CBO premium report offers mixed picture

Surprise, surprise. The nonpartisan Congressional Budget Office (CBO) has issued its long-awaited analysis of how health reform would affect premiums and both sides in the debate are claiming victory, using the CBO analysis to bolster their own cases. The CBO analysis, which compares health insurance rate estimates under current laws as they'd be in effect in 2016 vs. what they’d be if health reform were fully implemented, shows that health reform could substantially reduce costs for many individual insurance market purchasers (while causing premiums for others to increase) but would not substantially affect premiums for most Americans who receive employer-based coverage.

The facts. First, the facts. These are not in contention. For employees of large company employers (a group that makes up 70 percent of the insurance market), premiums would hold steady or drop by up to 3 percent. For small group employees, who make up 13 percent of the market, the effect would vary. For some small group members, rates could drop by up to 2 percent while others could see a one-percent increase. A portion of small group employees—about 12 percent--would qualify for tax credits, which would cause their premiums to fall by 8 to 11 percent, according to the CBO.

The effect on the individual market would vary even more, depending on whether the buyer is eligible for a subsidy. Some people buying their insurance in the individual market would face moderate premium increases, while others—people who would qualify for subsidies--would pay much less than they do right now. According to the CBO, about 57 percent of the 32 million people expected to buy their coverage in the individual market would qualify for a subsidy and, the CBO says, these people would see their insurance premiums drop by 56 to 59 percent. However, people in the individual market who are ineligible for a subsidy would pay, on average, 10 to 13 percent more if health reform were enacted vs current law.

Why would premiums increase? According to the CBO says, if health reform is implemented, insurance policies would be more expensive for two reasons. They would cover more benefits (the scope of insurance coverage would increase) and the share of coverage (that is, the actuarial value) would increase, resulting in reduced out of pocket costs for individual market buyers.

The spin. Though the CBO results are not really in dispute, the meaning of the CBO report is being interpreted differently by each side. In effect, both sides are claiming victory. Though this would seem odd, I believe it does bolster each side, at least a bit, in a sort of health reform glass is half full or half empty sort of way.

For example, the CBO report “indicates that whether you work for a small business, a large company or you work for yourself, the vast majority of Americans will see lower premiums than they would if we don’t pass health reform,” according to Senate Finance Committee Chairman Max Baucus (D-MT). Some centrist Democrats have been pleased that the CBO did not predict a big increase for the employer-provided market.

However, Senate Minority Leader Mitch McConnell (R-KY) claims that health reform legislation would result in substantially more costs and yet “most people will end up paying more or seeing no significant savings.” After looking at the CBO report, I agree that most people probably will not see significant savings (emphasis on the word "significant.") However, I think it's misleading to imply that "most people" will end up paying more, at least if the CBO is to be believed. It seems pretty clear to me that the Republicans will have a tougher time spinning the CBO report in their favor but it can be done.

End result. Let me put this into perspective…for 83 percent of the market (the large employer group and the small employer group) premiums would hold fairly steady with just a small percentage change, either way, according to the CBO. In the individual market, 18.24 million buyers would save a bundle on insurance premiums, thanks to subsidies. 13.76 million individual market buyers who are not subsidized would see 10 to 13 percent increases. Despite the premium increases, this unlucky group would at least be getting better coverage for their money.

When it comes to health reform, nothing is simple. Just as with every development, people can read into it what they will and the CBO premium report is no exception.