Over the past few weeks, Paul Krugman has written frequently on the subject of the ACA, both in columns and on his blog. I haven’t had the time to read everything he has written (much less draft my own responses), but, from what I’ve seen, a running theme has been that the health reform has developed into something of a success. the economist wondered why, then, more would-be supporters of the law don’t seem to realize this.

The current state of public opinion on health reform is really peculiar. If you’ve been following the issue at all closely, you know that the Affordable Care Act is one of the great comeback stories of public policy: after a terrible start, it has dramatically exceeded expectations. But hardly anyone seems to know that. … Over the weekend I had dinner in NYC with some very smart, sophisticated people; yes, all of them liberals. And almost everyone in the group was under the impression that Obamacare is still going badly — they wanted me to tell them whether it could still be turned around. Meanwhile, New York (which created its own exchange) is a huge success story : enrollment is 60 percent higher than federal projections, premiums have been cut in half.

The author doesn’t include any other information from that linked article, but if you click the link you’ll be taken to a New York Times article from Sunday, April 13th entitled “In New York, Hard Choices on Health Exchange Spell Success.” Unlike Krugman’s blog post, which focuses less on the hard choices part and more on the success, the article reads as a testament to something that most people who chime in on this debate have recognized all along: some people are going to be helped by the ACA, and others are going to be hurt by it. How the average American feels about it probably depends on where they fall.

The state’s success was no accident. It began with a receptive customer base and the benefit of experience, since New York already had some of the country’s most generous insurance coverage for the poor and sick. Resistance to the health exchange among Republicans in the state may, oddly enough, have helped make it more successful. But New York also took some aggressive and unpopular steps that few other states have taken, by creating a highly centralized system limiting consumer choice, essentially giving insurance seekers little incentive to shop off the exchange. As a result, most New Yorkers who are not insured through an employer are effectively barred from choosing any doctors or hospitals they want. At least 100,000 people have lost their old health plans because they did not conform to new federal requirements. Thousands more freelancers and other “sole proprietors” were barred from banding together for group insurance rates, a change in longstanding practice that almost certainly pushed more consumers to buy insurance on the exchange. … The sickest customers tend to be the most upset, like Abigail List, a 53-year-old therapist in Manhattan, who said she had to choose one of the most expensive plans, costing $300 more a month than others, so she could have coverage for her longtime cancer doctors at NYU-Langone Medical Center . “I’m being railroaded, that’s why I’m so furious,” Ms. List said. The most prestigious and specialized hospitals tend to take the fewest plans on the exchange . Memorial Sloan-Kettering Cancer Center , the renowned cancer hospital, takes only two exchange plans for individuals, Health Republic and .

I’ve cherry-picked the above quotes from the article to demonstrate that the story is a bit more complicated than Krugman explains. There is a lot more “good news” in the article that I haven’t included here but I think that, at the very least, reasonable people can agree that ACA implementation is young and declaring anything a “huge success story” might at this point in time be just a little bit premature. The law, after all, is a massive shake-up of the existing health care infrastructure, so “success” and “failure” in a lot of areas is going to be less than clear cut.

A lot of people might also say that I am comparing apples to oranges, and that a loss of network diversity is a reasonable trade-off to make for higher enrollment numbers. That is true for some people, but like I said above, different people are going to feel different ways about making trade-offs such as that one. Whether or not it’s “worth it” at a larger level is probably difficult to say.

What I have yet to discuss is why Krugman refers to New York as a “huge success story”: that fifty percent drop in premiums. And the reason I’ve waited to bring that up until now is that, just like the story of the ACA in NY overall, it’s a little bit messier than Krugman’s brief treatment really has time to get into. Krugman mentions in an aside that New York was “already a community-rating state,” which he defines by saying that “insurers weren’t allowed to discriminate based on medical history.” This is a pretty loose characterization of the market for health insurance in New York over the past two decades, and it’s worth going into a bit more detail.

In the early 1990s, New York broke ranks with other states by adopting the community rating provision that Krugman describes. Some other states had no community ratings on the books and others had something like a 5:1 band, meaning that an insurance company can charge its most expensive beneficiaries at most five times the price it collects from its least expensive beneficiaries. When New York rewrote its rules, it instituted a drastic 1:1 band across pretty much all categories so that rating was no longer permissible for health status, age, gender, or even industry. (You can check the rate restrictions by state on the individual market using this Kaiser Family Foundation table ). This means that the young must pay the same premiums as the old, the healthy as the sick, those who work at a desk the same as those who work in dangerous industries prone to accidents. Since the insurer can no longer adjust the premiums of every individual to reflect the risk they pose, rates will be equal for everyone but will rise overall.

