Health care bloggers have been waiting with bated breath for the CBO's report on health insurance premiums, which came out today. The upshot: premiums in the large and small group markets, which account for the lion's share of non-government health insurance, will not be significantly affected. Premiums in the individual market, however, will rise 10-13%.
The CBO estimates that this effect will come from three things:
1. A large boost in the generosity of coverage
2. Improved administrative efficiency (individual plans are the most expensive to administer)
3. More healthy people in the pool.
You can claim this as a victory for the pro-reform side, because people are getting more coverage at somewhat better prices, or a victory for the anti- side, because, well, we're going to be spending a lot more on health insurance. We're expecting to increase the size of the individual insurance market by something like 50%, and premiums in the market are going to go up.
Talking about the averages necessarily disguises the fact that the costs and benefits will be distributed unevenly. People without employer-based insurance who have an expensive condition are the big winners. People who are currently in the private market are probably net losers, because many of them could buy the extra coverage they will be getting, and have chosen not to. Relatively affluent-but-uninsured people, meanwhile, we see their premiums rise by somewhere between $5800 and $15,200, according to the CBO.
Of course, many people will not face the full costs of their treatment--slightly more than half of the people in the individual market are expected to receive subsidies. But that just means that someone else will have to give up those thousands of dollars. It looks to me like health care spending as a percentage of GDP is going to be higher, not lower, when all the changes are phased in.
Update: So was Obama's campaign right when it said that health care reform would cut costs for the average family by $2,500 a year?
Well, first we have to define what we mean by average: mean, modal, or median?
The modal (most common) family will see their insurance premiums rise, if the CBO is right.
The mean family is more complicated. Way more complicated, because the pool is changing. But assume away those problems, and imagine uniform policies costing $1000, that rise to $1,115 under Obamacare. 43% of people are now seeing their premiums go up by $100. But the CBO says 57% get an average subsidy of 2/3 of the premium. So their costs fall by almost $600. So I think he's probably right. Of course, if you factor out the subsidies, it is definitionally not true. But to the people buying the insurance, it is.
The median? Trickiest of all. It basically depends on what happens to the next eight percent--the richest people being subsidized. Do they see premium drops of as much as $2500?
Maybe. The subsidy for families between 300-400% of the poverty level, which is where that 8% probably falls, range between 33% and 44%. So if premiums are 13% higher than otherwise, but they get a 40% subsidy, the median family probably sees a savings--but I don't know whether it's more than $2500. It depends on the distribution of families among the uninsured. If families cluster at the higher end of the income spectrum--not an unreasonable assumption, since they tend to be older---then the median family will see an increase in their premiums. If they cluster lower, or at the lower end of the 300-400% FPL scale, then they'll see a big drop.
All of which goes to tell us what we already knew: legislation produces winners and losers.
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Since Obama touted his reform proposals by claiming that the average family would save $2,500 per year, I would say the CBO analysis helps the anti-reform side.
People may get more coverage at a smaller than commensurate increase in price. But not everyone wants to buy a Mercedes. Some people are happy with a Honda. Now the government says you won't be able to buy a Honda.
A lot of people are taking the bus. Many are carpooling. Some are walking. A hardy few are biking.
To amplify what MBP stated: where is the something for nothing that I was promised? Remember, $2,500/year, AND no tax increases, and universal health care, and CO2 confined only to fizzy lifting drinks? As I recall there were zillions of dollars in Dick Cheney waste and fraud and defense spending that Obama and his band of merry men were going to recover and convert into health care, or plowshares, or something like that.
So...????
You make it so difficult to take what you say and make it funnier.
Do not fear: I was told that the snozberries will still taste like snozberry.
Hey, hey, hold on there. Once we hook up our wastefraudabusedefensecocktails-forged plowshares to the magical ponies, free healthcare will sprout for all.
The deniers will be remembered. I'm making a list...
"What you mean, 'WE', White Man ?" :)
Relatively affluent-but-uninsured people,
meanwhile, we see their premiums rise by
somewhere between $5800 and $15,200,
according to the CBO.
Is that a range, or an error bar ?
I guess that means Obama will veto it then, since he promised not to raise taxes on anyone making less than $250,000
How is that the solution to the problem of spending too much on health care always requires spending much, much, much more on health care?
Of course, I'm going to have to read the report itself, but how does this passage make any sense?
"Relatively affluent-but-uninsured people, meanwhile, we see their premiums rise by somewhere between $5800 and $15,200, according to the CBO."
