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Massachusetts provides evidence that health-care reform lowers insurance premiums

MIT health economist Jon Gruber sends along a paper looking at premiums under the new House plan:

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 $5,300 in 2016. This is a plan with an “actuarial value” (roughly, the share of expenses for a given population covered by insurance) of 70 percent. In their September 22 letter to the Senate Finance Committee, the CBO projected that, absent reform, the cost of an individual policy in the nongroup market would be $6,000 for a plan with an actuarial value of 60 percent. This implies that the same plan that cost $6,000 without reform would cost $4,540 with reform, or almost 25 percent less.

The CBO has not reported many of the details of their analysis, such as the age distribution of individuals in the nongroup market or in the exchange. So these data do not provide a strictly apples-to-apples comparison of premiums for the same individual in the exchange and in the no-reform, nongroup market. And their conclusion may change as legislation moves forward. But the key point is that, as of now, the most authoritative objective voice in this debate suggests that reform will significantly reduce, not increase, nongroup premiums.

This conclusion is consistent with evidence from Massachusetts. In their December 2007 report, AHIP reported that the average single premium at the end of 2006 for a nongroup product in the United States was $2,613. In a report issued just this week, AHIP found that the average single premium in mid-2009 was $2,985, or a 14 percent increase. That same report presents results for the nongroup markets in a set of states. One of those states is Massachusetts, which passed 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 nongroup 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 nongroup insurance in the state: The average individual premium in the state fell from $8,537 at the end of 2006 to $5,143 in mid-2009, a 40 percent reduction, while the rest of the nation was seeing a 14 percent increase.

Full paper here.

By Ezra Klein  |  November 2, 2009; 6:30 PM ET
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When Gruber is involved you can be sure we're once again conflating subsidized premiums and total health care spending.

Sure I can pass a reform that says everybody will pay $5000 a year instead of $8000. Make it $1000 in fact. The question is: Does the government have the money to keep that promise indefinitely when health care inflation is 6-8% a year? Noooooo.

Posted by: bmull | November 2, 2009 6:51 PM | Report abuse

Those pre and post reform premiums are meaningless without being risk-adjusted. MA was guaranteed issue with no mandate before, so the individual market was made up of people who consume a lot of care because they're the only ones for whom the high premiums made sense. All those raw premium numbers tell you is the non-risk-adjusted average cost of care for the population in the individual market before and after reform.

Posted by: ab13 | November 2, 2009 7:27 PM | Report abuse

Because costs (i.e. medical costs, not premiums) are still outpacing inflation by a great deal in MA. They got more people covered but did nothing about cost. Costs are still rising just as fast as ever.

Posted by: ab13 | November 2, 2009 7:29 PM | Report abuse

It's very disheartening to see the continued constant conflation of insurance with care and premium with costs this late in the game.

What was the net change in the amount of money spent in the state of Massachusetts on health care? What happened to the average out-of-pocket expenses? Did medical debt in Massachusetts decrease during the period in question? And did subscribers see a difference in customer service from insurers?

Insurers don't control the cost of care. So when competing against other insurers, they will lower their premiums and raise co-pays, jettison subscribers with high "medical losses" and reduce their own operating costs by cutting back on service. None of that changes the underlying costs of care -- it just shifts more to the subscriber and makes it difficult more for subscribers to manage things.

Posted by: Athena_news | November 2, 2009 7:42 PM | Report abuse

Individual vs. group plans.

Individual plans currently have especially low "health benefit ratios" (aka 'medical loss ratios', the portion of premiums insurers then pay back out in claims). Much lower than group ratios.


So once reform makes the individual market get group-like rates, then for *individuals*, there will be a much better deal from insurers than before.

They will get health benefit ratios similar to larger groups.

That's the change I would expect.

Countering this huge change will be another change: many who cannot currently afford policies that have reasonable deductibles or that are reasonably comprehensive will for the first time be getting reasonably comprehensive policies. This is more insurance, and would cost more.

So we have two big changes, in opposite directions, on typical premiums, for the individual market (the group market is another story entirely).

Since lower income people will of course have subsidies to help pay their premiums, their actual out-of-pocket total of all costs will be much better than before reform in the case of anyone that needs more than very occasional medical care.

Of course, most people are *not* in the individual market, but instead have group insurance from employers.

Posted by: HalHorvath | November 2, 2009 10:35 PM | Report abuse

Jon Gruber also appeared today on Marketplace (NPR radio show, last segment).

Posted by: HalHorvath | November 3, 2009 12:37 AM | Report abuse

There is no evidence that Massachusetts lowered the COST of insurance to its residents. Massachusetts set a minimum floor of coverage that is acceptable. The minimum coverage includes a $2000 cap deductibles for an individual or $4,000 for a family each year, and an annual cap on out-of-pocket spending at $5,000 for an individual or $10,000 for a family (for plans with up front deductibles or co-insurance). It also includes annual checkups, and many other required services.

