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CBO estimates that Senate health-care reform will lower costs by 20%

MIT economist Jon Gruber digs into (pdf) the latest numbers from the Congressional Budget Office and finds good news for advocates of reform:

In a letter to Senator Reid on November 20, the Congressional Budget Office (the official government scoring agency) reported that they estimated the cost of an individual low-cost plan in the exchange to be $5200 in 2016. This is a plan with an “actuarial value” (roughly, the share of expenses for a given population covered by insurance) of 70%. In their most recent communication with Congress, CBO also projected that, absent reform, the cost of an individual policy in the non-group market would be $5500 for a plan with an actuarial value of 60%. This implies that the same plan that cost $5500 without reform would cost $4460 with reform, or almost 20% less. ...

This conclusion is consistent with evidence from the state of Massachusetts. In their December 2007 report, AHIP reported that the average single premium at the end of 2006 for a non-group product in the U.S. was $2613. In their October 2009 report, AHIP found that the average single premium in mid-2009 was $2985, or a 14% increase. That same report presents results for the non-group markets in a set of states. One of those states is Massachusetts, which passed a health care reform similar to the one contemplated at the federal level in mid-2006. The major aspects of this reform took place in 2007, notably the introduction of large subsidies for low income populations, a merged non-group and small group insurance market, and a mandate on individuals to purchase health insurance. And the results have been an enormous reduction in the cost of non-group insurance in the state: the average individual premium in the state fell from $8537 at the end of 2006 to $5143 in mid-2009, a 40% reduction while the rest of the nation was seeing a 14% increase.

One of the tricky things about policy debates is that the cost of doing something gets a lot more attention than the cost of doing nothing. The Congressional Budget Office is part of this problem, as its mandate is to estimate the impact of policy changes, not current trends. But current trends are bad! One of the costs of not passing health-care reform, it seems, is that policies in the individual market will cost about 23 percent more than they will under reform. A vote against change is, in effect, a vote for that. Mmm ... status quo-alicious!

By Ezra Klein  |  November 30, 2009; 9:09 AM ET
Categories:  Health Reform  
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Maybe....CBO is expected to release its analysis of what the Senate bill would do to insurance premiums vs current law within the next few days. Let's see what they have to say.

Posted by: MBP2 | November 30, 2009 9:33 AM | Report abuse

It appears that the claims that the Reid health care bill would reduce the deficit are based on the fuzzy accounting practices that the politicians in Washington love but in the real world would lead to someone going to jail.

The so-called savings in Medicare by addressing waste, fraud and abuse require Congressional action. Does anyone really believe that the politicians are going to act after being contacted by the lobbyists and special interest groups? I don't!

Then we have the mandates being passed off on the States. This will lead to tax increases at the local level.

Why doesn't the proposed legislation include tort reform? Because the trial lawyers object!

This bill is going to increase the deficit and in the long run will do little to save the American tax payer money.

Posted by: mwhoke | November 30, 2009 9:40 AM | Report abuse

A few additional details Ezra doesn't mention:

1) Gruber is a liberal economist - and you know how objective economists are.

2) Gruber is the architect of the Massachusetts exchange, so obviously he would not want to consider himself a failure. There are tons of sources out there that state that Massachusetts' costs are undeniably high as a result of this insurance expansion. And why is Massachusetts even considering capitation? Then there are other hard-to-quantify costs, such as shortages. Keep in mind MA's own uninsurance rate was low relative to peer states even before the commonwealth exchange. One can only imagine the type of costs that would arise from Obamacare in certain areas with physician shortages.

Posted by: RandomWalk1 | November 30, 2009 9:53 AM | Report abuse

Here's what really happens. Gruber cherry picks some CBO numbers, polishes them up to make them look even better, and gives them to his cronies at the White House. From there they are syndicated by every big-D blogger on the planet, most of whom I'd wager haven't read the report, couldn't explain how the numbers were derived, and wouldn't be able to defend them. All the public hears is that--as Politico put it--"premiums on the individual market could drop by $200 to $500 each year." That's not what Gruber said, much less what CBO said, much less the truth. It's a lie.

Posted by: bmull | November 30, 2009 9:58 AM | Report abuse

gruber is losing all credibility of impartiality.

Like MBP2 states I'll wait to see what CBO says of the request Evan Bayh made and then take that with a grain of salt and look closer at how CBO thinks cost containment provisions will actually be implemented.

Posted by: visionbrkr | November 30, 2009 10:40 AM | Report abuse

"One of the costs of not passing health-care reform, it seems, is that policies in the individual market will cost about 23 percent more than they will under reform. A vote against change is, in effect, a vote for that. Mmm ... status quo-alicious!"

Where are all of these people who think that rather than the current bills we ought to do nothing? Who are these people who think the status quo is acceptable? Are they perhaps made of straw?

Posted by: ab13 | November 30, 2009 11:08 AM | Report abuse

CBO analysis of insurance premiums has been released this morning. Here is the Reuters headline:


WASHINGTON, Nov 30 (Reuters) - The U.S. Senate's healthcare bill would raise insurance premiums by at least 10 percent by 2016 for those independently buying coverage but subsidies would reduce the actual costs for half of that group, the Congressional Budget Office said on Monday.
The nonpartisan CBO said the bill would have a much smaller impact on those who receive coverage through employer-based plans. The analysts said premiums would increase for those purchasing their plans individually largely because those plans would offer greater benefits than under current policies.

Posted by: MBP2 | November 30, 2009 11:27 AM | Report abuse


its important to note that this will increase costs by 10-13% MORE THAN they would have increased without reform.

Wonder how our friend Peter Orszag will SPIN this about.

Posted by: visionbrkr | November 30, 2009 11:30 AM | Report abuse

I have no idea if Gruber has a vested interest in this because of his experience in MA. But the article is referencing a CBO estimate of an approx 20% reduction, correct? Another source--Hewitt Associates, a large health care consultancy (and definitely conservative)--cites an 11% reduction in its position papers.

One of the key elements to holding down costs in the individual market is the exchanges will limit adm expenses. Currently they average 30% +/- in the individual market. The exchanges will limit them to 15%.

Posted by: scott1959 | November 30, 2009 12:05 PM | Report abuse

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