(AP Photo/J. Scott Applewhite)

“The [insurance premium] rates have come in about 16 percent lower than what the Congressional Budget Office projected those rates to be.”

–Health and Human Services Secretary Kathleen Sebelius, testimony before Congress, Nov. 6, 2013

Estimates from the nonpartisan Congressional Budget Office are considered the gold standard in Washington. The budget impact of every bill voted on by Congress is calculated by CBO analysts — and their findings often make a difference in whether legislation passes or not.

That’s why politicians often tout CBO’s estimates. So we were curious last week when Secretary Sebelius cited a CBO projection of insurance rates — and how actual premiums turned out to be lower than expected. What’s the source of this factoid?

The Facts

HHS directed The Fact Checker to a report released in September by the HHS Assistant Secretary for Planning and Evaluation (ASPE), which stated that “premiums before tax credits will be more than 16 percent lower than projected.”  The report explained that “the weighted average second lowest cost silver plan for 48 states (including DC) is 16 percent below projections based on the ASPE-derived Congressional Budget Office premiums.”

That modifer “ASPE-derived” set off some alarm bells.  Every time the report refers to CBO premiums, it carefully added that phrase, “ASPE-derived.”  What does that mean?

It turns out this is not a CBO projection at all, but something HHS calculated itself. First, HHS turned an estimate for a 2016 family premium into an individual premium, and then it backdated from a CBO estimate for 2016 to estimate what it would have been in 2014.  So it is several steps removed from CBO’s own work. (CBO declined to comment.)

Moreover, the supposed original CBO number for 2016, $15,400 in premiums for a family, is a very rough average, offered as an illustrative example in a 2012 report  that mostly focused on other issues, such as differences between the costs for people in the exchanges and people in employer-provided plans.

The most comprehensive effort that CBO did to estimate premiums was in a 2009 letter to then-Sen. Evan Bayh (D-Ind.) though that focused on the Senate version being debated at the time, and it has not been updated. That report estimated average family premiums would be $15,200 in 2016, compared to $13,100 if the Affordable Care Act had not been enacted. As we noted last week, the most important part of that report was not the dollar figures but the potential positive and negative impact of the law on premiums. Still, that report did indicate that premiums, on average, were expected to increase because of mandates in the law.

A footnote to the 2012 CBO report says: “The analysis presents average expected costs in 2016 for a family of four with two adults and two children. Serving as an illustration, the analysis includes simplifying assumptions and therefore does not incorporate all features of the ACA nor all of the differences between employment-based and exchange coverage.”

Why did the CBO select 2016 as the basis for an estimated premium? In part, that’s because insurers’ experience for 2014 will have an important influence on their premiums in future years. ASPE provides an explanation as to how it turned CBO’s family premium into an individual premium (using assumptions in the letter to Bayh), and then backdated it to 2014, but it’s really just a guesstimate of an estimate. ASPE has no real way of knowing the assumptions that went into CBO’s thinking for the increase between 2014 and 2016—or whether that would have been changed with the passage of time.

In touting its figure, the ASPE report also cited a study, from 2009, that predicted big premium increases because of the law, arguing that instead “greater competition and greater transparency are driving down prices.”

The Kaiser Family Foundation did a similar calculation for a report in September, though it was more careful in its language, saying “the latest projections” from CBO “imply” the premium would be a certain level. The liberal Center for American Progress has also touted the 16-percent “lower than projected” estimate.

HHS officials say that their methodology is transparent and based on health insurance spending increases from the Office of the Actuary and Centers for Medicare and Medicaid Services. In effect, officials say that the analysis is conservative and that the true savings are likely higher than estimated in the report.

“We are clear in all studies that we are using an ASPE-derived number that is based on the CBO’s projection of 2016 premiums,” said HHS spokeswoman Joanne Peters. “We clearly lay out our methodology and the assumptions we used to arrive at this number.  In fact, our methodology led to a conservative estimate of the projection, and the ASPE-derived number for 2014 is lower than the CBO 2016 number.  We believe this was the best way to give consumers an indication of how premiums compare to a non-partisan projection.”

The Pinocchio Test

HHS has incorrectly labeled a number with the CBO imprimatur, even though it is using the figure in a way that was not intended. While we understand Sebelius cannot speak with footnotes, a check of news reports finds that this figure has often been reported as a CBO estimate. HHS’s news releases have done little to clarify the matter, using phrasing such as “16 percent below projections based off of Congressional Budget Office estimates.”

For many people in the individual market, insurance premiums (before subsidies) are going to go up because the law mandates a much more robust package of benefits. At a personal level, the question is going to be how much more does someone need to pay next year versus last year — and how much more are they going to get for their money. Few are really going to care whether the rates were lower than projected, even if the projections actually are valid.

Sebelius, in trying to measure average premiums against this imaginary CBO number, suggests that the Affordable Care Act has exceeded some sort of benchmark. But it’s much like suddenly declaring that touchdowns should be scored at the yard line of your choosing.

Still, determining the Pinocchio rating was difficult. The logic used by HHS analysts may be sound, but the shorthand used by administration political figures (“CBO”) has been misleading — and led some reporters to believe this was indeed a CBO estimate. It is a credit to the CBO that its estimates are so admired, but it is a discredit to politicians who try to ride on its coattails. Readers should be wary when someone cites a CBO estimate. Be sure to check the footnotes.

Two Pinocchios


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