CBO: We Are Going to Be Spending A Lot More On Health Insurance

Health care bloggers have been waiting with bated breath for the CBO's report on health insurance premiums, which came out today.  The upshot:  premiums in the large and small group markets, which account for the lion's share of non-government health insurance, will not be significantly affected.  Premiums in the individual market, however, will rise 10-13%.

The CBO estimates that this effect will come from three things:

1.  A large boost in the generosity of coverage
2.  Improved administrative efficiency (individual plans are the most expensive to administer)
3.  More healthy people in the pool.

You can claim this as a victory for the pro-reform side, because people are getting more coverage at somewhat better prices, or a victory for the anti- side, because, well, we're going to be spending a lot more on health insurance.  We're expecting to increase the size of the individual insurance market by something like 50%, and premiums in the market are going to go up.

Talking about the averages necessarily disguises the fact that the costs and benefits will be distributed unevenly.  People without employer-based insurance who have an expensive condition are the big winners.  People who are currently in the private market are probably net losers, because many of them could buy the extra coverage they will be getting, and have chosen not to.  Relatively affluent-but-uninsured people, meanwhile, we see their premiums rise by somewhere between $5800 and $15,200, according to the CBO. 

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Of course, many people will not face the full costs of their treatment--slightly more than half of the people in the individual market are expected to receive subsidies.  But that just means that someone else will have to give up those thousands of dollars.  It looks to me like health care spending as a percentage of GDP is going to be higher, not lower, when all the changes are phased in.

Update:  So was Obama's campaign right when it said that health care reform would cut costs for the average family by $2,500 a year?

Well, first we have to define what we mean by average:  mean, modal, or median?

The modal (most common) family will see their insurance premiums rise, if the CBO is right.

The mean family is more complicated.  Way more complicated, because the pool is changing.  But assume away those problems, and imagine uniform policies costing $1000, that rise to $1,115 under Obamacare.  43% of people are now seeing their premiums go up by $100.  But the CBO says 57% get an average subsidy of 2/3 of the premium.  So their costs fall by almost $600.  So I think he's probably right.  Of course, if you factor out the subsidies, it is definitionally not true.  But to the people buying the insurance, it is.

The median?  Trickiest of all.  It basically depends on what happens to the next eight percent--the richest people being subsidized.  Do they see premium drops of as much as $2500?

Maybe.  The subsidy for families between 300-400% of the poverty level, which is where that 8% probably falls, range between 33% and 44%.  So if premiums are 13% higher than otherwise, but they get a 40% subsidy, the median family probably sees a savings--but I don't know whether it's more than $2500.  It depends on the distribution of families among the uninsured.  If families cluster at the higher end of the income spectrum--not an unreasonable assumption, since they tend to be older---then the median family will see an increase in their premiums.  If they cluster lower, or at the lower end of the 300-400% FPL scale, then they'll see a big drop.

All of which goes to tell us what we already knew:  legislation produces winners and losers.