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New Report: Insurance Plans For Most Americans Wouldn't Cost More After Health Reform

Nov 30, 2009

A long-awaited analysis shows health insurance rates would generally hold steady or decline for most Americans – those covered by large employers – if the Senate health overhaul bill became law.

The report released Monday by the nonpartisan Congressional Budget Office described a different picture for people who buy their own coverage. Some would face moderate increases, while others would pay much less than they do now.

Not surprisingly, people who qualify for subsidies — those earning less than 400 percent of the federal poverty level ($73,240 for a family of three this year) — would see their premiums drop. About 57 percent of the 32 million people expected to buy coverage on their own in 2016 would qualify for a subsidy, the CBO estimates. On average, the subsidized buyers would see their premiums fall 56 percent to 59 percent.

But the CBO said those who don't receive subsidies would pay, on average, 10 percent to 13 percent more. The main reason: the policies required under the legislation generally cover more benefits and out of pocket costs than what is currently purchased, and thus would be more expensive.

Individual rates also would be affected by changes in rules governing how insurers set prices. Some people - younger or healthier ones, for example - would likely pay higher rates, while older or sicker people would pay less, the CBO said.

The analysis compares rates with what they would be under current laws, and is based on estimates for 2016, when provisions of the new legislation would be fully implemented. 

Democratic and Republican leaders immediately seized upon the report.

“The analysis  … 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,” said Senate Finance Committee Chairman Max Baucus, D-Mont ., in a written statement.

But Senate Minority Leader Mitch McConnell, R-Ky., said the legislation would result in trillions more in spending and yet “most people will end up paying more or seeing no significant savings.”

Here are some of the specific findings from the 27-page CBO report:

-- Premiums paid by large employers would hold steady or drop by up to 3 percent. Most insured people get coverage through their jobs; the CBO estimates large employers would represent 70 percent of the market in 2016.

-- Small employers, representing 13 percent of the market, would see a range of effects. Premiums for some could fall by up to 2 percent, while others may see a 1 percent increase. About 12 percent of very small employers – those with generally lower wages – would qualify for tax credits, causing their premiums to fall by 8 percent to 11 percent.

-- Employers offering high cost or “Cadillac plans” – those that exceed $8,500 for individuals and $23,000 for families -- would most likely trim benefits or lower costs through other changes to reduce the impact of an excise tax the bill would impose on such plans.

The Senate bill and one that has passed the House would both change the way insurance is sold to individuals and small groups. They would buy policies in new, regulated marketplaces, called exchanges. Insurers could no longer reject applicants with health conditions, or set annual or lifetime limits on coverage. New rules would alter how they set premiums, tightening limits on how much rates can vary by age, for example.

At the same time, the legislation would fine people who don’t enroll, with some exemptions. The Senate penalty would phase in, from $95 per person the first year – 2014 — to $750 per person by 2016.

Insurers and some economists say those penalties wouldn't be strong enough to make sure everyone – especially younger, healthier people – would buy insurance. They might wait until they fall sick, which could raise premiums for everyone else.

But contrary to insurance industry arguments, the CBO said that more than enough people would obtain coverage to help lower premiums overall. The effect would most noticeable for people who buy their own insurance; it would be less for small employers.

The insurance industry took issue with some of the CBO’s findings. America’s Health Insurance Plans, a lobbying group, says the nationwide average premiums projected by the CBO ignore regional differences that could sharply increase premiums in some states. And, in a statement, it said subsidies do not lower premiums.

“Subsidies are essential to helping low and moderate income families afford health coverage,” the statement says. “But in the same way that Pell Grants do not lower the cost of college tuition, subsidies do not reduce underlying medical costs.”

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