Private Policies Cheaper Under Obamacare?

Kevin Drum responding to a study by Jonathan Gruber:

There are three important things to note about this.  First, the Senate bill lowers average premiums across the board.  Second, in addition to this reduction, the Senate bill provides subsidies to low- and middle-income familes that makes health insurance even less expensive.  Third, it does this for a plan that covers about 70% of all medical expenses, compare to a non-reform plan that covers only about 60% of all expenses.  On an apples-to-apples basis, the Senate bill lowers premiums by about 20% and then subsidizes that lower price to reduce the cost of coverage even more.

I won' bother to dispute the study's finding until I have read it, though it flies in the face of experience in all the individual states who have actually tried this. However, here is a few things even without disputing the study methodology are nearly assured:

1. It is not a cost decrease for those who currently choose not to buy insurance. It is an enormous cost increase. Further, the cost decreases projected in this study are based mainly on the implicit subsidy of young healthy people being forced to purchase a policy whose price is much, much higher than its expected benefit to them, thereby subsidizing the rest of us. Further, this subsidy is enhanced by provisions in the bill that put cost caps on policies for the sick and elderly, thereby increasing the amount the young and healthy pay and therefore increasing the cross-subsidization.

2. It is not a cost decrease if you are like me and have real insurance, by that I mean insurance that covers catastrophes rather than regular maintenance. Those of us with high deductible health plans, which are the smartest plans from a system perspective because it forces us to price-shop and make tradeoffs for routine procedures, will see our costs go up as our plans are banned.

3. Likewise, those of us who have policies that cover a narrower range of things (e.g. no mental care, no aromatherapy, no massage, etc) and happily live in a state that allows such narrower policies will see our prices increase as the Senate bill forces us to pay for coverage we do not want.

In other words, the Senate bill might, sort of, possibly represent somewhat of a price decrease if you currently are insured and you are not young and not healthy and desire exactly the one-size fits all policy that Congress is mandating.

Of course, this assumes that Congress will resist a parade of special interests trying to get their particular procedure or device included in the mandated coverage guidelines. So far, state governments like New York have not been able to resist the blandishments of these folks, causing premium prices to skyrocket, and I see not hope Congress will resist either.

And all this assumes that price caps and various rules Congress puts in place won't drive out the providers in the system. What good is a $100 price cut if I have to spend 20 extra hours a year of my valuable time standing in lines, filling out forms, or trying to find a doctor who will take me on.

Update: More on the numbers here.

  • DKH

    Without clicking through, my favorite part is that he writes about subsidies twice in that paragraph as if subsidies are free money and come from nowhere. Either a subsidy comes from taxes, or it comes from borrowing, which necessitates higher taxes later. They certainly aren't free money to count as cost reduction.

  • Allen

    I have yet to see anything in this bill that does anything to help lower the cost of providing the service, that is, to allow it to become more efficient. The claims over lower costs I've seen all seem to revolve around making some peoples bills lower by making the bills for far, far, far more people much more expensive.

  • Chris K.

    What do you think of the Arizona Health Insurance Reform Amendment? Its a state constitutional amendment that would allow residents here to opt out of any federal mandate.

    I am in the same boat as you, I have a HSA that suits me perfectly.

  • Sol

    That's the thing that kills me about this. If they came up to me and said, Sol, we're studied it carefully, and by increasing your health care costs $500 a month, we can make sure no one in the country ever goes without basic insurance, I'd give that serious consideration. Maybe even if it was $1000 a month. My guess, though, is that would give a lot of gung-ho reformers pause.

    But they're trying to tell me that they're going to do all that and more, and it will be FREE!!! I can't even begin to specify how insanely unlikely that is. As far as I can see, it is the most dishonest health care bill in a long history of dishonest health care bills....

  • sch

    HSA can be viewed as subsidized insurance, and a goodly number of Dems have a jaundiced view of HSAs as they allow the healthy
    to bypass normal policies, which as you note tend to benefit the sickly and penalize the healthy by averaging out the costs.
    By opting out, HSAs push the sickly into the standard insurance coverage where they up the costs for the group. Sickly don't
    benefit as much as healthy types from HSAs, nor do the relatively impecunious, who view the $2500-5000 self pay part as an
    unacceptably expensive variant (cash out of pocket) compared to standard insurance. And the idea that you get to keep what you
    don't spend is one more reason that this is anathema.

  • Chris K.

    sch,

    I'm going try to make this as straight forward as I can. I don't care! I don't care if all the people without insurance die tomorrow. I'm not giving up what I paid for with my hard earned money (that I didn't cheat anyone out of) for ANY altruistic reason that ANYONE proposes to me.

  • Bob Smith

    I would argue that HSAs help the sickly, because underwriting doesn't have to be as strict on a high-deductible policy. That makes policies more, not less, available to those with pre-existing conditions.

    One of the problems the sickly have is state-mandated coverages. Most if not all states do not permit accident-only or third-party-damages-only coverage. If I have a third-stage cancer, I understand why an insurer wouldn't want to write a policy covering that, but state coverage rules imply as a corollary that by refusing to insure me for primary health issues I can't get health insurance coverage for accidents or crimes against my person either. I don't think that's right.

