Welcome to New Jersey

by Patrick Brennan
Obamacare will make every state’s health-insurance market look like overpriced New Jersey’s.

This week, 106,000 New Jersey residents became the latest Americans to find out that, contra President Obama’s promises, whether they like their health plan or not, they can’t keep it. They’re holders of New Jersey’s “basic and essential” health-care plans, which make up 71 percent of the state’s individual market in health insurance. The president’s health-care law imposes a number of regulations nationally that will effectively ban such plans, by making them ineligible to be offered on the health-insurance exchanges where individual plans will now be sold. The rate shock that these Garden Staters will experience, which will lead many of them to go uninsured, is no small matter, but this is just one effect of Obamacare.

New Jersey’s problem is emblematic of what Obamacare will do in all 50 states: impose a highly regulated, extremely expensive model of health insurance that a number of states have already mandated — to the regret of many of their residents, who have demanded an escape hatch — and prevent any state from permitting such alternatives down the road.

New Jersey’s, which cost $200 to $400 per month, are one such escape hatch. They don’t cover a wide range of services that Obamacare mandates, and they apply dollar limits to how much they will spend on certain services in a given year, which Obamacare prohibits. So these simple plans are being eliminated, forcing people who have them to purchase much more expensive comprehensive plans — or to go without. (Obamacare does allow “catastrophic” plans for individuals under 30, but so far, even these look likely to be much more comprehensive and expensive than what’s now considered catastrophic coverage.)

Some of those people undoubtedly have B&E plans because that’s all they could afford (we don’t know how many, because New Jersey’s health insurers don’t keep track of their customers’ income); some of them will be eligible for federal insurance subsidies, allowing them to purchase better health plans for the same out-of-pocket amount that they have been paying for their B&E plans, or maybe even less. But many people won’t be better off: Fully one-third of B&E customers are under the age of 30, and they probably don’t buy a fancier plan because they don’t want or need it, not because they can’t afford it. These people will now have to buy vastly more expensive plans that cover a whole range of services they don’t need, or else stay out of the market altogether, paying the modest individual-mandate penalty and, if and when they get sick, picking up insurance during that year’s open-enrollment period (October to December).

This won’t just take choices away from consumers; it will also probably cause many young, healthy people to leave the insurance market or refuse to enter it at all, meaning that the people who were supposed to benefit from better, cheaper insurance won’t get as good a deal as they might if Obamacare had a better plan than short videos to attract “Young Invincibles.” Further, the insurance market, because it will have no simple, high-deductible plans, will halt the increasing trend of consumers paying more health-care costs out-of-pocket — and the simultaneous slowdown in health-care inflation — in its tracks. In addition, the number of people looking for insurance on the individual market will only grow when employers, for various reasons under Obamacare, dump some employees onto the exchanges — meaning that many more Garden Staters than just the existing B&E customers will see their choices reduced.

New Jersey’s market for comprehensive insurance is already prohibitively expensive because insurance companies can’t vary their prices on the basis of age, have to be open to everyone, and must cover a huge range of mandated benefits, from baby formula to alcoholism treatment (you can see a list of these giveaways to physicians and hospitals here).

This means the state has high rates of insurance coverage, but because of these regulations, it also has extremely high premiums — some of the highest in the country — and essentially no functioning individual market. In 2003, the state legislature decided something had to be done to enable individuals to find and afford coverage, so it created the B&E plans, which are exempt from the state’s benefit mandates and can therefore be much cheaper. Whether this is a sound fix from a health-policy point of view could be disputed; what we know is that New Jerseyites were fed up with the restrictions and high premiums attendant to their system (and Obamacare’s) and demanded another option. Now Obamacare is closing that escape hatch in New Jersey, while implementing across the country all the regulations — and more — that pushed the state’s premiums to unacceptably high levels.

New Jersey, in one sense, is a place that Obamacare shouldn’t dislocate much. We don’t have estimates of post-Obamacare premiums there yet, but a Society of Actuaries study released in March estimated that while individual-market claims costs (closely correlated with premiums nationwide) would increase by 32 percent, in New Jersey they would actually decrease by 1.6 percent (this estimate was made before it was known that the low-cost plan used by 71 percent of the market in New Jersey would be eliminated). Yet there are plenty of New Jerseyites who, contrary to Obama’s earlier promises, will still see their health-care choices greatly diminished and made much pricier — which is why the state had applied for a waiver to keep the B&E plans.

Unlike New Jersey’s and New York’s existing systems (but like that of Massachusetts), Obamacare has an individual mandate, forcing people to pay a penalty if they don’t buy insurance. That should mitigate some of the problems blue states have created for their insurance markets, but especially without options like the one just banned in New Jersey, young and healthy people will be likely to flout the requirement.

That is, those worst served by the blue-state model, the young and the healthy, will continue to get a bad deal. And in the rest of the country, the new law will push premiums up to the stratospheric levels that forced New Jersey to find an alternative.

Just ask yourself: How would you like your health insurance to be run like New Jersey, but from Washington?

— Patrick Brennan is a William F. Buckley Fellow at the National Review Institute.

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