Yesterday we were talking about costs. I hope that people take a look at a "Wall Street Journal" editorial from yesterday that says that the bill that raises prices but lowers costs does other miracles. We heard all day yesterday that this bill is going to save people a lot of money. Well, this article says we've now reached the stage of the health care debate when all that matters is getting a bill passed. So all news is good news. Lower subsidies mean lower deficits. The nonpolitical mind reels. Consider how Washington received the Congressional Budget Office Monday about how Harry Reid's bill will accept insurance costs which by any rational measure ought to have been seen as a disaster for the bill. C.B.O. found premiums in the individual market will rise by 10% to 13% more than if Congress did nothing. Family policies under the status quo are projected to cost $13,100 on average, but under the bill we're looking at it will jump to $15,200. Fabulous news.
“No big cost rise in U.S. premiums are seen in the study,” said The New York Times while the Washington Post declared, “Senate health bill gets a boost.” The White House crowed that the C.B.O. report was more good news about what reform will mean for families struggling to keep up with skyrocketing premiums under the broken status quo. Finance Chairman Max Baucus said lowering costs is what health care reform is designed to do. Lowering costs will achieve its objective. Except it won't. C.B.O. says it expects employer sponsored insurance costs to remain roughly in line with the status quo. Yet even this is a failure by Mr. Baucus' and the White House's standards. Meanwhile fixing the individual market which is expensive and unstable largely because it does not enjoy favorable tax treatment given to the job base coverage was supposed to be whole purpose of reform. Instead C.B.O. is confirming the new coverage mandates will drive premiums higher. The democrats are declaring victory, claiming these higher insurance prices don't count because they'll be offset by new government subsidies.
About 57% of the people who buy insurance through the bill's new exchanges that will supplant today's individual market will qualify for subsidies that cover about two-thirds of the total premium. The bill will increase costs but it will disguise these costs by transferring them from taxpayers to individuals. Higher costs can be conjured away because they're suddenly on the government balance sheet. The Reid bill's $371.9 billion in new health taxes are also apparently not a new cost because they can be passed along to consumers or perhaps hidden in lost wages. This is a paleo liberal school of the brute force wealth distribution and a long way from the repeated White House claim that the reform is about bending the cost curve. The only thing being bent here is the budget truth. C.B.O. is almost certainly underestimating cost increases based on county by county actuarial data, the insurer WellPoint has said Mr. Baucus will cause some premiums to triple in the individual market. I've seen what is going to happen in Wyoming. The BlueCross BlueShield Association came to similar conclusions. One reason is community rating which forces insurers to charge near uniform rates regardless of health status or habits. C.B.O. doesn't think this has much effect, but costs inevitably rise when insurers aren't allowed to price based on risk. We have 35 states that give an example on that. But the White house decided to shoot the messengers like WellPoint to avoid rebutting their message. But Amanda Kowalski of MIT, William Congdon of the Brookings Institution and Mark Showalter of Brigham Young found similar results. In a 2008 paper in the peer-reviewed Forum for Health Economics and Policy, these economists found that state community rating laws raise premiums in the individual market by 20.9% to 33.1% for families and 10.2% to 17.1% for singles. In New Jersey, which also requires insurers to accept all comers (so-called guaranteed issue), premiums increased by as much as 227%.
The political tragedy is that there are plenty of reform alternatives that really would reduce the cost of insurance. According to CBO, the relatively modest House GOP bill would actually reduce premiums by 5% to 8% in the individual market in 2016, and by 7% to 10% for small businesses. The GOP reforms would also do so without imposing huge new taxes.
But Democrats don't care because their bill isn't really about "lowering costs." It's about putting Washington in charge of health insurance, at any cost.