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Here’s why health insurance premiums are tumbling in New York

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Nearly all stories about the health-care overhaul and insurance premiums tend to be about the cost of health insurance rising. That's what makes this front page story in the New York Times all the more unexpected: "Health Plan Cost For New Yorkers Set to Fall 50 Percent."

"Individuals in New York City who now pay $1,000 a month or more for coverage will be able to shop for health insurance for as little as $308 monthly," Roni Caryn Rabin and Reed Abelson report. "With federal subsidies, the cost will be even lower."

A headline about the health care law driving down premiums, by this level of magnitude, is a rarity. But it shouldn't be shocking: New York has, for two decades now, had the highest individual market premiums in the country. A lot of it seems to trace back to a law passed in 1993, which required insurance plans to accept all applicants, regardless of how sick or healthy they were. That law did not, however, require everyone to sign up, as the Affordable Care Act does.

New York has, for 20 years now, been a long-running experiment in what happens to universal coverage without an individual mandate. It's the type of law the country would have if House Republicans succeeded in delaying the individual mandate, as they will vote to do this afternoon. The result: a small insurance market with very high insurance premiums.

For years New York has had one of the most heavily regulated insurance markets in the country. The 1993 reforms not only required insurers to accept all customers; they also mandated that insurers charge everyone the exact same price. Young or old, healthy or sick, it doesn't matter in New York: Everyone gets the same deal.

This is great for someone who is sick and old who, in other states, might get charged a sky high rate or rejected altogether. It's not great though for the young and healthy, who end up footing a bigger chunk of the bill for all those more expensive beneficiaries.

“Current non-group premiums are extremely high,” consulting firm Deloitte concluded in a recent report. “These high premiums are a result of the age of this block of business, guaranteed issue, pure community rated market, no income-related subsidies, and the small size of this market.”

As recently as 2009, it cost an average of $6,630 to purchase health insurance on New York individual market. That's more than $1,000 higher than any other state in the country.

While insurers in states such as Maryland predicted the general mix of people they cover to become significantly less healthy, as those with pre-existing conditions flooded into the individual market, the Deloitte report predicted the exact opposite. Analysts expected all the healthier people, previously scared off by the high premiums, to come into the system.

A less sick population generally means a less expensive population, as insurers calibrate their premiums to the amount of claims they expect to pay in the next year.

“The expected increase in the size of the non-group market post-ACA could introduce a much more typical distribution of health care needs to this market,” the Deloitte paper predicted, “Thus leading to significantly lower premiums."