Wednesday, September 17th, 2014

The Obameter

Cut the cost of a typical family's health insurance premium by up to $2,500 a year


"I will sign a universal health care bill into law by the end of my first term as president that will cover every American and cut the cost of a typical family's premium by up to $2,500 a year."


Updates

No cut in premiums for typical family

Back in 2008, we collected over 50 promises Barack Obama made about health care. He kept many of them, including signing universal health care into law and closing the doughnut hole for Medicare Part D.

When it came to health care premiums for the typical family, Obama said he would cut the annual cost by $2,500. Months before Obama took office, a New York Times reporter dubbed it one of the most audacious pledges of the campaign.

We reached out to David Cutler, an economist who advised Obama during the 2008 campaign and helped calculate the $2,500 figure that appeared in Obama's speeches. He said the calculation encompassed total health care costs, not just premiums. These would include out-of-pocket costs, employer-provided insurance costs, and taxes to pay for public insurance programs.

Cutler acknowledged that Obama made "occasional misstatements” that tied the $2,500 reduction to premiums and not total medical spending. We can't judge whether Obama misspoke, but we checked the Project Vote Smart database of public statements by politicians, which shows that Obama said premiums (and only premiums) would go down for the typical or average family by $2,500 repeatedly. You can see examples throughout the arc of his 2008 presidential campaign here, here, here, and here.

It is also true that Obama used the number in a more expansive context sometimes, such as here during a speech in Newport News, Va, and here in a response to a report about Medicare and Social Security.

The 2008 New York Times article explains how Cutler and his colleagues calculated the $2,500 figure, a round number based on back-of-the-envelope arithmetic.

"That number is much simpler than the world of insurance actually is,” said Deborah Chollet, a health economist for Mathematica Policy Research, a nonpartisan policy analysis group.  

The Affordable Care Act is so complex that it's difficult to predict its ultimate impact on prices. Parts of it should reduce premiums, and parts should increase premiums, with the overall effect varying by income level and depending on the effectiveness of cost-containment measures.

The law includes subsidies on a sliding scale that reduce the annual cost of premiums for individuals and families living under the poverty line. A number of other provisions in the law should drive down the cost of premiums, such as rebates from insurers that charge too much for administrative work. Theoretically, the law's emphasis on preventative care and modern health information technology should result in cost efficiencies, which would reduce premiums.

Then again, the law provides expanded benefits, which should have the opposite effect, driving up the cost of premiums.

Notice the frequent use of the conditional in these descriptions. The law doesn't go into full effect until 2014 and we won't know how the costs of premiums will change until then.

Cutler, the former Obama advisor: "The general point is that the ACA is just starting to take effect, so we can't judge its effect for sure.”

Chollet said even when the law get fully implemented, health care researchers will have trouble teasing out the effects of the health care law vs. external factors such as the economy.

In our search for evidence that the law might reduce the typical family's premiums, we contacted the Department of Health and Human Services, the federal agency implementing the law. The department could not provide proof that the average family would see a reduction, much less a $2,500 reduction.

We found one report by the Lewin Group that tried to estimate changes to the cost of premiums after Affordable Care Act implementation. Lewin is part of a subsidiary of UnitedHealth Group, a private health care company that offers insurance. The group has a disclaimer that openly acknowledges its parent company, but says it maintains independent editorial control.

Lewin's 2010 report said the typical family would see an increase of $110 in its premiums. That assumes that the typical family of four has a family income of $75,000 to $99,000 per year, which covers the median income (about $78,000) for all families in the United States in 2010.

Families making less than $50,000 per year see as much as a $212 reduction in their premiums. Families making $150,000 or more would experience an increase up to $207.

People can check to see how subsidies in the Affordable Care Act might reduce their premiums on an online calculator from the Kaiser Family Foundation, a health research group. In some scenarios, the benefit can be sizeable, even for a middle class family. This article by an Kaiser researcher shows a family of four making $75,000 could get a federal tax credit of $5,000, assuming the family doesn't have employer-based health insurance.

It's worth noting that the Lewin report estimates that premiums would be $20 cheaper across all families -- not just the average family of four -- after the law goes into effect.

Given the difficulty in making such projections, we contacted the group to ask about any assumptions used to make those estimates, but Lewin's communications office declined an interview.