From the Mass annual progress report for 2007-08, "As a result, Massachusetts is unique among the 50 states in requiring coverage of a broad array of medical services and prescription drugs, capping deductibles and out-of-pocket spending and requiring coverage of preventive care."

Residents who had major medical, hospitalization and catastrophic insurance paid less than the rate that is charged for Massachusetts minimum coverage. These people were willing to pay their drug costs, their annual check-up costs, etc out of their own pockets.

The inclusion of this low use group and also the 3 percent who could afford health care insurance, but decided to self-insure instead, is what lowered the Mass insurance premium. These people however saw a substantial increase in their premium payments.

What happened in Mass is that for some people there was a significant increase in medical insurance costs. Their inclusion in an unneeded extra insurance coverage policy is what lowered the cost of the Mass minimum required health insurance premium.

Naturally, if you have people paying for unneeded insurance and paying more than they did before, the average premiums of the higher level, unneeded insurance will be lower than before their involuntary inclusion.

Posted by: MiltonRecht | November 3, 2009 2:42 AM | Report abuse

This is incredible. Last week anti-reformers were arguing that premiums would go up because people would game the system and jump on and off coverage. Pro-reformers countered and said that having so many more people in the risk pool would lower premiums and outweigh any gaming of the system by a few.

Research in MA shows that premiums were lowered. In response to this, anti-reformers respond "Well, of course premiums went down, the risk pool got much larger". How do their heads not explode?

Posted by: consid24 | November 3, 2009 9:52 AM | Report abuse

Premiums in the Mass. individual market did indeed go down. But premiums in the small group market (which was merged with the individual market as part of health reform) went up. A more accurate headline would be "Massachusetts provides evidence that health-care reform lowers INDIVIDUAL MARKET insurance premiums". I fully expect to see the same thing with federal health reform (as it is designed to accomplish exactly this).

There is very little evidence that health reform in Mass. has lowered health care costs (yet), although it does appear that it created an environment where a serious discussion about payment reform is possible. AND it led to hundreds of thousands of people getting insured that wouldn't be otherwise, which improves the health of the population.

Posted by: AronB | November 3, 2009 10:33 AM | Report abuse

Am I missing something? At $5143 vs $2985, the average premium for an individual in Mass. is 73% HIGHER than the national average. Doesn't seem like a ringing endorsement to me when the average individual policy costs $2158 more in Mass. than the average policy nationwide.

I guess that this column just proves that the numbers can be massaged any which way to make a point.

Posted by: Beagle1 | November 3, 2009 11:34 AM | Report abuse

Massachusetts is a state full of commie pinkos who are all Obama kool-aid drinking puppets!!! Socialist nazis, the lot of them!! Wake up, America!1! Death panels! What part of "No" don't you understand!? Don't tread on me! AAARRRGGHH!!

OK, now I'll go ahead and read the article...

Posted by: DAMNEDGENTLEMEN | November 3, 2009 12:19 PM | Report abuse

I read Gruber's paper. His source for premium cost data is "a recent AHIP report". Yup, the same AHIP whose analysis got so widely trashed in the leftosphere last week. I don't see his numbers in that report, or in the only other relevant AHIP report I could find.

Insterestingly, when I looked for data sources, I found a New England Journal of Medicine report that stated:

"From 2006 to 2008, the average price of a family insurance premium increased by more than 12%, and premiums increased by about 10% statewide this autumn."

The Connector (the Mass exchange) Annual report said:

"Commonwealth Care (CommCare) experienced an annualized premium trend of less than 5% from program inception through the most recent round of health plan bidding for FY10"

As a result, I'm quite confused. Can anyone provide a link to the AHIP report?

Posted by: lfstevens | November 3, 2009 6:17 PM | Report abuse

The AHIP reports aren't particularly helpful, though one might tease some meaning out of one sentence in the '07 one.

At this link:

The '09 report is at the top, and the '07 report is down at "12.19.2007" and titled, "Individual Health Insurance 2006-2007: A Comprehensive Survey of Premiums, Availability, and Benefits"

One thing I noticed is that average family size changed in Massachusetts from '07 to '09, going from 3.18 members per policy to 3.52. If you do the math, the difference makes up a big chunk of the difference in the cost of a family's premiums. I would guess the rest of the difference is the way the categories of people ended up being jiggered around in the bustle of the state's intrusion into the lives of its citizens. In other words, it's a statistical fluke. Health care hasn't gotten cheaper in Massachusetts.

And, as usual, Klein isn't disposed to offer any more up than suits his biased, propagandic purposes.

Posted by: msoja | November 3, 2009 7:53 PM | Report abuse

Wyden/Bennett had cosponsors in both parties and was a better bill than any of the survivors.

Conversely, none of the House bills display even a smidgeon of bipartisanicity.

Nothing like an invidious comparison

Posted by: lfstevens | November 3, 2009 8:40 PM | Report abuse

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