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To repeat, the CBO found that premiums go down under health-care reform

Commentary on the Congressional Budget Office report showing that a given health-care insurance policy will become cheaper under reform has gotten a bit confused. Fox News, for instance, summarized the report as saying, ‘CBO: HC Overhaul Likely Won’t Bring Private Premiums Down.’ Let's assume good faith here, as this stuff is confusing.

First, the bottom line of the report is simple: The CBO says premiums will go down for the vast majority of Americans, and that the same insurance policy will cost less under reform.

The confusion comes in the CBO's analysis of the individual market, which serves about a tenth of the population. CBO expects prices in the individual market to rise by 10 or 12 percent, an expectation driven entirely by predictions that individuals will purchase policies that are much more comprehensive, and thus somewhat more expensive, then the insurance they can afford now. Then the CBO turns to look at the impact of the subsidies, which will cut premium costs by a bit over 50 percent for a bit over 50 percent of the market.

But as the CBO explains on page five, part of the increase in the type of insurance being purchased is the result of "people’s decisions to purchase more extensive coverage in response to the structure of subsidies." In other words, the change is driven by the subsidies, not offset by them.

To see this more clearly, imagine that the University of Florida decided to give incoming students who receive financial aid an $800 credit to purchase a laptop computer. You'd expect that the average computer purchased by students on financial aid would become a bit more expensive. But that wouldn't be because computers had become more expensive. It would be because people now had money to buy better computers.

So too for health-care reform. Premiums for the same policy in the individual market fall by 14 to 20 percent. But people in the individual market, who are largely low-income, will now have the opportunity to purchase better policies that cover more expenses and provide more security. That's a good thing. It's one of the reasons for health-care reform, in fact. And it is not analogous to health-care insurance becoming more expensive, any more than the fact that I could buy a nicer car after getting a better job suggests that cars are becoming more expensive.

Beyond that, it's important to remember that everyone has begun talking about the individual market results as if they are results for the whole of the health-care system. Sen. Mike Crapo, for instance, said that the CBO showed that Americans would see their premiums increase under reform. That's not even true in a misleadingly technical sense. It's simply false.

The individual market sees costs go up, as people can purchase better insurance at a lower cost. And after subsidies, most people are paying less and getting more than they would absent reform. Meanwhile, the small group and employer markets sees costs go down, and those markets serve more than 150 million Americans, as opposed to the individual market's 32 million customers. So it's not only true that most Americans will see their premiums go down, but it's also true that most Americans will see their premiums go down even if you account for the better insurance plans they'll be purchasing.

By Ezra Klein  |  December 1, 2009; 12:16 PM ET
Categories:  Health Reform  
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Comments

Ezra, And what do you say to the 4 in 10 people in the indvidual market that will not receive subsidies? Don't tell them that their premiums aren't going to be higher. They are becasue they are going to be forced to buy a more generous plan, even if they don't want one. There are a LOT of self-employed individuals out there that earn more than 3x or 4x poverty, and a lot of them would like to have catostraphic insurance policies ONLY. This bill eliminates that possibilty and the Dems once again stifle entrprenurship, risk-taking and innovation in this country.

Posted by: truth5 | December 1, 2009 12:33 PM | Report abuse

"Let's assume good faith here"

Why on Earth would you assume good faith from Fox News? I bet later today they have an onscreen graphic with a (D) next to Maurice Clemmons's name.

Posted by: UberMitch | December 1, 2009 12:38 PM | Report abuse

stay classy ubermitch!

Ezra,

what you seem to conveniently forget is that the whole idea behind this for the "currently insured" which makes up the largest majority of America was to "bend the cost curve". I'm sorry but 0-2% is not bent. The administration gave up realistically its last bargaining chip in the war on special interests, 32-47 million new patients (docs, pharma, insurers, hospitals) for absolutely nothing. In fact Pharma basically serves as the administration's advertising arm and for their $150 million to ensure reform goes through they're promised an extra 5-7 years for biologics that will equate out to BILLIONS in profits for an industry that already profits at high teen profit margins. That's like offering Goldman Sachs ANOTHER bailout. THe fact that you're glossing over this is very sad indeed.

