New Jersey has long had some of the most-expensive health-insurance premiums in the nation, in large part because its consumer-friendly laws require insurers to offer coverage to anyone regardless of their health history and mandate a wide range of benefits.
Under the Affordable Care Act, however, similar rules are now in place for the entire country. As a result, rates for individual insurance nationwide are beginning to rise faster in some other states than they are here, though New Jersey still ranks among the most expensive.
The situation is made more complex by another aspect of the ACA — the subsidies available to lower- and middle-income consumers.
In a sense, premiums in New Jersey have become bifurcated, with very low effective rates for those who qualify for subsidies and persistently high rates for other state residents who buy individual insurance.
For people with incomes close to the federal poverty line, the amount enrollees actually pay out monthly has dropped to as little as $20 or $30 after subsidies are counted. Those amounts are sharply lower than what they would have paid for almost any insurance policy before the ACA became law.
For people with somewhat bigger incomes, ranging up to 400 percent of the poverty line, subsidies are smaller and effective premiums consequently higher.
And those who do not qualify for subsidies — for example, if their incomes are too high, or if they have access to employer-sponsored insurance through a spouse — are still paying some of the highest premiums in the country.
According to one measure of unsubsidized premiums, New Jersey is the sixth-most-expensive among the 36 states whose ACA marketplaces for individual health insurance are run by the federal government.
That calculation is based on the ACA’s benchmark plan, the second-cheapest silver-level plan sold at Healthcare.gov. Silver plans are more expensive than bronze and cheaper than gold and platinum.
For New Jersey residents who are not receiving subsidies, the average premium for the benchmark plan is $260 a month for a 27-year-old and $943 for a family of four, well above the national averages of $214 and $774, respectively.
The high rates are a lasting legacy of the state’s pre-ACA insurance market. For two decades, New Jersey was one of just a handful of states with a “guaranteed issue” rule requiring insurance companies to offer coverage to all applicants.
Unlike their counterparts in most of the country, insurers in New Jersey have been barred since 1993 from rejecting anyone because of a pre-existing medical condition. Sicker people with high expenses bought individual insurance, healthier people who would have subsidized their coverage stayed away, and premiums rose.
“Insurance companies would issue coverage to anybody, regardless of their health status or prior claims history,” said Ward Sanders, president and CEO of the New Jersey Association of Health Plans. “In most other states the individual policies would be ‘medically underwritten,’ and so the pool of folks that would be covered under those plans obviously would allow for lower premiums than a guaranteed issue market.”
The Affordable Care Act made “guaranteed issue” the rule across the country, which has contributed to bigger premium increases in some other states. However, it does not appear to have significantly affected New Jersey’s cost ranking compared to rates, at least so far.
An outlier state
Sanders said rates in New Jersey are also kept high by rules requiring out-of-network coverage of emergency care.
If someone ends up in the emergency room of a hospital outside of their insurance plan’s network, the plan generally must pay what the hospital and its specialists charge, even if the fees are much higher than what the insurer negotiated with in-network providers. The patient cannot be billed for the amount above what the insurer would usually pay.
“The plan has to pay the difference so that you’re kept harmless,” said Linda Schwimmer, vice president of the New Jersey Health Care Quality Institute. “That’s a large cost. That just gets spread through the system, actuarially.”
“New Jersey is an outlier state,” Sanders said. “Until we change some rules or some laws, we will be one of the more expensive states, in part because of these out-of-network costs.”
Higher costs in New Jersey also result from insurance regulations that are still more stringent than the ACA requires. Unlike most other states, New Jersey has a maximum deductible of $2,500, or $5,000 for a family, which is the most an insurance plan can require a member to spend before coverage begins. The rule boosts the amount insurers must pay to cover people in cheaper plans, contributing to higher premiums.
In most states there is no maximum deductible lower than the out-of-pocket maximum of $6,350, which is the most an enrollee can be required to pay before the insurer starts covering 100 percent of healthcare costs.
New Jersey also allows people to stay on their parent’s group health insurance until age 31, five years longer than under the ACA’s extension to age 26. Sanders said people who take advantage of that rule tend to need insurance because of their high health costs, making for a more expensive risk pool of patients and higher premiums.