  • roger the shrubber

    of course, back in the mid '60's, they assured us that medicare would only cost $10 billion by 1990. since they were off by a factor of 10 or so, i'm a tad dubious about these latest projections. kill the unholy thing now, before it grows strong.

  • http://www.itsaboutmakingbabies.com/ Brad K.

    Actually, what ObamaCare will produce is black market medicine. There will be many unlicensed providers, providing questionable care under the table, because no other care providers will be allowed to see - those that don't meet Raum Emmanuel's body-mass index, aren't current with their federally registered exercise and fitness program, and aren't employed in a labor union. Or that might have Republican parents or aren't registered, and donating, Democrat party.

    If the Senate drives premiums for anyone below cost to the company - how can an insurer be compelled to sell the policy? Look how well that kind of meddling in the marketplace did the mortgage industry with Freddie Mac and Fannie Mae. Or perhaps the intent is to privatize the government insurance plan, sort of like the wildly successful Post Office. How many US Postal Service offices have closed, and employees cut, this year?

    I don't care that the Senate and House of Representatives don't worry about their own health care being affected. Voters will recall, I pray, what they done to us. And I really hope there are vivid and energetic people dedicated to unraveling ObamaCare and the rest of B. Hussein Obama's thuggery getting ready to take advantage of the "Change!" mantra for the 2010 elections.

  • Jim Collins

    My employer tells me that my medical insurance costs the company X dollars per year. This is considered part of my wages. What alot of people don't know is that if Obama Care goes through and when your employer dumps your coverage your wages won't rise by X and you will pay the premiums for Obama Care.

  • http://www.thedjbay.com Xealot

    The goal of universal healthcare has nothing to do with premiums, it has to do with controlling what you eat, drink and smoke. Controlling where you live, what you do for a living, the air you breath and the water you bathe in.

    It's carte blanche for anything they want to make us do, in the name of our own good of course.

    This bill is just a first step towards that. Costs might even be lower at first, but they will grow, like every government program. Eventually, I have no doubt Medicare will look successful next to this pile of excrement.

  • spiro

    Let me introduce another variable into the formula. Some of my previous work experience was in retail pharmacy, and I can assure you that people who receive "free" healthcare (like state medicaid programs) use MORE medications and make MORE visits to the doctor than those who have to pay insurance co-pays or cash.
    Some may argue that this proves that those paying cash are living in peril and possibly not getting medication that they "need", but I could argue that the opposite is true in most cases. This is ONE area where I agree with what Obama has said (but may not be able to put into practice) -- that we, as a nation, are over-medicated. Especially when it comes to mood-altering medications, SSRIs, and blood pressure meds. That being said, the free market is more likely to get people to choose a healthy lifestyle over medication than a government mandate could -- just look at the growth of the fitness industry in the last 2 decades.

  • roger the shrubber

    to tailgate on spiro's post, my wife was born in scotland and came here with her folks when she was just a wee lass. her father used to tell the story of when the NHS started, "back in '46 i think it was." seemed the boffins had looked at historical figures for eyeglasses purchased, and set their budgets accordingly. but since they were - you know - FREE, every tom dick & jane tootled off to get *their* free specs as fast as their sensible shoes could carry them, and the yearly 'glasses' budget went into the red after 4 months.

    but i'm sure human nature has fundamentally changed, now that we have a president who gives us hope.

  • Doug

    "Further, the cost decreases projected in this study are based mainly on the implicit subsidy of young healthy people being forced to purchase a policy whose price is much, much higher than its expected benefit to them, thereby subsidizing the rest of us."

    Given that "young healthy people" are to a large extent responsible for foisting this Marxist communist (BHO) upon us via their 2008 votes, it seems only fitting that they learn a tough fiscal lesson: elections have consequences.

    I'll go out on a limb: in the 2012 elections, despite this new payroll tax they hate, these same (dumb) young people will be out in force seeking the re-election of BHO. And they'll probably explain their much smaller paychecks as "W's chickens coming home to roost."

  • the other coyote

    Let me chime in from a different perspective. My employer has a gold-plated insurance plan. I listened to a guy from the Brookings Institute on the radio last night state that the plan is to tax the really good plans to pay for the uninsured, with the rationale being something akin to "well those people just get too many benefits." Like maybe it's "not fair." He actually used the term "nudge people away" from getting too nice a plan.

    I almost drove off the road. Why is it anyone's business how much I want to spend on my own health? Who is he to say that I spend too much on my own health? What if I care more about my health than (1) having a nice house (2) having nice clothes (3) driving a fancy car (4) buying CDs or consumer goods. Since when is it the government's business to tell anyone what they can spend their money on?

    I chose my job specifically for the excellent benefits. Having access to those excellent benefits saved my life. Anyone who wants good benefits ought to work hard and try to get on with an employer who provides them. My excellent benefits are available even to the housekeeping staff. There is no excuse for not planning your own life. And I echo the other poster's comments - I don't owe anyone anything.

    BTW Coyote, I also heard that Nancy P. claims Congress has the power to regulate healthcare through the commerce clause (I've also heard the "general welfare" language invoked.) You wrote a good piece a while back on the lack of limits on the commerce clause. The Supreme Court's 1930's nuttiness got is where we are today; it's time to take back the Supreme Court as well.