Jon Gruber on the premiums in health-care reform

at 04:54 PM ET, 03/23/2012

A reader asks:

On the 2-year anniversary of the ACA, I’m hoping Wonkblog can shed some light on a recent Daily Caller piece about Jonathan Gruber’s predictions for healthcare premiums. The DC is trumpeting that Gruber now expects steep premium increases, in contrast to his previous position...I’ve seen the Daily Caller article referenced in numerous blogs as evidence that ‘Obamacare’ will increase costs. Can you help clear up what Gruber told the states and his current views on whether premiums will go up or down?

We can indeed. I e-mailed Gruber to ask if he had changed his position. No, he said. “Here is the email I had sent to [the Daily Caller], of which they chose to use exactly zero percent.” It’s after the jump.

Here is my summary reaction: These new state reports show higher numbers for premium increases than do earlier CBO projections partly because they reflect the high cost of folding state high risk pools into the exchange - without using the money the state was already spending to subsidize those high risk pools. Overall, the numbers show that the majority of those who are in the non-group market today will see after-tax credit premium reductions while getting a better insurance product. And this completely ignores the enormous benefits to the sick individuals who are shut out of the non-group market and who will therefore see enormous price reductions.

More specifically, if you have room to go into more details:

1) To be precise these were CBO projections, not mine - I was just summarizing them.

2) A very key point to highlight here is that ALL of this analysis refers only to those who were already buying nongroup insurance. It completely ignores the enormous reduction in premiums for anyone who was shut out of the market because they were sick!

3) The key conclusion of the CBO analysis was that premiums would fall FOR THE SAME BENEFITS PACKAGE. In particular, CBO concluded that overall premiums would rise by 10-14%, but that most of that would be more generous benefits, and that for the same benefit level premiums would fall by 14-20%.

4) My reports for these three states show that premiums do go up BEFORE TAX CREDITS. But these increases partly reflect the rise in premiums due to more generous benefits. For example in Minnesota we find a rise in premiums of 29%, but about 10% of that is more generous benefits.

5) The biggest difference from CBOs earlier numbers and my reports is
the role of high risk pools. CBOs analysis did not account for states folding their high risk pools into the exchanges, but in each of these three states that happens. So for example in Minnesota this is about a 15% rise in rates, which explains most of the increase. But it is important to remember that states are currently spending a lot of money to support these high risk pools (more than $100 million in MN). If this money were instead directed to the exchanges, it could greatly reduce any premium impact from merging in the high risk pools.

6) Finally, this all ignores tax credits. After tax credits, premiums fall substantially, on average, in each state.

It is true that even after tax credits some individuals are “losers” in that they pay more than before reform. But in interpreting this you have to keep in mind point (2). Basically, in a state like Wisconsin, the market was so discriminatory that only the healthy bought nongroup insurance and the sick just stayed uninsured. When we fix this, we do raise prices for the healthy who were in the market beforehand - but greatly lower them for the sick who were shut out.

If you’re still confused, think of the old line about how if Bill Gates walks into your local bar, the average net worth of the bar’s patrons is suddenly a billion dollars, but neither you nor your friends got any richer. In that joke, there’s the net worth of any given person, and the average net worth of everybody in the bar. Similarly, in this case, there’s the premiums any given person pays, and the average of the premiums everybody in the market pays.

The premium any given person pays is likely to go down. But for that exact reason, the average of the premiums that everybody pays is likely to go up, as sick people who are priced out of the market right now will be able to buy insurance again. Who “everybody” is, in other words, just changed. “Everybody” got sicker, even though you didn’t get sicker. Here’s a summary of a related CBO report that makes the point in more detail.

 
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