Posted by: visionbrkr | December 1, 2009 1:42 PM | Report abuse

"The individual market sees costs go up, as people can purchase better insurance at a lower cost."

Whatever the reason, premiums are still 10-13% higher in 2016 because of reform. And for people who are presently paying nothing because they don't want insurance, it's a new multi-thousand dollar expense.

...............................

"And after subsidies, most people are paying less and getting more than they would absent reform."

Can't argue with that as long as a majority of the individuals qualify for subsidies, but within a few years it will be a minority as subsidies are not properly indexed to inflation. Also assumes the government doesn't run out of money like Massachussetts did.

...............................

"Meanwhile, the small group and employer markets sees costs go down"

Average premiums decrease slightly because healthy people are forced to buy insurance, and because employers with high costs dump them their plans on the exchanges.

...............................

NOTE: Substantial degree of uncertainty for differences less than a few thousand dollars makes this whole exercise largely meaningless.

Average individual premium in 2016--
CBO estimate : $5800
AHIP estimate : $7900

Posted by: bmull | December 1, 2009 1:46 PM | Report abuse

Ezra - You are wrong. The CBO does not say that reform would cause premiums to "go down for the vast majority of Americans". I challenge you to support this argument.

Let's say that reform will lower prices for an equivalent policy for all 32 million americans who purchase insurance on the individual market (i disagree, but am willing to concede for the sake of argument).

That leaves 160 million people who receive insurance through groups policies (mostly from employers). In the CBO report for large groups (134 million people) i see the following:


Difference in amount of insurance coverage: Negligible

Difference in price for a given amount of insurance coverage: Negligible

Difference in types of people with coverage: 0-3%

So in total this population of 130 million people might see a 0% change in premiums or up to a 3% decline. In the small group market CBO predicts premiums will be unchanged.

Then we have 45 million people on Medicare. Will insurance premiums go down for them? No.

Are you hanging your entire argument on a potential 0-3% decline in the large group market? Is that it? Is that the entire benefit of reform for over half the population? Are we supposed to support reform based on this?

Where is the $2,500 savings that Obama said the average family would see from reform?

Posted by: MBP2 | December 1, 2009 1:47 PM | Report abuse

uhm, if I never had a computer and I was forced to buy one with an $800 subsidy, I would most likely buy the cheapest computer I could get my hands on. likewise, let's say I'm 25 and healthy and I'm forced to buy health insurance; again, I'd try to buy the cheapest plan to meet the new requirement. i know lotsa people who think like this.

Posted by: goadri | December 1, 2009 2:33 PM | Report abuse

The people who are already paying for their own insurance have been largely forgotten in this whole discussion.

Legislators and policy wonks like Ezra focus on maintaining what the privileged groups (e.g. corporate employees and Medicare recipients) have while extending the dysfunctional insurance model to "the uninsured". They conveniently ignore the fact that 100% of the individuals in the individual market will be subject to premium increases for the next 5 years as the non-exchange provisions come into play and they will never qualify for subsidies.

Where's the tax *exemption* for people who will be paying their own costs?

Posted by: Athena_news | December 1, 2009 3:11 PM | Report abuse

Ezra,

One of the reasons I read your stuff is even though we are political opposites. You tend NOT to turn spin into lie.

BUT ...

"And after subsidies, most people are paying less and getting more than they would absent reform."

After subsidies is NOT cheaper. It is more expensive.
It is just someone OTHER than the person getting insurance pays those subsidies.
Whether it is businesses.
Rich people.
People getting the cadillac plans my union offers.
Doesn't matter.

The policies are STILL more expensive. But don't worry, it will SEEM cheaper to you because we are going to stick it to people we don't like and force them to pay for you.

Posted by: chromenhawk | December 1, 2009 4:10 PM | Report abuse

@ goadri ...

Don't worry the mandate is unconstitutional.

They LIKE to say it is covered under the "commerce clause" ...
but you will notice the Republican plan calls for ALLOWING insurance companies to sell health insurance across state lines.
ALLOWING means they currently are NOT allowed.

