Health Reform Bill Lowers Premiums

Health Reform Bill Lowers Premiums December 3, 2009

The CBO has already shown that the Senate health care bill will dramatically increase access to healthcare and reduce the fiscal deficit over time. And now we have the missing link in the analysis – the bill will also reduce premiums, making healthcare cheaper than is presently the case.

First things first. People covered in the small- and large-group markets (159 million people) will see virtually no change – premiums in the large group market will fall by 1.5 percent and in the small group market by 0.5 percent. This is better news than it sounds. Remember, many critics of this bill were arguing that the new restrictions imposed on insurance companies would push up premiums for those who already have healthcare. It doesn’t happen.

The real news comes from the individual market, the real problem today. By 2016, about 32 million people will be getting healthcare through this market. And this is where it gets complicated – the headline numbers show premiums rising by 10-12 percent. Aha, you might say! Not so fast. As the CBO takes great pains to show, this increase is completely explained by the fact that the quality of the package will get better, in terms of more comprehensive benefits. In fact, this improvement leads prices to rise by 30 percent. The fact that they only rise by 10-12 percent suggests some countervailing cost savings, coming from the insurance reforms and the individual mandate. And when we add in the subsidies, it looks better still. Almost 60 percent of people on the exchange will get subsidies, and these subsidies will reduce premiums by 56-59 percent.

As Ezra Klein puts it:

“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?”


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