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CBO: Narrow Networks Lowered Premiums in 2014

3:14 PM, Apr 14, 2014 • By JAY COST
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The Hill reports:


The Congressional Budget Office (CBO) lowered the projected cost of ObamaCare's health insurance benefits Monday by $104 billion over 10 years.

The law's insurance coverage provisions will now cost close to $1.4 trillion between 2015 and 2024, about $100 billion less than previously estimated, the CBO said.

What is driving the lowered estimate? According to the report released by CBO, it has primarily to do with lower-than-expected premiums for exchange policies. So, good news for the Obama administration? Not so fast. Per CBO:

A crucial factor in the current revision was an analysis of  the characteristics of plans offered through the exchanges in 2014. Previously, CBO and [the Joint Committee on Taxation] had expected that  those plans’ characteristics would closely resemble the characteristics of employment-based plans throughout the projection period. However, the plans being offered through the exchanges this year appear to have, in general, lower payment rates for providers, narrower networks of providers, and tighter management of their subscribers’ use of health care than employment-based plans do.

So far, CBO is only projecting a modest increase in premiums for 2015, although it notes, “actual exchange premiums for 2015 may differ from those CBO and JCT have projected because insurers could have different expectations of their costs for that year.” The late surge of enrollees might help keep rates down, but what really matters is not so much the political class’s expectations of what enrollment would look like as of, say, January, but rather what insurance company projections were when they set rates nearly a year ago.

The factors that will influence rates in 2015 include: (a) increasing healthcare costs in general; (b) the grandfathering of “non-compliant” plans by the Obama administration; (c) the difficulty of estimating the 2014 risk pool because of late enrollees and government limits on what health questions insurers could ask of its customers; (d) differences in the actual versus expected ratio of healthy to unhealthy enrollees; (e) state by state variations in the risk pools and costs of providing care; (f) the “Three R’s” -- risk adjustment, reinsurance, and risk corridors -- meant to limit insurance company losses for the first few years of the program; (g) the partial sunsetting of the reinsurance program, which helped keep rates down in 2014.

Insurers will start filing rates with government regulators later this spring.

A footnote on Obamacare hitting its CBO enrollment target. Despite the "surge" of late enrollees late in the period, CBO did not update its previous prediction of total enrollment (which stood at 6 million as of this winter, down from 7 million last year and a high of 9 million after the Supreme Court Ruling). CBO writes:

CBO and JCT’s estimate of 6 million people receiving such coverage in 2014 cannot be compared directly with the number of people who have enrolled through the exchanges as of any given date. The number of people who will have coverage through the exchanges in 2014 will not be known precisely until after the year has ended

This is exactly the point that conservative critics of Obama's "7.1 million enrollments" have made again and again. Some people will not pay the premiums and thus drop off coverage. Others will gain insurance through their employers and thus drop their individual policy. And so on. The "7.1 million enrollments" claim has no direct bearing either on the fiscal or actuarial condition of Obamacare. It is a purely political claim.

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