Paying Obamacare’s Premium


The nation’s private insurance companies — virtually the only major health-care interest group that hasn’t been completely co-opted by the so-called reformers — have taken their case against Obamacare public. An industry-commissioned study finds that premiums would rise faster under the Senate Finance Committee legislation than under current law. Within ten years, according to the study, the average family would be paying $4,000 more per year for health insurance.

So far, Obamacare supporters are making a poor case against the study. Several have argued that higher premiums won’t matter, because the bill would subsidize coverage for families making between 100 and 400 percent of the federal poverty level (up to $88,200 for a family of four). But the Senate Finance Committee legislation, a.k.a. the Baucus bill, would limit subsidies to families and individuals whose employers do not offer coverage. According to the Congressional Budget Office, only 17 million people would qualify. The vast majority would see higher premiums eat into their wages and their savings.

It is also important to note that, for those who do qualify for subsidies, someone still has to pay. The Baucus bill would fund the subsidies partially by raising taxes on so-called “Cadillac plans” (plans that cost more than $8,000 per year for single coverage or $21,000 for family coverage). Proponents of this excise tax say it would provide an incentive for businesses to offer cheaper plans to avoid the tax and shift the savings into higher wages. This shift, they say, would simultaneously increase tax revenue (because wages are taxed and health benefits are not) and put downward pressure on premiums (because businesses would have an incentive to choose cheaper plans). 

Obamacare supporters argue that the insurance industry’s study doesn’t take this shift into account. Their point is valid but insignificant. The tax would certainly act as a constraint on employer-provided plan premiums, but what about people getting Hyundai or Volkswagen plans through their employers? Their premiums will increase faster than they would under current law, and they won’t be eligible for compensating subsidies. Unfortunately for Obamacare supporters, that’s most of America.

Also, while it’s nice to see liberals endorsing the idea that people change their behavior in response to tax incentives, we’d like to see a little more consistency. So far, Obamacare supporters have had little to say about the significant work disincentives in the Baucus bill. The breadwinner in a family making 400 percent of the federal poverty level would be penalized with the loss of subsidized coverage for working harder to earn more. Under some scenarios, he would be better off declining a job at a company that offers insurance coverage. This schizophrenic arrangement would create all sorts of unintended consequences. Many of the selling points of reform — such as its positive budget impact — have been estimated without taking these consequences into account.

The insurance-industry study is not without its flaws. It was commissioned not to defeat Obamacare but to pressure lawmakers into cutting the insurance industry a better deal. The industry wants a stronger mandate, so that more people are forced to buy its products. Lawmakers should not acquiesce. Mandates do not drive down premiums. In Massachusetts, they’ve had the opposite effect. After the enactment of Commonwealth Care in 2006, every provider group — from the fertility doctors to the substance-abuse counselors — persuaded the health-care officials that no plan would be “comprehensive” without their services. The result? Cheap insurance isn’t just hard to come by in the Bay State — it’s illegal.

But for all its shortcomings, the insurance-industry study at least asks the right question: What effect will Obamacare have on premiums, taken as a whole? The Baucus bill includes lots of things that would increase premiums for the guy in the Volkswagen plan who doesn’t qualify for subsidies. Does it do anything that would drive them down? On balance, probably not. Opponents of Obamacare should thank the insurance industry for raising this important question and then find a less self-interested party to answer it, post-haste.