Outside the Beltway

Health Care Legislation and Non-Group Policies

Steve Verdon
21

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The CBO has completed an analysis where non-group health care policies will increase in price somewhat substantially, but with those increased costs being offset by subsidies. The bottom line for non-group policies,

CBO and JCT estimate that the average premium per person covered (including dependents) for new nongroup policies would be about 10 percent to 13 percent higher in 2016 than the average premium for nongroup coverage in that same year under current law. About half of those enrollees would receive government subsidies that would reduce their costs well below the premiums that would be charged for such policies under current law.

Yet another data point that the current legislation will do nothing about the rapidly rising health care costs.

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21 responses to “Health Care Legislation and Non-Group Policies”

  1. sam Avatar
    sam

    Yeah.

    Tuesday, December 19, 2006

    Christmas Present [John Derbyshire]

    My health insurer has just notified me, in a brief form letter, that my monthly premiums are to rise from $472.33 to $857.00 on January 1st. That’s an increase of 81 percent. ***E*I*G*H*T*Y*-*O*N*E* *P*E*R*C*E*N*T*** Can they do that? I called them. They sound pretty confident they can. Ye gods!

    And that was back in good old days.

  2. Scott Swank Avatar
    Scott Swank

    Steve,

    The core assumption of the CBO in calculating that number is that people will choose to get 30% more health care coverage than they would otherwise. That’s 30% more coverage at a 10% greater cost. In fact, if people choose to get the same level of coverage that they have now their costs would go down. Start with page 9, “Differences in the Amount of Coverage Purchased.”

    Scott

  3. Michael Reynolds Avatar
    Michael Reynolds

    Plus, under the plan, we’d be able to ACTUALLY GET policies. As opposed to being refused for — no, I’m not kidding — using inexpensive generic medication that lowers the risk of an expensive heart attack.

  4. Steve Verdon Avatar
    Steve Verdon

    Scott,

    No, I think it isn’t that people would choose policies with more care/options, but that the legislation would mandate it.

    New policies purchased from insurers individually (in the “nongroup” market) or purchased by small employers would have to meet several new requirements starting in 2014.

    And it is not just that. As Michael points out people who previously could not get policies due to previous conditions would now be eligible and this too will have an upward effect on premiums since these people are expected to have higher costs.

    Michael,

    I know it sounds counter intuitive, but here is the problem:

    Suppose that without medication your risk of heart attack is 25%, to pick a number. With medication it drops to 12.5%. A good thing. However, if the typical chance for a person without that condition is 6.25% then you are still a “bad risk” from the stand point of the insurance company. At the very least, a policy for people with this condition would be more expensive becuase they have a higher risk, possibly prohibitively higher so such policies just don’t exist.

    When framed in this way it is not counter-intuitive, but quite sensible even though unfortunate for those who have the condition. Now forcing insurance companies to put these people onto the same policies as those without the condition then those without the condition will have to have their premiums increase. In short, their premiums go up to pay for the increased medical bills for those who have the condition.

  5. PD Shaw Avatar
    PD Shaw

    It’s better insurance, new policies are required to cover pre-existing conditions. New, additional coverage means new costs and higher premiums. I’m not sure what’s surprising.

    And the above figures are just averages. Young people will see huge increases because the government is forcing them to subsidize their elders.

  6. Scott Swank Avatar
    Scott Swank

    They lay this out very clearly. Page 12:

    “Differences in the Price of a Given Amount of Coverage
    for a Given Population
    A second broad category of differences in premiums encompasses factors that reflect an “apples-to-apples” comparison of the average price of providing equivalent insurance coverage for an equivalent population under the legislation and under current law.”

    In particular, for individuals they estimate a 7-10% decrease in cost on an apple-to-apples comparison:

    “CBO and JCT estimate that the elements of the legislation that would change the price of providing a given amount of coverage for a given population would, on net, reduce the average premium per person for nongroup coverage in 2016 by about 7 percent to 10 percent relative to the amount under current law.”

