Pricey premiums challenge for New York health care exchange

Technology troubles plaguing Affordable Care Act enrollment have largely spared New York State, but a more fundamental challenge looms: For New York City residents, premiums for insurance policies on the state’s newly opened health care exchange are more expensive than almost anywhere else in the country.

Even in the lowest-priced private insurance tier, which is subsidized by the federal government, a single young person could spend as much as one-quarter of his or her total income on premiums and deductibles before receiving positive financial benefits.

The unforgiving numbers raise the question of whether young people in New York will in fact buy health insurance on the exchange in numbers sizable enough to keep the health plans solvent. Health insurance companies are paying close attention to the actions of healthy New Yorkers in their twenties and early thirties — customers known in industry parlance as “young invincibles.”

“There is some concern that [insurance plans] are still not going to be attractive enough to, particularly, those young invincibles, and for that reason I think there’s going to be a lot of effort put into that effort to reach that population,” said Leslie Moran, senior vice president at the New York Health Plan Association, an insurance industry group. “It’s a tough nut to crack.”

A lot rides on insurers’ success in getting younger, healthier customers to shell out big bucks for medical insurance, because their premiums help float the cost of care for those who see doctors more often.

“It is important to get young people into the insurance pool,” said David Sandman, senior vice president of the New York State Health Foundation, a private sponsor of programs improving health. “Having relatively younger people to balance out the risk is essential to making a market properly function.”

More than 2.2 million New Yorkers are currently uninsured, out of a population of about 20 million. Under the Affordable Care Act, middle-income individuals and families are eligible for government subsidies to help pay for premiums; individuals can get such aid if they earn less $45,000 a year. (Those making up to 133 percent of the federal poverty level, or $15,282 annually for a single adult, can sign up for Medicaid, whose costs are borne by state and federal government.)

As of last Thursday, 124,000 people registered with the New York online health exchange, the state’s Health Department said. (By Friday, that number had climbed to a reported 134,000.) But it’s unlikely most of those enrollees are signing up for private insurance through the exchange, and more likely that many of them are signing up for Medicaid, according to estimates from the Urban Institute’s Health Policy Center and early reports from other states, such as Oregon. While some other states have disclosed numbers detailing who has enrolled in both Medicaid and private insurance through the Affordable Care Act so far, a spokesman for New York State’s health department said the state did not yet have details on who has enrolled.

It could be months before health and insurance industry stakeholders know the demographics of the enrollees, and whether the ratio of healthy to sick is favorable.

“That is the $64,000 question. We’re all waiting for that information,” Moran said. “Until we see the types of people who are enrolling we really won’t know how difficult the challenge is ahead of us.”

While health advocates applauded New York State earlier this year after the Department of Financial Services announced individual insurance premium rates would drop by as much as 50 percent under the Affordable Care Act, New York’s premium rates average $350 a month for an individual under the mid-level plans on offer.

Single New York City residents between the ages of 25 and 44 who make between $29,000 and $45,000 a year have to pay about $3,000 to $4,500 a year in premiums for plans with deductibles as high as $3,000 — meaning they have to spend $7,000 or more out of pocket before obtaining benefits from coverage.

“Health insurance is still expensive because health care is still expensive,” said Sandman.

The Affordable Care Act uses a stick to get reluctant customers to sign up for private insurance: if they don’t, they will have to pay a penalty, which starts at $95 next year and will rise to as much as $695, or 2.5 percent of annual income, by 2016.

But because New York’s premiums are so high, in the thousands of dollars a year, the cost of a one-time penalty may be slim deterrent.

“You’ll have some healthy people who make a small enough amount of money to qualify for decent subsidies, but for a lot of them it’s going to make sense to pay the penalty,” said Yevgeny Feyman, an analyst at the Manhattan Institute, a conservative think tank. “If you’re 28, and you don’t see a doctor very often, and you’re a New Yorker making between $35,000 and $40,000, it might very well pay for you to shell out that penalty.”

If too few healthy people join the exchanges this year, that could lead insurance companies offering plans in the state’s exchange to raise rates in 2015 and 2016, Feyman said.

“The first year is really important in so far as it tells us what the premiums are going to look like in the second year,” he said. The higher the rates go, the fewer people will sign up, and the more insurers need to charge in order to keep their plans afloat.

That could trigger a chain reaction that could leave the exchange looking like New York’s old private insurance market, one of the nation’s costliest.

Insurers are well aware of the challenge.

“For some people, they can choose to have health insurance or not, but they can’t really choose not to pay their rent or their electricity bill,” observed Moran.

Even when consumers do have choices, they frequently put other purchases ahead of health coverage.

“People ask, ‘Do I not have the data plan on my cell phone that I currently have so I can have health insurance? Do I say I’m not going to be able to go out to dinner once a month so I can have health insurance?” Moran said. “It’s not an immediate reward.”

New York’s premiums are higher than many other states’ because of laws passed in the early 1990s guaranteeing coverage for everyone regardless of pre-existing conditions and requiring insurance companies to charge the same rates for everyone regardless of their age, said Gary Claxton, vice president at the Kaiser Family Foundation.

“That means implicitly that younger people are paying more than they would elsewhere and older people are paying less. It would reduce to some extent the younger people who buy insurance,” Claxton said.

Even if care isn’t exactly “affordable” for most younger people, the insurers and exchange architects are betting that young people will buy insurance after being forced to consider the costs of a worst-case scenario, a health emergency that could leave them penniless, said Douglas Hough, an associate scientist at the Bloomberg School of Public Health at Johns Hopkins University and author of the book “Irrationality in Health Care: What Behavioral Economics Reveals About What We Do and Why.”

Hough said a person making $42,000 a year who is “indifferent” about health insurance isn’t likely to buy it. “An economist would say they’re definitely going to opt out.”

If a person is confronted with insurance’s costs, being asked to pay a yearly premium of $4,200 on a $45,000 salary, they might think, “What am I going to get for 4,200 dollars? Probably not much of anything,” Hough said.

“But people aren’t rational calculators,” he continued. Cautionary tales are extremely effective in convincing young invincibles to pay for insurance, said Hough: “The thing that would stop them from opting out is if the insurance is presented to them as, ‘You’re healthy, but so was Susan and she’s 27 and now she has cancer.’”

A 16-second animated web ad from new New York insurance company Oscar starts out with “You never know when you’ll need health insurance,” and shows hip young urbanites stepping on a faulty manhole cover, getting attacked by a squirrel and being hugged too hard by a bear. (See that ad and others like it here.)

“What they’d need in order to sign up for it would be some true-to-life stories about what would happen to people who didn’t have health insurance and had catastrophic medical emergencies or illnesses — the cancer victim, the car accident, the person who’s now a paraplegic,” Hough said. “Even though these are low-probability events, they would scare the young invincibles enough that they would go out and buy the insurance.”

Gary Claxton at the Kaiser Family Foundation agreed. Young people might be willing to bet they won’t get sick, but if they are worried an illness could impoverish their families, they’ll pay for insurance.

“Younger people, they think, well, I don’t have a house to lose, but quite frankly their parents will say, ‘You’re going to have health insurance even if i have to pay for it.’” he said. “Most kids would be willing to bankrupt themselves but they’re not willing to bankrupt their parents.”

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