Â Â Â Â Yesterday the CBO released an extremely important report estimating the effect of the Senate health care bill on how much people will pay for health care.Â Â The report is incomplete, but it provides a wealth of valuable information.Â
Â Â Â Â Here is a link to the November 30, 2009 CBO report, entitled "An Analysis of Health Insurance Premiums Under the Patient Protection and Affordable Care Act."Â Here is my summary ofÂ the most important findings contained in the report:
1.Â The Senate bill will significantly affect the cost of health care for only 17% of the market – persons purchasing health insurance in the non-group market.Â The bill will have almost no effect on health insurance premiums or the cost of health care for people purchasing health insurance in the small group market (which is 13% of the market) or the large group market (70% of the market).Â Essentially, if you are already covered through an employer, this legislation will have little or effect on the cost of your health insurance.
2.Â By regulating the content of policies that are sold on the non-group market, the Senate bill will substantially broaden the coverage of those policies; these policies will cover 27% to 30% moreÂ of the costs of medical care than under current law.Â Accordingly, the cost of those policies would, in the absence of other factors, increase by 27% to 30%.
3.Â However, the Senate bill tends to reduce the cost of non-group health insurance for a number of reasons; the principal reason is that the creation of the "exchange" will pool the purchasing power of persons buying coverage and reduce administrative costs for insurance companies, thus reducing the cost of health insurance by 7 to 10%.
4.Â In addition, because individuals will be required to purchase health insurance, more healthy people will have coverage, thus reducing the average cost of health care for everyone in the non-group pool.Â This will further reduce insurance premiums by another 7 to 10%.
5.Â Accordingly, health insurance premiums in the non-group market will increase, on the average, between 10 to 13%.Â The effect on premiums is more pronounced for families than it is for individuals.Â For the average individual in the non-group market, the average premium will go from $5,500 to $5,800, but the average family of four purchasing insurance in the non-group market would incur in increase from $13,100 to $15,200.
6.Â However, the cost of health care for any particular individual or family is composed of two factors – the cost of a health insurance premium plus any out-of-pocket costs that they incur.Â Here is where the CBO report is incomplete – it does not estimate what the out-of-pocket cost of health care is, on the average, for people under current law.Â While health insurance premiums in the non-group market will go up on the average of 10-13%, out-of-pocket expenses should substantially decline because people will have more coverage.Â Thirty-one million people who are currently uninsured will now have insurance, and all people who have non-group insurance will (as stated in paragraph 1 above) have coverage that is 27-30% more comprehensive.
7.Â Furthermore, 57% of people purchasing non-group health insurance will receive government subsidies to pay their health insurance premiums; for this group, the government subsidies will amount to two-thirds of the cost of the premiums.
Â Â Â Â The chart on the last pageÂ is the most usefulÂ part of the report.Â It sets forth theÂ estimates for how much people and families of varying income levels would pay both for premiums and in out-of-pocket expenses for health care.Â It demonstrates that low-income persons will greatly benefit from the bill.Â Under the bill a personÂ earningÂ $14, 700 per year would, on the averageÂ pay a health insuranceÂ premium of only $300 and spend $800 out-of-pocket.Â This means that such a person would spend $1,100 per year for all their health care needs.Â Government subsidies would make up the difference.Â Similarly, a family of four with a household income of $30,000 per year would pay a premium of $600 and wouldÂ incur out-of-pocket expenses of $1,700 for health care, thus spending $2,300 per year for health care, on the average.Â Subsidies are reduced for people at higher income levels.Â Individuals earning $50,000 annually and families with income over $102,000 annually would receive no government subsidies, and they would have to pay higher premiums for non-group insurance than they would if the bill were not enacted.Â However, those higher premiums (in the range of 10-13%) should be more than offset by the fact that their health insurance would cover moreÂ of their health care costs, thus reducing the overall amount that they would pay forÂ health care.Â Unfortunately, the CBO report does not estimate how much those families would have paid, on the average, in out-of-pocket expenses for health care under current law, so it is not possible from the report to determine the level of savings (if any) that the average high income individual or family purchasing non-group health insurance would achieveÂ under the legislation.Â For your convenience, here is another link to the new CBO report.Â Â Â Â Â
UPDATE:Â Â In response to an email, MIT ProfessorÂ Jonathan Gruber (whose earlier report on the effect of the Senate bill on the cost of health insurance is the subject of this previous posting) states that the CBO report is accurate, up to a point – Gruber emphasizes althoughÂ health insurance premium will go up after the Senate bill is enacted, people will obtain better health insurance policies, and therefore will pay less out-of-pocket for health care.Â Gruber states:
"but the overall message is that FOR THE SAME POLICY, premiums fall …Â Â Out of pocket costs will fall because of those higher actuarial values."Â Â
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.Â