    And for small group markets they estimate a 1-4% decrease in costs.

    “Those elements of the legislation would reduce the average premium per person in the small group market by about 1 percent to 4 percent and would not have a measurable impact on premiums in the large group market.”

  7. steve Avatar
    steve

    Steve V.-And the second order effects would be?

  8. Michael Reynolds Avatar
    Michael Reynolds

    Steve Verdon:
    Of course it makes sense, Steve, so long as the logic of the marketplace dominates. That’s why we need a government option.

    PD:
    The young are being forced to subsidize their elders? No, they are being forced to get into the pool before their personal needs arise, and pay premiums against the inevitability of needing care later.

    Now they make the short bet, avoid paying premiums, and run the risk of being unable to get health insurance later — at which point their expenses become mine as a taxpayer. Are you happy with a system that allows a 25 year old to reject health insurance, pay nothing in, and then end up on Medicaid, or passing his medical costs along when his unpaid hospital bills get folded into your hospital bill?

  9. sam Avatar
    sam

    Now forcing insurance companies to put these people onto the same policies as those without the condition then those without the condition will have to have their premiums increase. In short, their premiums go up to pay for the increased medical bills for those who have the condition.

    Are we really expecting so many folks will be added with preexisting conditions that the premiums will be driven up that much? Just asking. Has anyone ever tried to figure out what the increased costs will be given the added folks?

  10. Steve Verdon Avatar
    Steve Verdon

    Scott,

    The legislation mandates that policies have minimum coverage options that are not optional. As such this idea that people could purchase insurance plans like they have today is not an option. Really, this isn’t hard to understand. On top of it, there is the issue of letting people who have pre-existing conditions take out policies. This too would increase premiums. This too is not an option. Pretending otherwise is just a waste of time.

    steve,

    Steve V.-And the second order effects would be?

    I don’t know, to be honest. Normally with such an increase you’d expect there to be fewer people purchasing non-group policies, but that isn’t an option and there are the subsidies that will offset the direct out of pocket expenses. Indirect expenses (higher taxes) are not clear because it depends on if Congress follows through and actually cuts Medicare reimbursement rates. Personally I doubt this. This means that the day this legislation takes effect it will be pretty much in the red and just get worse. This will add to the budget deficit.

    Overall, costs might go up be an even larger amount. The reason for this is that with greater access utililization rates might go up. If the response to that is to add more facilities/resources then the cost of the facilities/resources might also go up. But I don’t know how big this impact would be.

    I would also imagine that in general we’ll likely continue to see the flat wage growth we’ve seen for so long. More and more of people’s compensation will end up going to pay for health care. But these are all just (somewhat) educated guesses.

  11. Scott Swank Avatar
    Scott Swank

    Steve,

    Yes, there are costs associated with the points that you bring up. There are also savings, which you neglect to mention. The CBO put all this together and came up with a report.

    Now let’s look at each of your points. First you point out there will be mandatory minimum coverage. Consider the consequences of not having such minimums. We end up with a public option full of all the people that the private insurers don’t want — i.e. the costly people. This is known as “cherry picking.”

    Secondly you point out the fact that people with pre-existing conditions could get coverage. This is a feature, not a bug. Right now anyone who has: 1. coverage through their employer, and 2. a pre-existing condition (theirs or a covered spouse or child) cannot change to any job that does not offer coverage. This is a substantial market inefficiency. This entire class of people cannot start a small business, or go to work for a small business.

  12. Steve Verdon Avatar
    Steve Verdon

    Michael,

    Of course it makes sense, Steve, so long as the logic of the marketplace dominates. That’s why we need a government option.

    Unfortunately it is not sustainable. So you’ll get coverage for awhile. Enjoy it while it lasts.

    The young are being forced to subsidize their elders? No, they are being forced to get into the pool before their personal needs arise, and pay premiums against the inevitability of needing care later.

