Will health care reform lower insurance premiums?

How to fix health policy.
Nov. 30 2009 7:09 PM

Will Health Reform Lower Premiums?

Yes and no, says the Congressional Budget Office.

Click here for a guide to following the health care reform story online.

Douglas W. Elmendorf, the eighth Director of CBO.
Congressional Budget Office Director Douglas W. Elmendorf

We've heard a lot of debate about what health care reform would do to the price of health insurance. Shortly before the Senate finance committee passed its version of the bill, the health insurance lobby issued a report arguing that 10 years down the road, premiums would be 32 percent higher than they would be if the bill weren't passed. But that excluded from consideration several cost-saving measures in the bill. Soon after, Jonathan Gruber, an MIT economist who specializes in health care, issued his own estimate. The finance committee bill, Gruber concluded, would lower premiums by $230 to $8,550. (He reached a similar conclusion when he updated his calculations for the version of the bill now on the Senate floor.) But Gruber's analysis focused only on individuals and families buying policies in the nongroup market—that is to say, it excluded insurance costs for the 59 percent of Americans who receive health insurance through their employers.

Calculating health reform's effect on premiums involves many "complexities," the Congressional Budget Office told Sen. Max Baucus, D-Mont., in September. Consequently, "CBO has not modeled all of those factors and is unable to quantify them or calculate the net effects at this time." But the U.S. Senate is not accustomed to taking no for an answer, so, after further prodding from Sen. Evan Bayh, D-Ind., the CBO has released an estimate. Or rather, two.

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The nongroup market. Health reform is almost entirely concerned with this sector, even though it represents only about 8 percent of the total private health-insurance market (the rest being employer-based). Partly, this is because the nongroup market is where the industry's worst abuses (like rescission) are found, but mainly it's because the reform bill would restructure this market through the creation of "exchanges" in which private health insurers (and perhaps a "public option" government health insurer) would compete to sign up the currently uninsured, whom the law would require to get health insurance.

The bad news is that the CBO estimates that per person covered, in 2016 the average premium in the nongroup market would be 10 percent to 13 percent higher with health reform than without.

Expect the GOP sound bite to end here.

The good news that the GOP probably won't acknowledge is that most of the people who purchase health insurance in the nongroup market through the new exchanges—fully 59 percent—won't be paying sticker price. That's because their incomes will be sufficiently low to qualify them for a government subsidy toward the purchase of their health insurance. For this subsidized majority, premiums will be 56 percent to 59 percent lower than they would be if health reform were not passed.

You could argue that these people, not having had health insurance previously, will be paying more for it than the amount they were paying before (zero). But, of course, the goal is to make health insurance more affordable for those who can't afford it now, which the bill certainly achieves. (Whether it's affordable enough is a subject of legitimate debate; the Senate bill's subsidies are less generous, and less concentrated on people at the lowest incomes, than the House bill's.)

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