(Bloomberg) — Health insurance premiums will drop by about 50% on average for consumers in New York who buy new plans through a state-run marketplace created by the Affordable Care Act.
The state approved plans to be sold by 17 insurers, including UnitedHealth Group and WellPoint, the industry’s two biggest carriers, according to a statement today by New York Governor Andrew Cuomo. The lowered rates mean that starting Oct. 1, a New York City resident who now pays at least $1,000 a month for insurance will be able to buy coverage for as little as $308, according to rates posted by governor’s office.
The premiums may ease fears that next year’s implementation of the biggest parts of the 2010 Affordable Care Act would send prices soaring. California announced rates in May that were lower than the dire predictions of some insurers, and a June study by consulting firm Avalere Health found premiums in nine states were below Congressional Budget Office projections.
“New York’s health benefits exchange will offer the type of real competition that helps drive down health insurance costs,” Cuomo said in the statement. “The opportunity to choose among affordable, quality health insurance options will mean improved health outcomes, stronger economic security and better peace of mind.”
The plans will be available to small-business employees and residents who don’t get health coverage through their employer. Federal subsidies offered by the health law may drop the costs even lower for some consumers, the state said.
600,000 Covered
Healthcare Association of New York State, an advocacy group representing hospitals and health systems, will be watching to see if the exchange provides “adequate choice,” said Melissa Mansfield, a spokeswoman.
“Some of the products may only contain a narrow option, and so members may not be able to see pre-chosen doctors or a hospital of their choosing,” Mansfield said by phone. “Overall, though, having more people insured would be an improvement.”
State officials estimate that more than 600,000 people will buy coverage within the first few years at the lowered rates, according to the statement.
Savings Potential
New York may have been more ripe for savings than other states. Like the federal health law, New York regulators require insurers to accept all applicants, regardless of medical conditions. Unlike the federal act, the state doesn’t mandate that all residents — including the young and healthy —buy insurance.
That’s produced a market tilted toward sicker, costlier members and driven New York premiums to among the highest in the country. Starting in 2014, that will be mitigated by the federal law’s subsidies for low- and middle-income customers, and its requirement that all Americans get coverage or pay a penalty.
Rates will be coming down “primarily because a greater number of uninsured individuals are expected to obtain coverage,” the state said.
Plans sold on the exchanges will be divided into four categories — bronze, silver, gold and platinum, with the latter offering the most coverage, yet also higher premiums. The standardized plans will be an improvement over a current market that confuses costumers, with more than 15,000 options sold to small businesses alone, New York State said.
Affordable Choices
“We’re seeing in New York what we’ve seen in other states like California and Oregon that competition and transparency in the marketplaces are leading to affordable and new choices for families,” said Joanne Peters, a spokeswoman for the U.S. Health and Human Services Department, in an e-mail.
The 2014 rates will drop an average of 53% for the highest tier plans — gold and platinum — when compared to last year’s direct-pay individual premiums, the state said. Though per capita health care costs are 18% higher in New York than the national average, the average rates for the silver plan would be almost 10% lower than the nationwide forecast made by the Congressional Budget Office.
The costs would be lower yet for individuals who earn less than four times the federal poverty level, or $45,960 annually, the cutoff for financial aid under the health law, according to the statement.
50 Million
The health-care law seeks to expand coverage to most of the nation’s 50 million uninsured people. About 7 million people are expected to enroll in exchange plans next year, rising to 25 million by 2018, according to the CBO. The law also encourages states to expand their Medicaid programs for the poor to cover people earning close to poverty-level wages.
The 17 insurers whose rates were approved today include Minnetonka, Minnesota-based UnitedHealth, the country’s biggest health insurer, and the Empire Blue Cross plan of the second-largest insurer, Indianapolis-based WellPoint. Aetna Inc. will also offer coverage.
Cuomo, a 55-year-old Democrat, issued an executive order in April 2012 establishing a health exchange as part of President Barack Obama’s landmark health-care system overhaul. The move enabled Cuomo to sidestep Republican opposition in the state senate and help make New York among the first states to begin implementing the federal law.
Trouble Ahead
The new insurance rates won’t come without trade-offs. In Louisiana last week, the state’s BlueCross BlueShield plan said it expected premiums to stay flat or decline next year for about 75% of the individual market when subsidies are included. The remaining 25% will likely see increases, with rates more than doubling for some people who make too much for the financial assistance, the company said.
That could spell trouble if higher prices push healthy customers out of the market, said Carl McDonald, a Citigroup insurance-industry analyst based in New York.
“The issue is that the 75% of the individual population with stable or lower premiums (including subsidies) are generally older and in poorer health,” McDonald said in a July 13 research note. “The younger and healthier crowd is generally the group facing the most significant increases that are more likely to decide to pay the penalty and not buy health insurance next year.”