If they're uninsured, they're not paying premiums. Is this the range they'd hypothetically pay in the exchange with a mandatory coverage provision?
I was a little confused by this also, and wonder if in the context of the paragraph uninsured means not employer-insured. That would make more sense.
If you assume their current premium is zero, then the increase in their premium is the entire amount of the premium.
Don't worry.
The more bureaucracy you add, the more costs go down.
It's science!
The same science that's behind:
THE BARACK OBAMA DIET PLAN
http://naturalfake.wordpress.com/2009/11/28/the-barack-obama-diet-plan/
Every time we talk actual numbers for health insurance costs, I have to double check a pay stub to make sure I'm not going crazy. My annual insurance premiums for myself and my wife total about $1,650. And I don't have a catastrophic policy, this is a pretty decent plan with low copays and reasonable coverage. I do work for a subsidiary of a large holding company (IAC) that can presumably negotiate a sweet deal but still, we're talking about an order of magnitude difference. Where do these giant numbers come from?
You only pay a fraction of your premium--usually about 20%, but it varies by company, with large companies being more generous.
It's about 33% as a matter of fact, but that doesn't much matter to me now does it? I do understand that the share of premiums paid by my employer represents salary I'm not getting. However, in the world we live in, that money is inaccessible to me. As we both know if I dropped my coverage I get the $1650 back but not the other $3300.
So if most Americans get their coverage in the group market, and pay a similar proportion of their actual premium, how can Obama's pledge to cut the average family's costs by $2500 make any sense at all? My local NPR affiliate told me this morning that Colorado is #7 in health care costs. Yet if I switched to the most expensive available plan or had two kids, I'd barely have $2500 worth of costs to cut!
Who's pulling up these averages?
It seems pretty positive to me.
Reduction in premiums paid, better coverage, and more ubiquitous coverage. Funded my a mechanism which decreases rate of long-run cost growth and which is nearly guaranteed to generate sufficient revenue even as costs go up.
One thing to remember is that the change is premium being reported by the CBO, is not the same as the long-run growth. So it is not a paradox for some premiums to go up, but to have an expectation of smaller premiums in the long run.
From the CBO(what you pay, on average):
Non-group(individual): Decrease 56 to 59%
Small-group(ie small business): Decrease 8 to 11%
Large-group(employer): Decrease 0 to 3%
Covered under excise tax: Decrease 9 to 12%
Side comments:
A. Your discussion on mean,median,mode is terrible. Just terrible. By terrible I mean error riddled, misguided, and confused.
B. Speaking of confused, I thought you didn't trust the CBO results? I just hope you're touting them now because you were persuaded by the merits of your commenters' arguments and not because you've found a some data you can cherry pick for your "costs will be higher" talking point.
B:Do you see where I keep saying "according to the CBO", "if the CBO is right", etc?
A: please enlighten me
It all depends on what you mean by "we". If you consider the taxpayers as a group whose decreased utility is interesting, then this is not the slam dunk you believe. If you edit them out, it's AWESOME. Of course, we could get even BETTER effects by having the government buy everything. At some point, you have to take taxpayer disutility into account. The premiums, aka what health insurance costs, are rising. There's just a subsidy in the middle.
B. Answer a question with a question, much?
A. I thought you'd never ask. ;-)
The mean,median and, mode are defined with respect to a particular distribution of numbers. Mean income? Median premium? Mode of the family size? Most common by what measure? Mean premium of the median income family? Modal premium of the mean subsidy family? This is a little piece of information that you leave out which is necessary to distinguish your claims from jibberish.
You say we need definition and never provide one. Depending upon the distribution you select, your post will be wrong for different reasons.
Generally though, the mode over noisy approximately continuous distributions is very tricky value to calculate because it is sensitive to very arbitrary technical decisions and the precise value of the numbers in question.(depending upon integration ranges selected one mode may be low another high for the same distribution).
Mean is fairly straightforward because one only needs to know the total and number of samples, and because errors will be bounded according to the Central Limit Theorem.
Median is somewhere in the middle, sensitive to ordering, but benefits because values in natural sciences tend to cluster around a central value, with more extreme values being less common. So you find smaller average distance between values near the expected median.
I covered error-riddled and confused above, but forgot misguided.
