THE TREATMENT FEBRUARY 25, 2010
President Obama says that health care reform will reduce insurance premiums for most people. Senator Lamar Alexander will raise them. Who's right? Obama, although the explanation is a bit complicated. Here's how I explained it back when the Congressional Budget Office first issued its analysis:
The most important issue for most Americans isn't what the government spends on health care. It's what they, as individuals and families, spend on health care. That's the question the CBO finally addressed this week--although the findings were, in fairness, a bit hard to follow.
The vast majority of Americans with private insurance get coverage through employers. For these people, CBO predicted, premiums would stay about the same or come down a bit if the Senate bill became law. That wouldn't be the $2,500 in annual savings that President Obama famously promised during the campaign. But it also wouldn't be the huge hike in premiums critics had been predicting.
Where the price of health insurance would start to change radically is in the non-group market--that is, for people who buy on their own, as individuals, rather than through an employer. Premiums for these people, who number a little more than 30 million, would tend to go up. That's one of the points reform critics seized upon in their press conferences.
But the more interesting and relevant story was why CBO expected premiums to go up. For the most part, CBO found, it was because people would be getting health insurance that provided more benefits and covered medical bills more completely--coverage that often wasn't available to people in the non-group market before. In many cases, CBO determined from its economic models, people would actually opt to buy more expensive insurance than necessary simply because they valued the added protection.
In addition, CBO noted, while premiums in the non-group market would rise, the majority of people buying insurance on their own would simultaneously become eligible for federal subsidies. For the majority of these people, the subsidies would more than offset the increase in premiums, so that they'd end up paying less--even as they were getting better coverage.
For more, see Ezra Klein's superb analysis.