No insurance sold across state lines means no interstate commerce.
No interstate commerce means commerce clause can not be invoked.

Sorry.

The second argument is that congress has the right to raise funds via a tax.
But they are NOT raising funds via a tax
They are PENALIZING and calling it a tax.

The could have gotten around that if they wrote it as a tax for EVERYONE. And if you proved you had insurance the tax would be considered paid in full.

BUT creating a tax on ABSCRIBED behavior versus PROSCRIBED behavior ( i.e. you can't smoke cigarettes ) is a penalty, not raising funds.

... however, remember. My view is not what matters.
Ezra's view doesn't matter.
Pelosi's view, Reid's view, the President's view are all worth dog crap.

The only view that matters on whether or not mandates is constitutional are 5 of the 9 people in black robes in Washington.

4 will definitely say yes ( though one is a soft yes ) and 3 will say no.
The other two are more likely no than not.

Which really means ... only 3 people's viewpoint matters.
And those three could give a dang about what congress or the people or polls or anything.
And those three? Tilt strongly conservative.

Posted by: chromenhawk | December 1, 2009 4:17 PM | Report abuse

thanks for the explanation

Posted by: schaffermommy | December 1, 2009 10:30 PM | Report abuse

Mr. Klein:

You're shameless.

If anyone's premiums are going down or staying the same, it's because other people's taxes or premiums are going up.

See Mickey Kaus and other analyses. [http://www.slate.com/blogs/blogs/kausfiles/archive/2009/12/01/msm-comes-through-for-obama-on-health-care-premiums.aspx]

Posted by: dturnerc | December 2, 2009 10:26 AM | Report abuse

Dturnerc,

Good job posting the Slate article that calls out Ezra for being in the "tank" on this one. His analysis on this is utter rubbish. The point of "REFORM" was to lower the cost of health care, not INCREASE it by mandating increased coverage and hiding the increase by the gov't subsidzing the premiums.

Ezra, it is moving the chairs around on the Titanic, if I've ever seen it. I used to respect reading your blog, but this is REALLY bad reporting and analysis.

Posted by: truth5 | December 2, 2009 12:34 PM | Report abuse

cromenhawk: "No insurance sold across state lines means no interstate commerce.
No interstate commerce means commerce clause can not be invoked."

I don't think that's a correct reading of the law. Even if insurance isn't sold across state lines, insurance has an impact on medical services and expenses which are all over state lines. An indirect impact on interstate commerce has long been recognized as sufficient to justify Congressional action under the Commerce Clause.

Posted by: dasimon | December 2, 2009 3:28 PM | Report abuse

godari: "let's say I'm 25 and healthy and I'm forced to buy health insurance; again, I'd try to buy the cheapest plan to meet the new requirement. i know lotsa people who think like this."

Perhaps there are some who think like that, but there are also lots of people who don't have insurance and want it, or who are underinsured and would want greater coverage if they had a subsidy that enabled them to buy it. Just as it's misleading to conclude that everyone who doesn't have insurance wants it, it's equally misleading to assume that those without insurance or who are underinsured do so out of choice rather than affordability.

One has to get the data and crunch the numbers, not go by "lotsa" people one happens to know. Surely there are many people who would get better computers if they could afford to do so, whether they presently have one or not.

Posted by: dasimon | December 2, 2009 3:33 PM | Report abuse

chromenhawk: "The second argument is that congress has the right to raise funds via a tax.
But they are NOT raising funds via a tax
They are PENALIZING and calling it a tax.

"The could have gotten around that if they wrote it as a tax for EVERYONE. And if you proved you had insurance the tax would be considered paid in full.

"BUT creating a tax on ABSCRIBED behavior versus PROSCRIBED behavior ( i.e. you can't smoke cigarettes ) is a penalty, not raising funds."

Fine, say the Supreme Court knocks it down and Congress rewrites the law as you suggest to get the same result: as a general tax with a tax credit if you show that you purchased qualifying insurance. If it gets us to the same place, that mechanism doesn't seem to me like much of a reason to oppose the bill. It's a technical objection, not a substantive one.

Posted by: dasimon | December 2, 2009 3:40 PM | Report abuse

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