous reduction in the cost of nongroup insurance in the state: The average individual premium in the state fell from $8,537 at the end of 2006 to $5,143 in mid-2009, a 40 percent reduction, while the rest of the nation was seeing a 14 percent increase.
So while it’s true that individual premiums have fallen in Massachusetts, they’re still 70% higher than the national average — they’ve only become less outrageous. Why? It turns out that the 2006 bill was the second half of a health care reform effort that started in the mid ’90s. Back then, the state passed a law requiring guaranteed issue and community rating: that health insurance companies have to accept people regardless of their health condition, and that they had to charge them according to their zip code not their individual health. This drove up the cost of health care insurance in the state drastically, with the result that healthy people dropped coverage, driving up the cost even more by making the pool worse.
In 2006, Massachusetts passed law requiring that everyone buy health insurance, and requiring that health insurance policies hit certain minimum levels of coverage. If you didn’t buy the required insurance, you had to pay a hefty fine. By forcing healthy people back into the insurance market, this started to drive costs down again. However, it seems unlikely, given the rate of change so far, that this will drive them down to below the national average. We can be virtually certain from these results that the cost of medical coverage will go up significantly under the current Democratic proposals, it’s just a question of how much.