A report by the Congressional Budget Office, the nonpartisan budget scorekeeper for Congress, said premiums would barely change for anyone who currently has employer-based health care coverage. For individuals and families that do not get health care through an employer, premiums would go up, with the average premium per policy for families increasing by $2,100. Again, families with incomes below the federal poverty line would benefit from subsidies that would negate those increases in part or in full. This report, however, predates the passage of the health care law and doesn't focus on premiums for the average family.

In assessing this promise, we consider the following: An author of the $2,500 figure has disavowed its use as it relates to premiums alone. An independent health care analyst projects that premiums will go up for the typical family. The federal agency implementing the Affordable Care Act did not provide evidence that premiums will go down for the typical family. We rate this a Promise Broken.

Sources:

Email interview with Larry Levitt, Larry Levitt co-executive director of the Kaiser Initiative on Health Reform and Private Insurance, Aug. 24, 2012

Email interview with David Cutler, professor of economics at Harvard University, Aug. 16, 2012

Interview with Bradley Herring, professor of health economics at the Bloomberg School of Public Health at Johns Hopkins University, Aug. 16, 2012

Interview with Deborah Chollet, health economist for Mathematica Policy Research, Aug. 24, 2012

Congressional Budget Office, An Analysis of Health Insurance Premiums Under the Patient Protection and Affordable Care Act, Nov. 30, 2009

The Lewin Group, Patient Protection and Affordable Care Act (PPACA): Long Term Costs for
Governments, Employers, Families and Providers, June 8, 2010

The New York Times, Health Plan From Obama Spurs Debate, July 23, 2008

The Journal of the American Medical Association, The Middle Class Tax Break Hardly Anyone Is Talking About, Aug. 2, 2012

CBO: Senate health plan would not cut family premiums as much as Obama promised

This promise was originally included in our database as part of Promise No. 433, to sign a "universal" health care bill. We decided to break this one out into a separate promise because it became obvious as the health care debate progressed that these were distinct issues, that one could be broken while the other is kept.

Many times during his presidential campaign, Barack Obama cited this $2,500-a-year figure.

And on Nov. 30, 2009, U.S. Rep. Mike Pence, chairman of the House Republican Conference, called him on it.

Pence cited a Congressional Budget Office, or CBO, analysis of how the health care plan proposed by Senate Majority Leader Harry Reid would affect health insurance premiums.

"During last year's campaign, the president promised to deliver health care reform that would lower premiums by $2,500. In light of this new CBO report, I urge the president to call on Democrat leaders to start over or explain to the American people why lowering health care costs isn't a promise worth keeping."

The CBO report, issued Nov. 30, 2009, broke its analysis of effects on premiums into three categories: those in the small group market (generally people who get their insurance through businesses with up to 50 employees), which would make up about 13 percent of the total insurance market; those in the large group market, which would account for about 70 percent of people; and those in the "nongroup market," people who would purchase their insurance as an individual through the government's health insurance "exchange," which may or may not include a public option, and which was projected to grow to about 17 percent of the overall insurance market in 2016.

And here's how the CBO projected the effect of the Senate Democrats' plan on insurance premiums:

• For those in the large group market, 0 to 3 percent lower (with average family premiums going from $20,300 in 2016 under current law to $20,100 under the Reid plan)

• For those in the small group market, anywhere from a 1 percent increase to a 2 percent decrease (with average family premiums going from $19,300 in 2016 under current law to $19,200 under the Reid plan)

• For those in the nongroup market, an increase of 10 to 13 percent (with average family premiums going from $13,100 in 2016 under current law to $15,200 under the Reid plan)

So according to the CBO, the vast majority of working families -- who get their insurance through their employer -- would see a slight decrease in premiums. But only in the neighborhood of $100 to $200 a year, nowhere near $2,500 a year. We note that this is just one plan, and it has not passed Congress, let alone been signed into law by the president. Nonetheless, it is in many ways the "working plan" at the moment. And since the CBO does not project average family premium savings anywhere near what Obama promised, we rate this promise Stalled.

Sources:

Congressional Budget Office, Analysis of how health insurance premiums might be affected by enactment of the Patient Protection and Affordable Care Act, as proposed by Senator Reid on November 18, 2009