Don't get me wrong -- I like this regularly recommended diarist. I think her action diaries have done a great service to this blog. Unlike other action diaries, they don't feed off twisting other people's statements in order to gin up support.
But her most recent diary shows a misunderstanding of how the insurance market works. Insurance company profits, which are around 3 percent, are not the sole -- or even the main cause of the rise in health insurance premiums. Adverse selection is.
Here in MA, like NY, we also have guaranteed issue underwriting and a community rating. MA doesn't have a public option, either. So why are premiums for the same level of coverage here in the Bay State half that of the Empire State? What could account for this difference?
Here in MA, unlike NY, young and healthy people here in the Bay State aren't allowed to wait until they get sick to purchase health insurance; they are required by law to purchase health insurance, or pay a fine. As a result, premiums here in the Bay State reflect a pool that is much younger and healthier than that of the Empire State, where older, sicker people take advantage of the community rating and younger, healthier New Yorkers decide it isn't worth the investment to subsidize older, sicker people through higher premiums. The premiums in NY reflect a risk pool that has a much older, sicker population than that of MA. You can check it out for yourself on the Connector and ehealthinsurance.com.
If you don't like my explanation, notrouble explains the problem better than I do:
[R]ight now Health Insurance Companies (HIC) take 100% of the premiums and pay out about 70% of them on claims. 30% is robbery but lets get back to that later.
A small number of users account for most of the HIC pay out. If pre-existing condition rules are eliminated people currently denied insurance (and far to often lacking needed treatment) will sign up. It won't take very many, about a 10% increase in high cost customers, to roughly double the insurance company pay outs. That changes the numbers to about 110% of the current premiums coming in and 140% of the current premiums being paid out. That changes their current 30% premium mark-up to about a 21% loss before actual claim expenses. Assuming the new insurance legislation creates some real competition they will still need about a 10% premium mark-up to cover expenses and show a profit to share holders. So they need to charge 110% of the previous customer base about 150% of the premium dollars - that is a 36% increase in everyones insurance rates to make a much smaller profit than they do now.
So everyone[']s premiums went up several hundred dollars a month. Not instantly, but over the first couple of years after the changes kick in. Oh, remember they cannot deny people for preexisting conditions anymore. Young and even middle age healthy people realize they cannot save anything for retirement or their children's higher education in large part due to huge cost of health insurance. Since they cannot be denied for insurance after a costly long term health problem rears its ugly head they cancel for now, knowing they can buy it after diagnosis.
Over a few more years another 30% of the healthier (low costs to the HIC) people opt out of insurance due to cost. I'll leave it as a reader exercise to figure out how much more premiums have to increase on the people left buying insurance.
This is what we are trying to prevent!
And this is exactly what has happened in NY, NJ, VT, and ME -- where they have a community rating but no individual mandate.