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Feb 06 2014

New CBO Report Builds Case for Obamacare

A new Congressional Budget Office report that forecasts budgetary and economic conditions for 2014 provides ammunition for supporters of the Affordable Care Act on a couple of fronts. The first is that the “risk corridors” in the law will save the federal government billions of dollars:

Congressional Republicans are contemplating taking the economy hostage unless Democrats agree to repeal a temporary program built into the law called “risk corridors.” The is actually a financial shock absorber meant to shield consumers from premium hikes stemming from insurance industry uncertainty during the health law’s first three years, and Republicans have previously supported more generous versions of the program for Medicare. Now, they’re slamming it as a “taxpayer-funded bailout” of insurance companies under the ACA.

But CBO’s new report finds that the provision will actually save taxpayers and the government a considerable amount of money. Under the risk corridor program, the government takes a cut of the profits from insurance plans that set their premiums too high and redistributes it to insurers that set their premiums too low so that those companies won’t be forced to raise consumers’ monthly rates. According to CBO, “risk corridor payments from the federal government to health insurers will total $8 billion and the corresponding collections from insurers will amount to $16 billion, yielding net savings for the federal government of $8 billion.”

CBO had previously estimated that risk corridors would be budget neutral. Now, the agency predicts that insurance companies are likely to set their monthly premiums too high relative to how much they will have to pay out in medical costs.

The second is that premiums on policies obtained through the health care exchanges are considerably lower than previously predicted:

The Obama administration argued last year that ACA marketplace premiums would be lowerthan the CBO originally expected. The organization confirmed that on Tuesday, reporting that current marketplace premiums are actually 15 percent cheaper than it predicted last year.

A recent analysis by the consulting firm PricewaterhouseCoopers (PwC) found that the most Silver, Gold, and Platinum plans sold through ACA marketplaces are anywhere from $61 to $1377 cheaper than the average employer-sponsored health plan. An Obamacare Silver plan could be close to $2500 per year cheaper than an employer policy, according to PwC.

That doesn’t mean every single person will have lower premiums, of course, but most people will. Especially people like me, buying an individual policy on the exchange.

10 comments

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  1. 1
    colnago80

    There was another brouhaha arising from, I believe the same report, that several million folks might retire early from their jobs because they were no longer dependent on employer health care plans and that therefore unemployment would go up. This has been, IMHO, totally mischaracterized in the lamestream media. In fact, unemployment should go down as the jobs left vacant will be filled by others. The number of jobs will not decrease appreciably.

  2. 2
    marcus

    @1 I know, right? This really annoyed the piss out of me. Instead of “Two Million Jobs Lost!!!111!!” The headline should have said something like “Two Million People Freed From Wage Slavery!” or “Two Million Job Vacancies To Be Added Due To ACA!”
    What a bunch of idiots.

  3. 3
    Barefoot Bree

    Anyone else amused at Republicans complaining about a “taxpayer-funded bailout” of huge industry? I’m surprised their insurance industry funders haven’t nudged them in the ribs to shut up.

  4. 4
    eric

    A recent analysis by the consulting firm PricewaterhouseCoopers (PwC) found that the most Silver, Gold, and Platinum plans sold through ACA marketplaces are anywhere from $61 to $1377 cheaper than the average employer-sponsored health plan. An Obamacare Silver plan could be close to $2500 per year cheaper than an employer policy, according to PwC.

    Hmmm…I think that might be slightly deceptive. I would guess that they are saying the exchange is cheaper than an employer policy if you don’t count the portion the employer pitches in. Our experience shopping the exchanges is that going through your work for an equivalent plan is still significantly cheaper, because employers don’t just negoiate a premium rate, they also pay part of the negotiated rate as part of your benefits package. That second part is an important part of what determines the final cost to the consumer. (Though obviously its not available to everyone).

    Of course we could achieve parity by having the government also pay part of the premium for ACA packages, just like an employer does. But then we’re pretty much into GOP-enraging single payer land.

  5. 5
    D. C. Sessions

    The “2.5 million people will stop working” nonsense comes from the Right’s obsession (per one of Saint Ronnie’s Revelations) on supply side. It’s axiomatic that demand is insatiable, so if people aren’t working it’s because they don’t want to work. “Get off your ass and get a job!” Therefore, if current workers reduce their employment by 2.5 million FTEs, that’s 2.5 million jobs not getting done — an increase in unemployment.

