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Expected Drop in New York Health Insurance Premiums Highlights Importance of Individual Mandate

New Yorkers in need of health insurance just got some good news.

New York State announced that people shopping in the state’s individual insurance market will see average premium rates cut by more than half next year.  The actual prices that many people will pay will be even lower, because these rates don’t account for the new federal premium tax credits that will help many low- and moderate-income people afford coverage.

The drop in New York’s rates is no surprise.  The state already requires health insurers to sell coverage to anyone, including those who have pre-existing health conditions, and also prohibits insurers from charging people higher premiums based on their health.  (Most states’ individual markets don’t have those requirements today, but they are part of the health reform law that will take effect nationwide in 2014.)

Currently, New York does not require people to have health insurance or pay a penalty.  This individual mandate, as it is known, is a critical part of national health reform, however, and will take effect in 2014.

Together with the premium tax credits, the mandate will encourage New Yorkers to enroll in health insurance and drive down the cost of individual insurance in that state.  In other states, it will help ensure that that coverage remains affordable even as their individual markets become more accessible to people with health conditions.

New York’s individual insurance market today — pre-2014 — is a window into what would likely happen if health reform’s individual mandate were delayed, a proposal that the House will vote on tonight.  Without an individual mandate, health care coverage would be less affordable because while older and sicker people would be able to buy coverage in 2014 under health reform’s guaranteed availability requirements, healthier people would be more likely to sit out of the market and buy health insurance only if they get sick.  The pool of people in the insurance market would be older and sicker on average, so premiums would go up.

Without a mandate and premium subsidies, the rates in New York’s individual market are among the highest in the nation right now.  As the New York Times reported, despite the state’s size, only 17,000 New Yorkers currently buy coverage on their own.

With the mandate and the subsidies in place, however, states officials estimate that individual market enrollment in New York will rise to 615,000 people during the first few years after health reform takes effect.  Although New York has very different market conditions than most other states, it’s just one among many where health reform will substantially improve a dysfunctional individual market.