And rise they did. You can make an argument that this rise is worth it, and that we should all pay higher premiums to support others, or even that it will even out in the end as we all become sick and save money later in our lives. But that’s a different point. The point I am trying to make right now is that the state of New York’s health insurance market was thrown into a bit of turmoil as a result of this development, something that an editorial from the WSJ captured well in July of last year.

Premiums shot up 30% to 40% on average in the first year, often much more, and continued to spike. Insurers shed books of business, while customers cancelled their policies. Enrollment fell 38% in three years. About a dozen major insurers at the time sold the dominant style of indemnity coverage, similar to traditional fee-for-service Medicare. By 1996, every one had fled the state. Bad incentives caused the exodus. The majority of people under 65 with low risks can avoid community rating’s economic distortions by not buying coverage, especially because another rule called “guaranteed issue” lets them wait until they are sick before they buy coverage. And that is what they do. Mutual of Omaha, by far the largest New York indemnity carrier at the time, watched the average age of its membership increase by 11 and a half years before it became the last one to turn out the lights. The average age of people who dropped coverage was 37.5. In 1996 Albany tried to fix Mr. Cuomo’s mess by requiring any managed-care insurer doing business in New York to also sell on the individual market, but the market never recovered. In 1992, some 1.2 million New Yorkers bought individual plans, which fell to 128,000 by 2001, and a mere 31,000 today. Think about that: Out of 19.5 million residents, and with three out of every 15 non-elderly adults uninsured, 0.0016% of the population uses this market.

As the New York Times article linked to above points out, the result of this was that New Yorkers who lived in the city were recently paying an average of $1,534 in premiums, an astronomical figure which has diminished since the implementation of the ACA in recent weeks and months. So, how typical of the U.S. is the New York experience? Can we take the data Krugman provides as evidence of a “huge success story” in the near future?

Well, for one thing, Krugman calls New York “a community-rating state,” which implies that there were others, but there weren’t–at least not on the level of New York. Look at the Kaiser Family Foundation chart below for a better idea of just how much of an outlier New York has been when it comes to health care and the health insurance markets.

As the chart makes clear, New York is in a league of its own when it comes to community rating within the United States. And this is the reason that it may not exactly be the best case study when it comes to predicting how the ACA is going to affect premiums in other states and their health insurance markets. Most of the states in the U.S. have community ratings bands that are not higher than the 3:1 band that ACA introduces. Since New York does already have a higher rating band at 1:1, it’s not going to show the same bump in premiums as a state that will be going from 5:1 down to 3:1. New York already suffered its sticker shock with its original reforms back in the ’90s and, now that the ACA requires everyone to enroll in a health insurance plan by law, it is alleviating that sticker shock 20 years after the fact. In fact, that’s why even the law’s opponents have been saying for years that New York would be among the states most positively impacted by the reform.

In other words, New York might be less of an example of how the ACA is going to wind up affecting other states, and more of an example of what would have happened if the ACA had been instituted simply without an individual mandate. In fact, Krugman cites the New York experience as evidence of why the much-maligned mandate is so integral to the law.

But the result of that system was that healthy people tended to stay out of the individual market, creating a bad risk pool that drove up rates. Now everyone has to be in, dramatically improving the risk pool. As such, the New York experiences demonstrates the essential role of the individual mandate for reform.

So, yes, in many ways, things do appear to be improving for New York. But the question is how much of that should be attributed to whatever cost-saving capabilities the ACA has, and how much of it should just be chalked up to the fact that the health insurance market in New York was in a relatively awful condition to begin with. In other words, the ACA’s individual mandate in the nation’s only community rating state is an improvement over a community rating with guaranteed issue–a recipe for disaster and death spirals–but how much does it mean for the states that will be going from 5:1 down to 3:1? This is the real apples-to-oranges comparison, and I don’t think we have enough information to say one way or the other with any degree of responsibility whether or not this will translate to the rest of the U.S. in the coming years.

As another note, and I don’t want to nitpick here, but the individual mandate as it appears today may actually not be essential for this specific health reform. Certainly some means of enrolling people in a law such as this one is necessary to prevent the same exact sort of trouble in the insurance markets that New York has experienced since the early ’90s, but I think the mandate we have now is an unreasonable encroachment on people’s liberty and may also not be particularly effective. A strong alternative would be to replace the “hard mandate,” which levies a tax on those without health insurance, with soft mandates like auto-enroll functions that individuals must voluntarily opt out of. The argument has frequently been made by supporters of the ACA that enrollment of young people has been sluggish due to the fact that they are not particularly on top of things when it comes to health insurance. If that’s true, and it very well may be, then a soft, auto-enroll mandate could be far more efficient than the hard mandate we have now.



Anyway, the ACA is an incredibly complex force, and judging how it is currently affecting health insurance markets–and how it’ll continue to affect them in the future–is a pretty difficult task. I won’t pretend to know enough to make my own predictions, but I’m just a little bit uncomfortable using New York of all places as an indicator of “huge success.”