    Actually yes, they are being forced to subsidize the current consumption of the elderly. Their premiums are going to be spent on today’s elderly, not saved for their future needs. Their premiums are not based on their current health and likely future health, but on the current expected needs of the current pool which includes those with pre-existing conditions who by definition are high cost members of the pool.

    Now they make the short bet, avoid paying premiums, and run the risk of being unable to get health insurance later — at which point their expenses become mine as a taxpayer.

    Actually, mandatory insurance laws are almost aimed at those who can’t get insurance. For example, the laws in CA for car insurance aren’t aimed at the good drivers…they often have more insurance covrage than the legal minimums. It is usually aimed at those who can’t get insurance…the bad drivers.

    Are you happy with a system that allows a 25 year old to reject health insurance, pay nothing in, and then end up on Medicaid, or passing his medical costs along when his unpaid hospital bills get folded into your hospital bill?

    This is what we do with Medicare but instead of folding the costs into our hospital bills it is folded into our tax bills. Technically it is how Medicaid works too. The stuff that gets folded into the bills of those who can pay/have insurance are those who recieve care and simply don’t pay.

    Sam,

    Yes CBO/JCT just did it. That is one of the reasons they cite for the cost increase.

  13. Steve Verdon Avatar
    Steve Verdon

    Yes, there are costs associated with the points that you bring up. There are also savings, which you neglect to mention. The CBO put all this together and came up with a report.

    I pointed out the overall effect, a rise in nongroup health care premiums, and this is true. Table 1 on page 5 has the savings you note. However, the cost increases due to coverage changes is an increase of 27% to 30%. These are offset with two types of decreases you note, but are at most 10% respectively. The overall impact is a 10% – 13% increase as I noted.

    Secondly you point out the fact that people with pre-existing conditions could get coverage. This is a feature, not a bug.

    It is a feature for those who have pre-existing conditions and their families. It is a bug from a cost containment perspective given our current system. To be clear, covering such people would be a good thing, but we wont be able to keep it up for long under our current system.

  14. Scott Swank Avatar
    Scott Swank

    Steve,

    That’s a 10-13% increase in cost under the CBO estimate the people will opt for a 30% increase in insurance. Or a 7-10% decrease in cost without the 30% increase. And that is taking into account the costs you bring up along with the savings you gloss over.

    we wont be able to keep it up for long under our current system.

    That’s simply not what the CBO study indicates.

  15. Michael Reynolds Avatar
    Michael Reynolds

    Unfortunately it is not sustainable. So you’ll get coverage for awhile. Enjoy it while it lasts.

    No system is sustainable indefinitely. Private health insurance premiums are skyrocketing and have been doing so for quite some time. So the current system is unsustainable as well. As is Medicare, Social Security and for that matter, the cost of cell phone service.

    And if you scrolled back a few years you’d find the cost of defense was unsustainable, the cost of welfare, the cost of education, the cost of cars, the cost of air travel. All sorts of things — public and private — have appeared at various points to be unsustainable.

    Remember when population growth was unsustainable and we were all going to starve to death in 1975 as the population “inevitably” outstripped the food supply? They had all sorts of very compelling graphs and any number of iron-clad projections. And yet it’s 2009 and I don’t appear to have starved.

    I also recall — very clearly — all the many projections that showed irrefutably that our budget deficit would grow forever and we’d all be living in the streets and eating rats in 1990. And 1991 and 1992 and 1993 and come to think of it, every year I’ve been alive.

    You know what else is unsustainable? Sick Americans dying because they can’t get care. It is politically and morally unsustainable Americans will not allow Americans to go without medical care that is available to EVERY other developed nation on Earth.

    We’re not going to let Americans die in large numbers for lack of medical care. Just like we’re not going to let old people live on cat food, or young people wander the streets without schools. There are certain things we’re going to do, and among those is provide at least basic medical care for our citizens. The French do it, the Swedes do it, the Canadians do it. Good lord even the Italians do it. And we’re going to do it.

