The CBO is out with a new report projecting the effect of the Senate health care reform bill on premiums for individual below 65. The report is a mixed bag of some small negatives and some small positives. The general conclusion is reform would do basically nothing to reduce or increase premiums for most Americans.

In the small group market, which is defined in this analysis as consisting of employers with 50 or fewer workers, CBO and JCT estimate that the change in the average premium per person resulting from the legislation could range from an increase of 1 percent to a reduction of 2 percent in 2016 (relative to current law). In the large group market, which is defined here as consisting of employers with more than 50 workers, the legislation would yield an average premium per person that is zero to 3 percent lower in 2016 (relative to current law).

In 2016, for most of the roughly 160 million Americans with employer-provided health insurance, the Senate bill would not change things. The CBO predicts that it would not increase premiums for this group, but the bill would also do almost nothing to stop the rapid growth in premiums that has been taking place. This conclusion is a mixed bag for Democrats. It is “good news,” in that it shows reform is not something to be afraid of because it would not change things for most Americans. It is “bad news” because it undercuts one of the biggest arguments for reform: that reform would help bring down cost. Clearly this report shows the Senate bill falls far short of Obama’s campaign promise to “lower health care costs by $2,500 for a typical family.”

The bill would primarily affect the premiums of an average individual on the non-group market and those with the more expensive employer-provided insurance plans. The new insurance regulations would increase the quality of coverage and actuarial value of insurance sold in the non-group market. This increase in quality would increase premiums, but other parts of reform would reduce administrative cost. The net effect is:

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.
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The majority of nongroup enrollees (about 57 percent) would receive subsidies via the new insurance exchanges, and those subsidies, on average, would cover nearly two-thirds of the total premium, CBO and JCT estimate. Thus, the amount that subsidized enrollees would pay for nongroup coverage would be roughly 56 percent to 59 percent lower, on average, than the nongroup premiums charged under current law. Among nongroup enrollees who would not receive new subsidies, average premiums would increase by somewhat less than the 10 percent to 13 percent difference for the nongroup market as a whole because some factors discussed below would have different effects for those enrollees than for those receiving subsidies.

Most people in the non-group market would be getting subsidies to help afford insurance, so the amount in premiums they personally pay would be much lower. For the roughly 18 million people with income below 400% FPL, the personal cost of premiums would be greatly reduced. Those in the non-group market with income above 400% FPL would end up paying slightly more for insurance (although for insurance of a better quality than they would have gotten before).

In 2016, the new excise tax on high-end insurance would affect roughly 19 percent (30 million) of Americans who get health insurance from their employer. (Even more policies would be effected in the following years because the excise tax is not indexed to medical inflation.) These roughly 30 million Americans would likely see a small reduction in the quality of their curent health insurance.

CBO and JCT expect that the majority of the affected workers would enroll in one of those plans with lower premiums. Plans could achieve lower premiums through some combination of greater cost sharing (which would lower premiums directly and also lower them indirectly by leading to less use of medical services), more stringent benefit management, or coverage of fewer services.

This CBO report does not paint a great picture for Democrats. On the plus side, reform is unlikely on average to speed up the increase in premiums for most people, but this is small conciliation. One of the points of reform was to bring down costs; not keep them on their same extremely fast-growing trajectory. It shows the bill is decent at coverage expansion, but incredibly weak on real cost controlling reform. (If you want to see 13 real cost controlling ideas read here.)  Keep in mind that our health care costs are nearly twice as high as any other indutrilized nation. When you make sweetheart deals with all the concerned health industries, promising not to hurt their profit margins, this outcome should not be a surprise.