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For many people, the health care issue boils down to this: Are my insurance rates going to go up or down?
Not surprisingly then, one of the testiest exchanges at the health care summit on Feb. 25, 2010, came between President Barack Obama and Sen. Lamar Alexander, R-Tenn., over the issue of how the Democrats' health care plan would affect premiums.
Interestingly, both cited an analysis of the Senate health care bill by the nonpartisan Congressional Budget Office to make their case.
"The Congressional Budget Office report says that premiums will rise in the individual market as a result of the Senate bill," Alexander said.
"No, no, no, no," Obama retorted. "This is an example of where we've got to get our facts straight."
"Let me respond to what you just said, Lamar, because it's not factually accurate," Obama continued. "Here's what the Congressional Budget Office says. The costs for families for the same type of coverage that they're currently receiving would go down 14 percent to 20 percent. What the Congressional Budget Office says is that because now they've got a better deal, because policies are cheaper, they may choose to buy better coverage than they have right now, and that might be 10 percent to 13 percent more expensive than the bad insurance that they had previously.
"But they didn't say that the actual premiums would be going up. What they said was they'd be going down by 14 percent to 20 percent. And I promise you, I've gone through this carefully with the Congressional Budget Office, and I'll be happy to present this to the press and whoever's listening because this is an important issue."
Alexander later stood his ground, saying, "With respect, you're wrong about -- your bill would increase premiums, I believe. You say it wouldn't. So rather than argue with you in public about it, I'd like to put my facts down, give them to you."
"I think it's a great idea," Obama said. "I'd like to get this issue settled about whether premiums are reduced before we leave today, because I'm pretty certain I'm not wrong."
This seemed like a good place for us to step in and referee.
First, one of the key qualifiers that many people may have lost in this exchange is that they were debating the effects on premiums for people in the individual market. These are the people who do not get their insurance through an employer. This is only a fraction of the overall market. The Congressional Budget Office estimates that if the Democrats' plan were adopted, the individual market would grow to about 17 percent of the American population by 2016.
The Democrats' plan calls for the creation of a health insurance exchange in which individuals could shop for insurance with private companies competing for their business. The idea is that it would allow individuals to purchase insurance at lower, group rates. Plans offered by companies participating in the exchange would have to meet government-mandated minimum coverage thresholds.
The CBO estimated that the average premium for people in the individual market would be about 10 percent to 13 percent higher in 2016 than under current law. Specifically, the CBO estimates the average cost of family policies purchased by individuals would be $15,200 in 2016, as opposed to $13,100 under current law.
That's the backing for Alexander's comment.
But Obama correctly notes that much of the added cost is tied to people getting better insurance.
The CBO said there are three drivers that would cause premiums to rise or fall. And it broke them down as follows:
• Average premiums would be 27 percent to 30 percent higher because a greater amount of coverage would be obtained. In particular, the average insurance policy would cover a substantially larger share of enrollees’ costs for health care and a slightly wider range of benefits. Those expansions would reflect both the minimum level of coverage (and related requirements) specified in the proposal and people’s decisions to purchase more extensive coverage in response to subsidies.
• Average premiums would be 7 percent to 10 percent lower because of a net reduction in costs to insurers, mostly from the changes in the rules governing the individual market.
• Average premiums would be 7 percent to 10 percent lower because of a shift in the types of people obtaining coverage. Most of that change is tied to an influx of healthier people with below-average spending for health care, who would purchase coverage because of subsidies and a new tax penalty for failing to purchase insurance.
Obama gets to his figure by combining those last two cost reductions, but not including the cost increase tied to people essentially getting better insurance.
Both Obama and Alexander cited figures independent of the effect of subsidies. But we think it bears noting that under the Senate health plan, about 57 percent of people on the individual market would receive federal subsidies, and those subsidies would cover nearly two-thirds of the total premium.
One last point, the Democrats' plan would allow people who currently have individual policies to grandfather in their existing policy. According to the CBO, "the premiums for those policies would probably not differ substantially from current-law levels."
In other words, if you were to opt to keep the exact same individual plan (an option the CBO doesn't believe many will take because, with subsidies, most could get a better plan cheaper), the CBO doesn't see the cost rising or falling substantially.
And again, we are talking here only about premiums for people in the individual market. For most people, who get their insurance through their company, the CBO projects premiums to decline slightly from where they'd go if no health plan is passed. How slightly? In the 0 to 3 percent range, depending on whether you work at a large or small company.
We think both Obama and Alexander have selectively chosen from the CBO report to suit their needs.
Alexander insists the cost of premiums in the individual market will go up, without acknowledging that that's because most people will be getting better insurance coverage, either because of new government-mandated minimum coverage levels or because many will decide that subsidies will make upgrades to a better plan more cost-effective. Bottom line, people won't be paying more for the same thing. They'll be paying more for better plans. And on top of that, many will get federal subsidies, so they won't be paying the increased cost out of their own pockets.
But we also think Obama has put on blinders when citing the CBO report. Yes, the CBO estimated 14 to 20 percent savings due to rule changes in the individual market, and because the plan is expected to infuse a large number of low-risk people into the insurance pool. But he ignores the estimated cost increases tied to more people getting better insurance. Obama tries to gloss over this by comparing costs "for the same type of coverage that they're currently receiving." But the fact is, most would not be getting the same kind of coverage. Some of the shift to better coverage would be due to personal choice -- with subsidies, many people would be able to get better coverage at the same cost or cheaper -- but some would be tied to new government-mandated minimum coverage and the threat of tax penalties if you decide not to get insurance. And for those who opt to grandfather in their current individual policies (even if they don't meet the new government minimum standards), the CBO doesn't see much of a change in premiums one way or the other. And so we rule Obama's statement Half True.
Congressional Budget Office, "An Analysis of Health Insurance Premiums Under the Patient Protection and Affordable Care Act," Nov. 30, 2009
White House Web site, "CBO Confirms Families Will Save Money Under Health Reform," by Dan Pfeiffer, Nov. 30, 2009
PolitiFact.com, "Rep. Mike Pence says Democratic health plan would drive up family premiums," by Robert Farley, Dec. 1, 2009
CQ Transcriptwire, Transcript: Health care summit, Feb. 25, 2010
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