In a report sure to be misread by partisan Republicans, the CBO has done an analysis on the effect of the Senate health care bill on premium costs. It shows that most people in the exchanges would see massive reductions in their average premium, and even in small groups and the employer market costs would not rise and may even fall.

Because of the way that the CBO wrote up the premium changes, you should fully expect Republicans to argue the opposite, that CBO shows health care costs will be either 10-13% or 27-30% higher, depending on their intellectual honesty. They break out the costs relative to various elements of the policy. The first look, without including mitigating factors in the bill, shows that enrollees in the non-group market would have premiums 27-30% higher by virtue of a greater amount of coverage being obtained. This would be reduced because of standardized coverage in the exchange and the type of people in the non-group risk pool, averaging out to a 10-13% increase in premiums.

But crucially, this DOES NOT COUNT the subsidies, which is the entire point of affordability.

CBO estimates that 57% of those in the non-group market would receive subsidies that would reduce their premium cost 56-59% under current law. When you factor that all together, you get very close to Jonathan Gruber’s estimate that the average customer would pay around 20% less for premiums. The only reason that’s not even lower is that CBO estimates a still-robust individual non-exchange market, with 9 million enrollees, by 2016, the third year of the exchanges under the Senate bill.

CBO and JCT estimated that roughly 23 million people would purchase their own coverage through the exchanges in 2016 and that roughly 5 million of those people would not receive exchange subsidies. Therefore, of the 32 million people who would have nongroup coverage in 2016 under the proposal (including those purchased inside and outside the exchanges), about 18 million, or 57 percent, would receive exchange subsidies. For the people who received subsidies, those subsidies would, on average, cover nearly two-thirds of the premiums for their policies in 2016. Putting together the subsidies and the higher level of premiums paid to insurers yields a net reduction in average premiums paid by individuals and families in the nongroup market—for those receiving subsidies—of 56 percent to 59 percent relative to the amounts paid under current law. People in lower income ranges would generally experience greater reductions in premiums paid, and people in higher income ranges who receive subsidies would experience smaller reductions or net increases in premiums paid.

Even in the employer market, home to 70% of all nonelderly subscribers, costs would be either even or 3% less by 2016, according to the report.

I fully expect some Republican to misread the report and say that everyone’s premium will go up 30% if we pass the bill. Nothing could be further from the truth.

Two other parts of the report are notable. CBO sees a negligible amount of “cost shifting,” the spectre often raised by Republicans that private plans will go up because of those enrolled in public plans like Medicaid:

Some observers have argued that private insurance premiums would also be affected by changes in the extent of “cost shifting”—a process in which lower rates paid to providers for some patients (such as uninsured people or enrollees in government insurance programs) lead to higher payments for others (such as privately insured individuals). However, the effect of the proposal on premiums through changes in cost shifting seems likely to be quite small because the proposal has opposing effects on different potential sources of cost shifting, and the total amount of cost shifting in the current health care system appears to be modest relative to the overall cost of health insurance.

Though it won’t, that should put an end to that silly argument. Republicans are really arguing against the principle of basic coverage for all, and using a nonexistent threat of “cost shifting” to hide it.

The second bit is how much the exchanges would suffer from adverse selection, the tendency for insurers to want to limit their exposure to individuals who use more medical care, increasing the premium costs. CBO says that worries about this are overblown:

The substantial premium subsidies available in the exchanges would encourage the enrollment of a broad range of people. For people whose income was below 200 percent of the FPL, those subsidies would average around 80 percent.

The requirement that people have insurance would also encourage a broad range of people to take up coverage in the exchanges. CBO and JCT expect that some people would obtain coverage because of the penalties that would be levied for not complying with the mandate (which would be $750 per adult and $375 per child in 2016) and that others would obtain coverage simply because of the existence of a mandate; those expectations
are based in part on people’s compliance with other types of mandates.

The premiums that most nongroup enrollees pay would be determined on the basis of their income, so higher premiums resulting from adverse selection would not translate into higher amounts paid by those enrollees (though federal subsidy payments would have to rise to make up the difference). That arrangement would dampen the chances that a cycle of rising premiums and declining enrollment would ensue.

During the 2014–2016 period, as the mandate penalties were being phased in and other provisions were in the initial stages of implementation, the legislation would provide reinsurance payments to insurers that ended up with particularly high-cost enrollees. That reinsurance system (funded by an assessment on all insurers) would also limit the impact of adverse selection on insurance premiums.

Some have argued that the reinsurance payments, or risk adjustment, will not be extensive enough to keep insurers from trying to avoid certain customers. But CBO’s baseline is not so concerned about this.

CBO does admit to a high degree of uncertainty to their estimates, which should always be kept at the top of mind.

UPDATE: Jon Cohn has a quick take as well. Keep in mind that most of the delivery system reforms and other potential cost-saving measures would just start by 2016, the baseline date looked at in the bill.

David Dayen

David Dayen