  16. Michael Reynolds Avatar
    Michael Reynolds

    Off topic but do you boys know that you made this Top 50 Political Blog list?

    http://www.evancarmichael.com/Tools/Top-50-Political-Blogs-2009.htm

    Congrats.

  17. anjin-san Avatar
    anjin-san

    I am with Michael on this. We have been hearing from the right about the imminent collapse of the Western European & Canadian health care systems since 1980. 30 years later, they are still going concerns, and in many ways they are doing a better job of it than we are…

  18. ChristineWithRegence Avatar
    ChristineWithRegence

    In all the talk about health care reform, I don’t feel like there’s enough discussion about understanding the real costs of health care. Why don’t we ever know the costs of health care procedures and treatments? ?” I got a kick out of this fun, short video. Check it out. It makes you wonder why our health care system is set up the way it is.

  19. pylon Avatar
    pylon

    Scott is quite correct. Keep the same coverage under the proposed system, your premiums go down. Get better coverage, your premiums go up.

    And overall, costs go down notwithstanding.

  20. Steve Verdon Avatar
    Steve Verdon

    Scott,

    It is not an “opt for a 30% increase in coverage” it is a mandated 30% increase in coverage. Really.

    That’s simply not what the CBO study indicates.

    Scott are you being deliberately obtuse. That comment was regarding the overall health care system, not nongroup policies. You have shifted contexts here and I can only conclude that you are being deliberately misleading.

    Michael,

    No system is sustainable indefinitely. Private health insurance premiums are skyrocketing and have been doing so for quite some time. So the current system is unsustainable as well. As is Medicare, Social Security and for that matter, the cost of cell phone service.

    Yes, all of those systems save the last one are not sustainable. And your happy with accelerating the growth rate implying that you’d rather have the system fall apart sooner rathar than later.

    I know you think we’ll save it, but from what I’ve been seeing the cure is going to be pretty damn bad. Vastly higher taxes, vastly less care, and even much lower economic growth.

    pylon,

    Scott is also lying in that legislation does not allow you to keep the current coverage. The legislation mandates that insurance coverage include certain new requirements. Really, what the Hell is hard to grasp about this sentence from the CBO report?

    New policies purchased from insurers individually (in the “nongroup” market) or purchased by small employers would have to meet several new requirements starting in 2014.

    Or this one?

    Policies would have to cover a specified set of services and to have an “actuarial value” of at least 60 percent (meaning that the plan would, on average, pay that share of the costs of providing covered services to a representative set of enrollees).

    Or this one,

    The main elements of the legislation that would affect the amount of coverage purchased are the requirement that all new policies in the nongroup and small group markets cover at least a minimum specified set of benefits; the requirement that such policies have a certain minimum actuarial value; and the design of the federal subsidies, which would encourage many enrollees in the exchanges to join plans with an actuarial value above the required minimum.

  21. Scott Swank Avatar
    Scott Swank

    Steve,

    Your points, in detail.

    It is not an “opt for a 30% increase in coverage” it is a mandated 30% increase in coverage. Really.

    From the study, “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 is discussing people choosing better coverage. There are mandatory minimums, but that is not what they are referring to in their conclusions.

    Scott are you being deliberately obtuse.

    Rude.

    That comment was regarding the overall health care system, not nongroup policies. You have shifted contexts here and I can only conclude that you are being deliberately misleading.

    I was also discussing the larger health care system, and I was indicating that their conclusions seem to indicate that this legislation puts us on a more sustainable track than the one we are on now. Also rude.

    Scott is also lying in that legislation does not allow you to keep the current coverage.

    Rude.

    The legislation mandates that insurance coverage include certain new requirements. Really, what the Hell is hard to grasp about this sentence from the CBO report?

    Yes, there are mandatory minimums and if your current insurance does not meet them then it would have to be expanded to do so. That said you may keep said insurance. You are welcome to see that as a case of in fact not keeping your insurance due to the fact that adjustments may need to be made to your current policy. That’s a fair point, but to my way of thinking it is kind of splitting hairs.

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