Misguided in the sense, that other than general statements about distributions that apply to all large data sets in the sciences, you can't know if the CBO is estimating over a distribution that is pathological for a particular class of characteristic value unless you know the true distribution. But if you know the true distribution is, the question of the correct characteristic value is beside the point, you've presupposed the conclusion. In other words, the fact that you think you know that the CBO has made the wrong decision based upon some cursory personal reasoning, is demonstrative of the fact that you don't know what you are talking about.
I'm confused. McArdle says the CBO says that premiums are going up for those in the individual market. Krugman and Yglesias say the CBO says premiums are going down for the same market (and Krugman also makes a snide comment that Republicans will misunderstand the numbers and claim the CBO says premiums are going up.)
Well I'm a lawyer, so I sure don't understand math, and I most definitely don't understand this mean, modal, median stuff. So can some explain to me in layperson's terms (1) why Yglesias/Krugman and McArdle are reading the CBO differently and (2) who is right (or are both right, but from different perspectives, i.e., mean v. modal v. median)? Many thanks.
Follow this rule of thumb: when Megan disagrees about numbers with any professional economist, go with the economist :-).
OK, muzzybelly, zosima, nimed: come on in here and analyze this.
.It depends on your definition, which is what I was trying to say in the opening paragraph. The CBO says that average premiums will go up because of higher mandated benefits, but that those benefits will be cheaper than they would be, if people were purchasing that package in the current-law market.
Think of it like airbags and anti-lock brakes. If they're mandated, they make all new cars cost more. But maybe the mandate lowers the cost of production, so that the average cost of cars goes up by less than it would cost every one of those owners to add the airbags and antilock brakes as options in the old market, where they weren't mandatory. Did the cost of cars go up, or did it go down? I'd say it went up.
Stonetools, you can read it yourself. The CBO says the average premiums go up in the individual market, and I have described quite accurately what they said about it.
So if I understand this right, (a) Krugman repeatedly argues that private insurers in Medicare Part D cost more than the government program, and that proves that the government is more efficient and cost effective that the private sector, but he ignores and never bothers to mention that the reason private insurers cost more is because they offer more benefits; and (b) at the same time, he argues that even though the Senate plan will raise premiums, we can claim it's really cheaper because it's only due to insureds getting more benefits and the same set of benefits would be even more expensive in the current market.
If I understand this right, aren't these positions intellectually inconsistent?
To be totally fair, it's not actually clear to me that Krugman read the whole CBO report. He may have gotten an incomplete picture from Gruber's write-up, which is focused on a very narrow issue.
Megan - Maybe i'm missing something. Obama said that the average family would save $2,500 per year after reform. As far as i know he didn't qualify his promise to only those families who purchase insurance in the individual market. I took it to mean that on average, families would save $2,500 regard less of whether they receive coverage through their emplyer or buy it directly. Based on this understanding, the CBO analysis seems crystal clear. I don't see how it's even a close call. The average family will not save $2,500.
About half of people buying in the individual market will save $2,500 and half won't. Maybe a few percent in the small group market whop qualify for subsidies will save $2,500 but the vast majority won't. And it seems to me that teh SBO says that essentially no one in the large group market will save $2,500. Am i missing something simple here? Not trying to be difficult. But I don't see how a middle income family who receives coverage from their fortune 500 employer would see any savings at all....
And when i use the term "save" I mean that the average family will have $2,500 more in their pocket at year end (before taxes of course) than they would if reform was not passed. CBO seems to directly contradict this.
I think that the argument of, "you don't actually spend any less on premiums and in fact you'll pay more, but you'll get more too" is not what people had in mind when they heard Obama's pledge.
Well, this is Ezra:
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.
http://voices.washingtonpost.com/ezra-klein/2009/11/congressional_budget_office_re.html
I tend to believe Ezra, because he knows and cares more about health care reform than just about anyone here x 10.
Krugman channels Gruber here, chart amd all:
http://krugman.blogs.nytimes.com/2009/11/30/the-cbo-on-insurance-premiums/
However shrill people say Krugman is, I haven't heard the same about Gruber.
Ezra isn't saying anything materially different from what I said.
Not everyone wants to be forced to buy something that costs more even if it is better. And wasn't reform supposed to help everyone? What about the 90% of people who don't buy insurance directly? They will not see lower costs or better benefits according to the CBO.
Is it possible that better insurance ( i.e. more expansive benefits ) will increase consumption of a possibly limited resource and could drive prices even higher in some cases. This in turn could drive premiums higher. IF the benefits are chosen wisely it could lower costs in the long run but it seems more likely that politics will determine benefits.
Yes, there's a possibility of price competition from utilization, but no one knows how to quantify it.