No Magic in How G.O.P. Plan Lowers Premiums: It Pushes Out Older People

The following article by Margot Sanger-Katz was posted on the New York Times website March 14, 2017:

There are a lot of unpleasant numbers for Republicans in the Congressional Budget Office’s assessment of their health care bill. But congressional leadership found one to cheer: The report says that the bill will eventually cut the average insurance premiums for people who buy their own insurance by 10 percent.

House Speaker Paul Ryan pressed that point in a series of appearances Monday night, suggesting that the budget office had found that the House bill would increase choice and competition and lead to lower prices. The Senate majority leader, Mitch McConnell, issued a statement saying, “The Congressional Budget Office agrees that the American Health Care Act will ultimately lower premiums and increase access to care.”

But the way the bill achieves those lower average premiums has little to do with increased choice and competition. It depends, rather, on penalizing older patients and rewarding younger ones. According to the C.B.O. report, the bill would make health insurance so unaffordable for many older Americans that they would simply leave the market and join the ranks of the uninsured.

The remaining pool of people would be comparatively younger and healthier and, thus, less expensive to cover. Other changes would help make health insurance skimpier — cheaper, but with deductibles that are higher than those criticized by Republicans under Obamacare.

Under the G.O.P. bill, the C.B.O. finds that insurance premiums would first spike, by 15 percent to 20 percent more than under Obamacare over the next two years. But by the end of a decade, the average plan would cost 10 percent less than it would under the Affordable Care Act. (Over all, though, 24 million fewer people would have insurance, it found.)

Insurers price their products by spreading out the cost of care for their customers. In general, older customers cost substantially more to cover than younger ones because they have more health needs and use their insurance more. By discouraging older people from buying insurance, the plan will lower the average sticker price of care. But that doesn’t mean prices will get lower for everyone.

Currently, the subsidies under Obamacare are devised to help limit how much low- and middle-income Americans can be asked to pay for health insurance. The Republican plan works differently. It increases the amount that insurers can charge older customers, and it awards flat subsidies by age, up to an income of $75,000.

On premiums alone, prices would rise by more than 20 percent for the oldest group of customers. By 2026, the budget office projected, “premiums in the nongroup market would be 20 percent to 25 percent lower for a 21-year-old and 8 percent to 10 percent lower for a 40-year-old — but 20 percent to 25 percent higher for a 64-year-old.”

But the change in tax credits matters more. The combined difference in how much extra the older customer would have to pay for health insurance is enormous. The C.B.O. estimates that the price an average 64-year-old earning $26,500 would need to pay after using a subsidy would increase from $1,700 under Obamacare to $14,600 under the Republican plan.

Perhaps unsurprisingly, the C.B.O. concludes that many, many fewer 64-year-olds will continue buying insurance in this market. By 2026, the uninsured rate for those 50 to 64 earning less than about $30,000 would more than double, from around 12 percent to around 30 percent. Those older customers who would lose out on insurance coverage are more likely than the young customers who would buy it to need help paying big medical bills.

Mr. Ryan has said that it is appropriate that the G.O.P. plan will cause more Americans to go without health insurance because it doesn’t have a mandate that people buy coverage or pay a penalty. “We’re saying the government’s not going to force people to buy something that they don’t want to buy,” he said on Fox News Monday afternoon. “And if we end an Obamacare mandate that says you must buy this government one-size-fits-all plan, guess what? People aren’t going to buy that.

But the C.B.O. did not conclude that insurer competition would increase in this new policy environment, or drive down premium prices. And poor, older customers whose insurance costs more than half their income may not really have much of a choice.

The Republican plan is designed to pass using a special budget procedure requiring only 50 votes in the Senate. As a result, it doesn’t do much to change the regulations on health insurance that many Republicans believe have made insurance costly under Obamacare. Insurers will still need to charge sick and healthy customers of the same age the same price. And all plans will still need to cover a minimum package of benefits that include maternity care and treatment for drug addiction.

The bill does make some changes to how much health insurance plans can ask customers to pay before their coverage kicks in. Under Obamacare, poorer customers get help not just with their premiums but with deductibles and co-payments for their plans. That means that even the hypothetical older customer who could pony up $14,600 for insurance under the G.O.P. plan would also pay substantially more out of pocket for any health care services. And changes to the requirements for health plans mean that, across the board, deductibles and cost-sharing will increase. So the average plan that the C.B.O. says will be cheaper will also be less generous than a comparable Obamacare plan.

Finally, the C.B.O. concludes that new funding in the law, intended to compensate insurance companies for the cost of caring for the sickest patients, may also help stabilize premiums. That provision is set to expire after 2026, just after the C.B.O.’s evaluation period ends.