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CBO Weighs In On Premium Impact of Senate Reform Bill

The Congressional Budget Office (CBO) has projected that the vast majority of insured people will see fairly little change in their premiums in 2016 if the reform bill now being debated in the Senate is adopted. In the large-group market, defined as employers with more than 50 workers, premiums are projected to be the same or as much as 3 percent lower than they would be under current law. The impact on smaller groups would range from an increase of 1 percent to a decline of 2 percent, according to the CBO.

About half of those who seek insurance in the individual market will see a substantial drop in their rates, because of government subsidies. But those who don't receive subsidies, because they earn too much, will pay 10 to 13 percent more than they would if the reform bill were not adopted.

That sounds like mostly good news for the Democrats as they battle the determined Republican bloc. After all, those who will see their premiums go up form a fairly small percentage of the electorate, right?

Not necessarily, says Robert Laszewski, the eminence grise of healthcare bloggers. Laszewski points out that the extra taxes on insurance companies that the bill requires will go into effect immediately, whereas the benefits to consumers won't kick in until 2014. In the meantime, he suggests, insurance premiums could rise much faster than the CBO or the Democrats expect.

Already, he notes, annual increases are back up in the 8 to 10 percent range-and much higher for many small firms and individuals. With a $6.7 billion tax set to fall on the health plans in 2010, as well as the 40 percent excise tax on so-called "Cadillac" plans, insurers will immediately start passing those increased costs along to employers and consumers, he says. And because the bill has low penalties for not buying coverage, yet requires insurers to take all comers, Laszewski expects the plans to hike their premiums in advance of 2014 to prepare for the anticipated wave of people signing up for insurance when they get sick.

In an earlier blog, Laszewski quotes a Milliman actuary, Robert Dobson, on the probable consequences of the excise tax on high-priced insurance plans. As others have pointed out, as well, the tax is likely to snare some people who don't have rich benefits but live in areas that have very costly health care. Moreover, it's a pretty good bet that the tax on Cadillac plans will affect an increasing portion of the population over time, because of a faulty inflation adjustor, says Laszewski.

All of this suggests that the CBO analysis is far from solid. Congress is entering uncharted territory, which itself will give many senators pause. The problem is the mind-numbing complexity, both logistical and political, of finding a solution that will not raise the federal deficit yet will make a real dent in the uninsured and a down payment on cost control measures. Based on the evidence so far, the Senate has got part of it right, but it has still has a number of issues to deal with before it delivers something we can all live with.

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