Placing A Premium On Savings

Ezra Klein looks at the latest CBO numbers on the Senate health care reform plan.

The CBO's analysis broke the health-care system into three parts: individual, small group and large group. The small- and large-group markets account for 159 million Americans, and have very little change in premiums. But what change they see is in the right direction: Health-care reform is expected to reduce premiums in the large group market by about 1.5 percent, and in the small group market by about 0.5 percent.

The individual market is where the big changes happen. In 2016, which is the year CBO examines, this market is expected to serve 32 million Americans. And in this market, average premiums are expected to rise by 10 to 12 percent. What's important, however, is why.

The bottom line is that premiums will go up on individual users, but the coverage will be much better, and then the subsidies will make that coverage significantly less expensive for people.

(More after the jump...)

The CBO sees the changes coming from three different sources. First, "the average insurance policy in this market would cover a substantially larger share of enrollees’ costs for health care (on average) and a slightly wider range of benefits." This accounts for all of the increase in premiums. In fact, it accounts for much more than the projected increase: The improvement in the insurance obtained on the individual market would, on its own, raise prices by up to 30 percent.

But the increase is moderated by two other policy changes. First, the new rules governing the insurance market are expected to make the market more efficient, lowering prices by 7 to 10 percent. Second, the individual mandate, alongside the subsidies and the increased ease of purchasing insurance, is expected to bring in healthier folks, which should save another 7 to 10 percent. Add it all together and we're looking at a 10 to 12 percent increase in premiums for insurance that's about 30 percent better than what people are getting now. It's a steal. And all this is before we get to subsidies.

The CBO estimates that 57 percent of people in the individual market will receive subsidies to help them purchase health-care insurance (folks on the individual market tend to be much lower-income, with much less stable employment). Those subsidies will reduce premium costs by between 56 to 59 percent for the average beneficiary. So in the final analysis, the effect of reform on your typical individual market purchasers is to give them insurance that's about 30 percent better but only 10 to 12 percent more expensive, and then assure them subsidies that will lower their payments by more than 50 percent. And if you're in the small group or large group markets, your premiums are expected to fall a bit. 

Good deal, no?

And all this is in advance of the real cost-saving measures in the bill. CBO is looking at 2016, which is long before the delivery system reforms will have really begun working, or the excise tax will have started restraining the growth in premiums costs, or the Medicare Commission will be aggressively experimenting to bring down costs first in Medicare and then in the system more generally. These are the numbers, in other words, from a world in which none of the cost control efforts work. In that world, health-care reform still does an enormous amount to help 30 or 40 million people, and a bit to help tens of millions more.

So in the end, your health insurance premiums will go down under the Senate plan, and in some cases down significantly.
This is the kind of plan we need.  It needs to be available to more Americans.