What Does the Senate Bill Do to Healthcare Premiums?

The Congressional Budget Office has a new report today on the Senate bill and its impact on health care premiums. The big picture is that for the 80 percent of Americans who get insurance through their employer, the bill won't cut premium costs very much -- if you exclude the impact of the excise tax. However, when you consider the excise tax (which hits an increasing number of expensive health plans over the next decade) you see lower premiums. Here are the money graphs:

By CBO and JCT's [Joint Committee on Taxation] estimate, the average premium per policy in the small group market would be in the vicinity of $7,800 for single policies and $19,200 for family policies under the proposal, compared with about $7,800 and $19,300 under current law. In the large group market, average premiums would be roughly $7,300 for single policies and $20,100 for family policies under the proposal, compared with about $7,400 and $20,300 under current law.

Those figures do not include the effects of the small business tax credit on the cost of purchasing insurance. A relatively small share (about 12 percent) of people with coverage in the small group market would benefit from that credit in 2016. For those people, the cost of insurance under the proposal would be about 8 percent to 11 percent lower, on average, compared with that cost under current law. 

The reductions in premiums described above also exclude the effects of the excise
tax on high-premium insurance policies offered through employers, which would have a significant impact on premiums for the affected workers but which would affect only a portion of the market in 2016.  As in the nongroup market, the effects on the premiums paid by some people for coverage provided through their employer could vary significantly from the average effects on premiums, particularly in the small group market. 

About 20 percent of employment-based plans will have premiums that exceed the excise tax threshold in 2016. The excise tax is designed to creep into more and more plans, because it's tied to overall inflation, which is moving slower than health care inflation. But how would taxing expensive plans reduce their cost? It wouldn't. It would raise premiums, prohibitively, and employers would just switch to plans with lower premiums. Theoretically, when employers pay lower health benefits, they pay higher wages. Those higher wages are taxed (whereas health benefits are not), and the government makes money to pay off health care reform.

I've got to say. The more you think about it, Baucus took a mean and unnecessary licking from liberals when he first proposed this excise tax, which now looks like a clever and crucial instrument for cutting premiums and boosting tax receipts.