Mike Allen at The Politico has posted an article stating that Jonathan Gruber, an economist at MIT, has issued a report concluding that individuals will pay less for health insurance under the Senate health care reform bill, the Patient Protection and Affordable Health Care Act.
In two charts set forth on pages three and four of his report, Gruber compares the cost of non-group health insurance under current law and under the Senate bill. If no change is made to current law, Gruber finds that in the year 2016 the average cost of health insurance purchased through the non-group market will be $3,660 for an individual and $9,980 for a family of four. If the Senate bill is adopted creating health insurance exchanges with government subsidies for low-income persons, Gruber finds that individuals earning 175% of the Federal Poverty Level ($18,960 per year) will pay only $1,000 for health insurance – and even individuals earning 425% of the federal poverty level ($46,030) who receive no government subsidies will also pay less for health insurance – $3,460, or $200 less than they would under current law. A family of four, who would pay $9,980 under current law, would pay only $2,040 if their earnings are 175% of the poverty level ($38,530) and $9,380 at 425% of federal poverty level (earnings of $93,710 annually).
Drawing on data generated by the Congressional Budget Office in its report of November 18, 2009, Gruber makes the following findings:
I find that the savings are large for both singles and families, and that they are particularly large for the lowest income families that qualify for premium credits under the Senate Bill but would be left to face the full high non-group premium without legislation. In particular, I find that the single individual would save over $2500 at low incomes (175% of poverty), and would save $200 even at higher incomes (425% of poverty or higher). For families, the savings are much larger, ranging from nearly $7500 for low income families (at 175% of poverty) to $500 for higher incomes (425% of poverty or higher).
It is worth noting that these savings are all in addition to the more generous benefits that these groups will receive through the exchange compared to the non-group market. The CBO reports that their estimated premium in the non-group market corresponds to an actuarial value of 60%. The actuarial values used in these estimates are as high as 80% (for those at 175% of poverty) and are at their lowest 70% (for those above 350% of poverty). So not only does the Senate proposal lower premiums, it does so while also improving coverage.
More for less – how is that possible? The savings are achievable because of the effect of pooling the purchasing power of individuals and families acquiring health insurance through the exchange. Instead of each individual or each family negotiating rates with health insurance companies, the exchange as a whole will set rates.
Other changes I would like to see – in order to increase the bargaining power of people purchasing health insurance through the exchange, the exchange should be national in scope and it should be open to group plans as well, along the lines proposed by Senator Ron Wyden (D-OR) in his Free Choice Amendment discussed in this previous posting. A bipartisan group of Senators led by Wyden and Bill Bennett (R-UT) had proposed the creation of a broad-based exchange in their bill, the Healthy Americans Act (described at Senator Wyden's website). These proposals would necessitate insurance regulation at the national rather than the state level, and would eventually spell the end of employer-provided health insurance because such groups would no longer provide any advantage over individual health insurance coverage. But if coverage would be cheaper and more comprehensive through the exchange, why not?
Visit Professor Huhn's website on health care financing reform for links to information about proposed legislation, studies and reports, public agencies, and private organizations concerned with this issue.
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I don't see much if any savings or reduction in cost here, just that someone else is paying.
The CBO report out today contains more specifics – basically, the cost of health care is reduced 7-10% by pooling the purchasing power of people in the non-group market. 83% of people are unaffected by the change – but most of the rest get better health care at a lower overall cost. See my entry for today, number 76 in the series.
Basically, under our current system it wouldn't be cost effective to purchase health care insurance for the tens of millions of people who are uninsured or underinsured – it's necessary to combine their purchasing power through an exchange. Even with that 7-10% reduction individuals earning less than $50,000 per year and families of four earning less than $100,000 would find it difficult to purchase insurance through the non-group market, so there are federal subsidies for that. About half of money for the subsidies comes from eliminating the 14% premium paid to Medicare Advantage plans enacted during the last administration and other savings in Medicare, and about half comes from taxes on very high income individuals.
The Medicare savings should be enacted anyway – they constitute a boondoggle. Of course, you don't have to spend that money purchasing health insurance for the poor. You could use that money shore up the rest of Medicare. Similarly, people can reasonably disagree about whether we should tax individuals earning over $500,000 and families earning over $1,000,000 annually to help pay these subsidies.
I'm all for it for a couple of reasons. I see other societies racing ahead of us because our population is not healthy enough. The statistics are pretty clear – yes, we can cure certain forms of cancer that other countries can't, but we have tens of millions of people going without basic health care because they can't afford it. If we leave 10% of our country behind (the uninsured) or 30% (uninsured plus underinsured) we simply aren't going to have enough healthy people to compete with other advanced countries – and even some developing countries.
Imagine if we closed all the public schools and said, all right, people, it is up to each family to fund education for its own children. That might appeal to certain individualistic ideologies, but as a society we would quickly drop out of the global economic competition. In fact, we have to improve public education markedly if we are going to have an educated populace.
The same thing is happening with health care. Right now, we are General Motors and the rest of the world is Toyota. Who do you think is going to win that competition?
By now, you probably know that I view all these rosy predictions as pie in the sky. They are counter intuitive, the government that can't do anything right will suddenly get smart and efficient. The parent of a 16-year old will tell you that you don't hand the keys over before some responsibility is shown.
I am however really pleased to see that you were on the Politico website. I hope it is not because the cat jumped on your keyboard.
What about the 24 year old who chooses not to have insurance? His costs are going up infinitely. One of the bills says the bills says his insurance can't be less that 1/2 of the cost of an elderly persons plan. The other bill says it can't be less than 1/3 the cost. This person is subsidizing others and at rates that are not even actuarialy sound.