    In their universe, it makes perfect sense. Correlation to reality? Whose reality?

  6. 6
    roxannebrown

    Eric: ” I would guess that they are saying the exchange is cheaper than an employer policy if you don’t count the portion the employer pitches in.”

    For me (and I know this is just one anecdote), my employer-based insurance premium was $790/month total, including their and my portion. With the plan I got on the exchange (which is better), my total is only $486/month At the moment, I’m subsidized for all but $13 of it — because I’m one of those lucky people who’s about to be evicted due to having no money. Thanks, Republicans, for adding insult to injury. It’s not enough that I got so behind in rent due to UI being shit money, I guess. I’m one of those “takers” now.

  7. 7
    colnago80

    Re Marcus @ #2

    Another thing that might happen is that a fraction of the early retirees might take the opportunity to start their own business, which, if successful, might increase employment opportunities. Who knows, maybe the next Bill Gates or Mark Zuckerberg is lurking there.

  8. 8
    Michael Heath

    D.C. Sessions writes:

    The “2.5 million people will stop working” nonsense comes from the Right’s obsession (per one of Saint Ronnie’s Revelations) on supply side. It’s axiomatic that demand is insatiable, so if people aren’t working it’s because they don’t want to work. “Get off your ass and get a job!” Therefore, if current workers reduce their employment by 2.5 million FTEs, that’s 2.5 million jobs not getting done — an increase in unemployment.

    I formally studied supply side theory and I have no idea what the specific GOP lies now being told about this issue have to do with either supply side theory or anything President Reagan asserted.

    For example, ‘unemployment’ refers to people that are both out of of work and actually seeking work. The CBO’s projection of what I read was two million equivalent jobs, was that these people would be reducing the amount they worked or would quit. So these people are not “unemployed” in the statistical sense, some are still working and the ones that quit would no longer seek work equivalent to two million people leaving the work force. So the CBO assertion is about the supply of labor being reduced, not the demand for labor. So this phenomena will strengthen the labor market in terms of making easier for those that are unemployed (actively seeking work) to find a job if the CBO prediction comes true.

    Yes Republicans are lying by claiming the supply of jobs will be reduced by two million, which is wildly not true. But what this lie has to do with President Reagan, supply side economics, or supply side talking points is not something I can reconcile as you assert. Please elaborate D.C.

  9. 9
    eric

    For me (and I know this is just one anecdote), my employer-based insurance premium was $790/month total, including their and my portion. With the plan I got on the exchange (which is better), my total is only $486/month

    Thanks, Roxanne. Was your employer paying half? I’m thinking your breakdown was probably something like this:

    Employer-based: Total $790; they pay $395, you pay $395.
    ACA: Total $486. Others would be expected to pay all of this but with your particular circumstances the gov pays all but $13 of it.

    My point was, for someone like me who cannot expect a government subsidy for ACA, the better financial decision would’ve been $395 for emplyer-based care over $486 for ACA.

  10. 10
    Donnie

    Eric, but if you are laid off, fired, or somehow lose your job, then you will need to paid COBRA at $790 or go out on the market pre-ACA and pay $790 +/- $700(?) depending upon your desired coverage. You might have been better off, as long as your job situation did not change or the employer decided not to terminate coverage. There will always be some on the positive side of the transaction and some on the negative side of the transaction. Now, you do not have to worry about your health insurance coverage being dependent upon your employer.

    Had this been around 15 years ago, I would have started my own consulting company but with my piss poor health history (violent asthmatic episodes requiring hospitalization if I could not afford my $300+ month prescriptions). I just could not afford, or wish to afford, the risk.

    Now, I could, if I wanted to and the difference between $395 and $486 (in the above hypothetical) is minuscule compared to the cost of COBRA (only for 18-months) and denial of coverage for preexisting conditions (which would have been me) and a lot of others.

    I believe that the opportunity costs of the above hypothetical do not exceed the societal benefits. The ACA is not the best solution, but it is a hell of a lot better than the previous situation. As stated above, a lot of people can now retire early and start their own business’ with insurance coverage (I read somewhere that a lot of people start business’ at the age of 62 because of medicare coverage).

    I hope to see the impact of ACA on American entrepreneurship because business’ no longer are able to hold employees hostage due to medical coverage. I predict business’ will have to eventually increase benefit plans and wages in order to offer a better package to attract top recruits with insurance no longer a selling point.

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