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HCR Summit: The Senate Bill and Premiums

Obama vs. Alexander

11:23 AM, Feb 25, 2010 • By MATTHEW CONTINETTI
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Before Sen. Tom Coburn, Republican of Oklahoma, began to talk about costs, President Obama and Sen. Lamar Alexander, Republican of Tennesse, engaged in a high-profile debate over the effects of the Senate legislation on the cost of premiums. Sen. Alexander said the Congressional Budget Office has found that individual premiums would rise as a result of health care reform. Obama said Alexander's wrong, premiums will go down. Who's right? From what I can tell, they both are.

Here's the CBO report in question. It found: "CBO and JCT estimate that the average premium per person covered (including dependents) for new nongroup policies would be about 10 percent to 13 percent higher in 2016 than the average premium for nongroup coverage in that same year under current law." Point goes to Alexander.

But the report continues:

Those figures indicate what enrollees would pay, on average, not accounting for the new federal subsidies. The majority of nongroup enrollees (about 57 percent) would receive subsidies via the new insurance exchanges, and those subsidies, on average, would cover nearly two-thirds of the total premium, CBO and JCT estimate. Thus, the amount that subsidized enrollees would pay for nongroup coverage would be roughly 56 percent to 59 percent lower, on average, than the nongroup premiums charged under current law. Among nongroup enrollees who would not receive new subsidies, average premiums would increase by somewhat less than the 10 percent to 13 percent difference for the nongroup market as a whole because some factors discussed below would have different effects for those enrollees than for those receiving subsidies.

So, when you factor in the subsidies, premiums will go down for 57 percent of the new individual customers. Point goes to Obama.

Of course, that leaves 43 percent of enrollees in the individual market who won't be subsidized and will therefore see costs rise.

The larger argument is the subsidies will act as a marginal tax hike that will hinder people from increasing their income because they'd lose the subsidy as a consequence. Not to mention the whole debate about whether the federal government should involve itself totally in one-sixth of the economy. Also, if you have read this entire post and understand the CBO / JCT report, you should apply for a job at the Bureau of Economic Analysis.

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