Money in your pocket

MONEY IN YOUR POCKET…. Following up on earlier item, there’s growing reason to believe health care reform will produce lower premiums for consumers. MIT economist Jonathan Gruber’s analysis reached this conclusion, and the Congressional Budget Office released a report today that will almost certainly be misconstrued, but which is actually a positive development.

According to CBO, average premiums in the individual market would increase 10 to 13 percent because of provisions in the Senate health care bill, but, crucially, most people (about 57 percent) would actually find themselves paying significantly less money for insurance, thanks to federal subsidies for low- and middle-class consumers.

Those are two separate findings, but it seems likely that Republicans will use the former finding to attack reform, claiming it will raise people’s premiums, and leave people confused about the second finding, which is actually the one that impacts people’s pocket books.

This can get a little confusing, which conservatives will no doubt want to exploit, so let’s set the record straight before the lying begins in earnest. The CBO looked at premiums for consumers getting insurance as individuals, through small-group coverage, and large-group coverage. Both group markets, which serve a large majority of Americans under 65, are expected to see premiums decrease as a result of reform. That means more money in the pockets of tens of millions of consumers.

And what about the individual market? Premiums are expected to increase by about 10% by 2016. As Ezra Klein explained, however, what matters is why.

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.

The Congressional Budget Office, in other words, has offered another encouraging report on the benefits of health care reform. With the debate poised to begin in the Senate, the timing is helpful.