Fact-check on insurance premiums and healthcare reform

Posted on March 17, 2010

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Much has been made about how insurance premiums will be positive affected by the health care bill being shepherded through the House at this hour. But  the Associated Press writes a fact-check article that finds that, despite promises made by the President to the contrary, premiums will continue to increase under the new bill:

Premiums are likely to keep going up even if the health care bill passes, experts say. If cost controls work as advertised, annual increases would level off with time. But don’t look for a rollback. Instead, the main reason premiums would be more affordable is that new government tax credits would help cover the cost for millions of people.

…Premiums are likely to keep going up even if the health care bill passes, experts say. If cost controls work as advertised, annual increases would level off with time. But don’t look for a rollback. Instead, the main reason premiums would be more affordable is that new government tax credits would help cover the cost for millions of people.

The budget office concluded that premiums for people buying their own coverage would go up by an average of 10 percent to 13 percent, compared with the levels they’d reach without the legislation. That’s mainly because policies in the individual insurance market would provide more comprehensive benefits than they do today.

For most households, those added costs would be more than offset by the tax credits provided under the bill, and they would pay significantly less than they have to now.

In other words, instead of reducing costs to consumers, the costs will instead be merely shunted to the American taxpayer in aggregate. The “savings” isn’t a result of the falling price of healthcare but a tax credit that be claimed against your health insurance premium – which everyone will be mandated to carry, by the way.

So while it may be a fine goal to decrease the rate of increase in premiums, the rate of increase is still positive. Some politicians have been honest about this fact, such as Sen. Dick Durbin, but it’s quite another to suggest as others have that the overall cost of premiums will go down.

Does this bend the cost curve downward as is the purported goal? It’s hard to see how, as government will be shelling out tax credits to offset higher premiums. The hope is that tax revenue from Cadillac plans will help defray some of the payouts – but taxing those plans will mean that there will be less of them around, meaning less revenue over time for the health plan via that method. Cutting Medicare Advantage is billed as another source of savings, but those who are affected by the cuts will simply be forced to get another method of insurance with its attendant costs.

Quite frankly, it’s hard for me to buy into the cost containment promises of the current health care reform bill. The bill will cost an additional $900 billion to $1 trillion, depending on how the CBO scores it, much of which will be disguised by imposing taxes for a few years before the spending kicks in. On a fundamental level, there is a disconnect between the federal government saving more money on health care by spending more money on health care.

However, it seems that the overarching goal is really to punish private insurance companies for their missteps. This legislation may certainly meet that goal by cutting into the business of private insurers, but it’s increasingly difficult to see real cost savings being produced.

Update: Cross-posted at The Moderate Voice.

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Posted in: News, Politics