APPLYING THE LESSONS OF STATE HEALTH REFORM
September 24, 2009
In the market for individually purchased health insurance, premium costs in New Jersey are nearly twice the national average and among the highest of any state, says Michael Bond, a senior fellow with the National Center for Policy Analysis.
Why are health insurance premiums so high in New Jersey? One reason is that state regulations require insurers to sell policies to all applicants, including people who wait until they become sick to buy coverage (so-called guaranteed issue). Another reason is that the state keeps insurers from adjusting their premiums to reflect the health risks of individual consumers (called community rating). As a result, the young and healthy are charged more for insurance than they would be otherwise in order to subsidize the premiums of others. For example:
- A healthy 25-year-old male could purchase a policy for $960 a year in Kentucky, according to a 2005 study, but would pay about $5,880 in New Jersey.
- A family in Texas paid $5,501 a year, on the average, for coverage in 2006-2007, whereas a family in New Jersey paid $10,398.
Thus, for many New Jersey residents, health insurance is too costly, and not a very good value, says Bond. Massachusetts has faced similar problems and, in 2006, it enacted reforms to achieve near-universal coverage. These reforms have been considered a model for other states to follow -- however, there are problems with the Massachusetts model that New Jersey can avoid:
- The Massachusetts reforms include an individual mandate to obtain insurance and small penalties for employers that don't offer group coverage.
- However, most of the newly insured have obtained coverage through the Commonwealth Connector -- an insurance exchange where individuals and small groups were supposed to be able to buy health insurance from competing providers.
- Unfortunately, there is little competition because the plans sold through the Connector must have community rating and guaranteed issue -- adding significantly to premium costs for many people.
- Since 2006, the state government's health care costs have skyrocketed, due in large part to heavily subsidized coverage.
- In 2009, the cost of Commonwealth Care, the state's insurance subsidy program, reached $1.3 billion -- more than $650 million higher than initially projected.
New Jersey could avoid the mistake of Massachusetts' Connector by creating a marketplace exchange for small groups and individuals, says Bond. In this less-regulated system, private insurance carriers could offer a range of plans, allowing consumer choice to drive the offerings. The state would be able to operate the system with no more overhead than a major corporation (5 percent), significantly lowering premiums for small groups and individuals. To truly foster competition, however, it is imperative that New Jersey's exchange be: 1) voluntary, 2) allow for underwriting and exclusion of preexisting conditions and 3) adjust state subsidies for each enrollee's health status.
Source: "Applying the Lessons of State Health Reform," National Center for Policy Analysis, Study No. 323, September 24, 2009.
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