High cost of living
Over the years, the state Legislature has approved a long list of services that insurance companies must cover, some of which exceed the essential health benefits enumerated in the ACA .
In recent years, for example, the Legislature has required coverage of sickle-cell anemia treatments, early refills for prescription eye drops, and oral anticancer medications. Sanders said mandated coverage of in-vitro fertilization can be particularly expensive, both because of the process itself and the resulting multiple births.
Those mandates do not affect most insured New Jersey residents because their employers’ self-funded insurance arrangements are exempt under federal law. The percentage of insured people impacted by the mandates was 23 percent in 2010, according to the New Jersey Association of Health Plans. Sanders said that figure subsequently fell, but could rise again as more people get insurance.
Those affected by the mandates include people with individual insurance — including those buying policies through Healthcare.gov — and small businesses that cannot afford to self-fund their employee health costs, Sanders said.
“It’s ironic, because the ones that are most price-sensitive are the ones subject to the laws that make it more costly,” he said.
With the federal government trying to keep premiums down and subsidizing insurance for many Americans, the ACA now requires states to reimburse insurers for the cost of any mandate that drives up the price of a policy offered on the marketplace. The rule applies to mandates added after January 2012, though Sanders said it remains to be seen how such payments would work.
Healthcare-related state taxes, including an HMO tax to fund charity care and an insurance-company tax based on premiums, also end up leading to higher costs for New Jersey consumers, Sanders said.
Beyond regulations and mandates, broader social and economic factors contribute to steeper insurance prices.
Schwimmer noted that New Jersey residents are heavy users of medical care compared to people in other states, particular end-of-life care, which accounts for a disproportionate share of health costs nationally.
For example, the state had the highest rate of hospital admissions, 1,641 per 1,000 people, in the last six months of life, according to 2007 data from the Dartmouth Atlas of Health Care. In 2010 New Jersey had the fourth-highest rate of inpatient hospital days per Medicare enrollee and the sixth-highest spending level in the Medicare Part D drug program.
New Jersey is also simply a pricey place to live across the board, typically coming in fifth or sixth in state-by-state cost-of-living rankings. Sanders said the Northeast tends to have higher hospital and physician costs, as well as higher labor costs generally, compared to other parts of the country.
“Care is expensive in New Jersey,” Schwimmer said. “We are surrounded by very good educational medical centers, but some of them are expensive and people like to go to them. We just live in a very high-income, expensive state.”
But for some, payments drop
While the factors that make insurance expensive affect all coverages, the ACA’s subsidies shield beneficiaries from those effects, pushing enrollees’ costs in the other direction.
In fact, when subsidies are included, some New Jersey residents have actually ended up paying smaller premiums than they would have before the ACA. Few other states have seen that kind of reduction.
Before-and-after comparisons of premiums are tricky, because the ACA outlawed the old barebones plans, and the new policies offer better benefits. They also require many enrollees to pay out of pocket when they are treated, through co-pays, deductibles and other costs. In addition, many affected consumers did not have health insurance before, so the cheaper premiums do not provide them an immediate financial benefit.
That said, an analysis by Forbes magazine looked at the least expensive plans available before and after Obamacare, and found that New Jersey had an average premium reduction of 19 percent when subsidies were counted, making it one of just eight states to see a decrease in rates.
For example, the subsidized cost of the cheapest plan for a 27-year-old man dropped 18 percent, to an average of $252 a month now from $308 before, [http://www.forbes.com/special-report/2013/what-will-obamacare-cost-you-map.html|according to Forbes]. For a 40-year-old woman the drop was 36 percent, from $480 to $307. Meanwhile, the lowest-cost plans for a 64-year-old man or woman saw an average premium increase of 3 to 4 percent.
The analysis is based on average costs; people with incomes close to the poverty line could see much lower premiums.
Forbes noted that New Jersey and most of the other states that saw decreases already had expensive, heavily-regulated insurance markets, which could have blunted the financial impact of some of the ACA reforms. And, of course, subsidies cut effective premiums.
“Because we started off with extraordinarily expensive coverage, I’m sure the relative change with subsidies will be much more attractive here than it is elsewhere,” Sanders said. “That doesn’t surprise me.”