In what has become a rite of summer, the state Department of Financial Services on Wednesday approved substantially higher health insurance premiums for 2023 – but still proclaimed in a press release that it was “saving” consumers hundreds of millions of dollars.

That’s because the industry started out seeking much larger hikes, averaging 18.7 percent in the non-group market and 16.5 percent for small groups. After regulatory review known as “prior approval,” DFS cut those requested increases roughly in half, to average of 9.7 percent and 7.9 percent, respectively.

Without that intervention, DFS estimated that total premiums would have been almost $800 million higher.

But do New York’s state-imposed price controls on health insurance really save money over the long term? An analysis of federal data strongly suggests otherwise.

As a practical matter, the prior approval system mainly affects individual and small-group insurance plans. Most large employers operate self-insured health plans, which are generally exempt from state regulation under federal law. Thus comparing small- and large-group premiums is one way to gauge the effects of prior approval.

As shown in the chart below, drawn from annual federal surveys of employer-sponsored health benefits, New York’s premiums are generally higher than the national average regardless of group size. But the gap is significantly larger for small groups (which are subject to prior approval) than it is for large groups (which are mostly self-insured and exempt). Indeed, the disparity appears to have gotten substantially wider since the current prior-approval law took effect in 2011.

Source: U.S. Agency for Healthcare Research and Quality

As of 2010, the last year without prior approval, the three-year average affordability gap for small groups was five points higher than for large groups. As of 2021, after a decade of price controls, the gap for small groups was 13 points higher.

These results are the opposite of what would be expected if prior approval was working to keep costs down.

It’s evident from this analysis that the state’s price control system is failing to contain the cost of health insurance in New York. This is likely because it ignores the underlying costs that are the root cause of rising premiums.  Those costs include the state’s extraordinarily heavy taxes in health coverage, and its ever-growing list of costly coverage mandates that legislators impose on insurance plans.

On a related note, DFS appears to have dropped a particularly outlandish claim about the impact of the Affordable Care Act on health premiums in the individual market.

From 2013 to 2020, the department asserted that its approved rates remained 50 percent or more lower than they were before the ACA. This was plausible at first, because New York’s pre-ACA premiums were exorbitantly high due to a dysfunctional combination of regulations and mandates known as a “death spiral.”

Over the next seven years, DFS approved cumulative increases of almost 80 percent above 2014, which would have eroded that original 50 percent drop. Yet as recently as 2020 the department’s press release asserted: “Rates for individuals [for 2021] are more than 55% lower than prior to the establishment of the New York State of Health in 2014, adjusting for inflation …”

In the following year’s announcement, however, no such claim was repeated. Its publication date was Aug. 13, 2021, three days after former Gov. Andrew Cuomo announced his resignation.

 

About the Author

Bill Hammond

As the Empire Center’s senior fellow for health policy, Bill Hammond tracks fast-moving developments in New York’s massive health care industry, with a focus on how decisions made in Albany and Washington affect the well-being of patients, providers, taxpayers and the state’s economy.

Read more by Bill Hammond

You may also like

Hochul’s agenda mostly sidesteps health care

Governor Hochul gave health care surprisingly little attention in her State of the State speech on Tuesday – a sign that taking on dysfunction in one-sixth of the state's economy ranks low on her list of priorities. Read More

Federal omnibus deal has big implications for New York Medicaid

The big spending bill heading for a vote in Washington this week would scramble the outlook for Medicaid in next year's state budget, mostly for the better. The $1.7 trillion federa Read More

Another Reason to Lift the Charter Cap

A staff shortage in upstate hospitals prompted , where hospital officials and state lawmakers asked that more funding to train medical professionals be included in January’s state bu Read More

The AG’s Nursing Home Lawsuit Scratches the Surface of Widespread Issues

The attorney general's just-filed lawsuit against the Villages of Orleans nursing home has implications that reach far beyond a single facility in western New York. In addition to c Read More

Hochul’s Pandemic Study Is Off to an Underwhelming Start

Although Governor Hochul's long-promised review of New York's COVID response hasn't formally started yet, it has already exposed important information about the state's pandemic preparedness – much of which is unflattering. Read More

The state puts a pricey condition on its approval of a heart transplant center

In a provocative flex of executive power, the state Health Department is requiring a hospital system to spend $50 million on health care in Brooklyn and Queens if it wants to open an $8.4 million heart transplant center in Manhattan. Read More

The Essential Plan’s accumulated surplus balloons to $8 billion, with no fix in sight

The state's Essential Plan has generated billions in surpluses as the program automatically drew pandemic relief money that it did not need Read More

New federal health funding is headed for Essential Plan limbo in New York

Washington's newly enacted climate, health and tax package harbors an only-in-New York glitch: It pours even more money into the state's Essential Plan, which is sitting on a multi-billion-dollar surplus that officials have Read More

Empire Center Logo Enjoying our work? Sign up for email alerts on our latest news and research.
Together, we can make New York a better place to live and work!