Thursday, November 05, 2009

CBO score of the Republican reform bill

David Herszenhorn has a blog post on the NYT site that explains some of the effects of a competing health reform bill that the Republicans have introduced.

Republicans are sure to trumpet the fact that CBO projects the bill will reduce premiums by 10% in the individual market and reduce the federal deficit by $68 billion over 10 years. However, it would extend insurance coverage to only 3 million people. Additionally, the Congressional Budget Office's letter to Rep. John Boehner, the minority whip, bears closer reading.

First, CBO believes that the Republican plan will not have a significant effect on the actuarial value of policies that people purchase. Actuarial value is the percentage of the average person's medical expenses that a policy will cover. The health reform bills would specify that any policy sold on the exchange must have an actuarial value of at least 65% and comply with a minimum benefits standard. Many policies sold in the individual market today don't comply with that standard. In other words, the Republican plan won't do anything to preserve the financial security of people purchasing policies in the individual market. We want people to get insurance that will protect them if they get sick.

Second, the Republicans have been complaining that state mandates to cover certain services in individual insurance drive up the cost for everyone. Their bill contains provisions that would encourage states to drop mandates. In addition, as I've said before, it would allow people to shop for coverage across state lines, meaning that insurers in the least regulated states would get more business. CBO, however, does not think that either of these are major factors.

Third, the composition of an insurance pool is one of the key determinants of its cost. If a pool has a lot of healthy members, its costs will be lower. The Republican plan requires insurers to keep dependents up to age 26 on their parents' insurance. Young people who have recently graduated are the largest single population of uninsured, and they are generally healthy. Keeping them in the insurance pools does likely drive the cost down, so this is the one element of the Republican plan that actually works. However, I believe that the Democratic plans have the same provision. If they don't, it's likely to be inserted. In any case, the Democratic plans mandate the purchase of insurance and provide subsidies.

Fourth, the Republicans have a State Innovations program in their bill. This is the program that encourages states to reduce the number of mandated services and to loosen their rating rules. As CBO says:

For example, states that loosened rating rules in the market for individually purchased insurance to allow premiums to vary more on the basis of age would cause premiums for older people to increase and premiums for younger people to decrease. With other factors held equal, fewer older people (who tend to have higher health care costs) and more young people (who tend to have lower health care costs) would then sign up for coverage, and the improved average health status of insured people would lower average premiums; at the same time, the pool of people without health insurance would end up being less healthy, on average, than under current law.

The same could be said on the basis of gender and health status. The insurance industry presently prices most people with chronic diseases out of the market. Under the Republican plan, this practice would either not change or would get worse. In other words, sick or older people would either pay the same high rates as they are now, or they would pay even higher rates. Younger and healthier folks would pay lower rates. The average rates in the individual market would decrease, but that wouldn't mean anything, because even more people would be excluded from the health insurance market. This is not what we want with health reform. What we do want is for people in the individual market to have more competition among insurance plans that offer meaningful protection from medical expenses - and the Democratic reform bills do this through the exchange.

Last, the U.S. spent $2.2 trillion in 2007 on healthcare. All government payers, including Medicare and Medicaid, spent about $880 billion. Those amounts are expected to grow by an average of about 6% per year for the next 10 years. The $68 billion reduction in federal spending for the Republican bill is less than 1% per year. CBO says its long-range estimates for reduction in the deficit amount to "between zero and one-quarter percent of the gross domestic product." In addition, CBO estimates that the malpractice reforms would save about $54 billion over 10 years - again, very small potatoes in the context of what the U.S. actually spends on healthcare. Malpractice reform in isolation is not a meaningful solution to the health care crisis.

The Republican health reform proposal reads like a few randomly selected ideas tossed into a wish list. It offers nothing meaningful. It is a mystery why they think this is a solution to the health care crisis.

No comments: