Note: You may want to skip directly to the comment, and only afterwards read the excepts from the HHS release and report, if you wish to review the details.

News Release: Report finds lower insurance premiums, more choices in 2014 for families, businesses under Affordable Care Act

U.S. Department of Health & Human Services
January 28, 2011

Secretary of Health and Human Services Kathleen Sebelius today released a new report showing how much families and businesses can save on health insurance premiums and out-of-pocket costs under the Affordable Care Act in 2014 – each year, a low-income family of four could save up to $14,900 and businesses will benefit from the savings and tax credits in the new law.

The report finds that, compared to what they would have paid without the law:

*  Middle-class families purchasing private insurance in the new State-based Health Insurance Exchanges could save as much as $2,300 per year in 2014.

*  Tax credits provided by the Affordable Care Act will lead to even greater savings.  For example, in 2014, a family of four with an income of $33,525 could save as much as $14,900 per year since they will also qualify for tax credits and reduced cost sharing.


Report: Health Insurance Premiums: Past High Costs Will Become the Present and Future Without Health Reform

U.S. Department of Health & Human Services
January 28, 2011

This report examines the past, present, and future regarding the likely effects of the law on premiums – along with what might happen without it.

Savings for individuals and families:

The Congressional Budget Office (CBO) produced estimates of the impact of the Affordable Care Act on premiums. For people purchasing nongroup coverage through the Exchanges, it estimated savings of 7 to 10 percent resulting from the increase in the size of the insurance pool as well as the nature of the new enrollees, who, in light of the premium tax credits and the individual responsibility provisions, are likely to be healthier than existing enrollees. An additional 7 to 10 percent savings would result from providing the same set of services to the same group of enrollees – primarily because of the new rules in the market such as eliminating insurance underwriting. CBO also credits some of the savings to increased choices and competition. Together, these savings range from 14 to 20 percent. CBO also assumed that individuals and families would have, on average, coverage that is more comprehensive than what they have now, meaning that the savings would offset by higher premiums due to better coverage. It is important to note that this benefit enhancement is a choice, not a requirement.

Assuming 20 percent premium savings, families purchasing insurance through Exchanges could save as much as $2,300 per year and individuals could save up to $800 in 2014 compared to individual market coverage with the same level of benefits without the law. With premium tax credits, the savings from health reform range from $9,900 for a family of four with income of $33,525 to $3,500 for a family with an income of $78,225 (see Figure and Methodology).

Premium savings are only part of picture for low-income individuals and families. They also may qualify for reduced cost sharing under the Affordable Care Act. For the same families with incomes of $33,525 and $78,225, this could add $5,000 and $1,500 respectively to the premium savings (see Table in Methodology).


The table below uses CBO data to illustrate the savings that could be achieved under health reform in 2014. It uses the CBO single premium data for 2016, deflated to 2014 using its last public estimate of private premium growth (6 percent). Family premiums are calculated by multiplying the single premium by 2.7, the standard ratio of family to single premiums (CBO assumes that the composition of a family policy will change under the new law). It then applies the maximum savings for the individual market of 20 percent, assuming that individuals do not decide to purchase better coverage. The tax credits are calculated by applying the maximum premium payment in the law to the 2011 income (using the latest poverty thresholds) inflated by 1.7 percent (CBO’s August 2010 projection for 2012-2014). Premiums vary by age, region and other factors, so these estimates are illustrative.

The cost sharing estimates were calculated by taking the average out-of-pocket spending for a silver plan in 2016 – $1,900 for an individual and $5,000 for a family according to CBO – and deflating to 2014 assuming 6 percent health cost growth (see above). Assuming a linear relationship between the actuarial value of a silver plan (70 percent) and the average out-of-pocket cost sharing, the reduced cost sharing amounts were calculated using the schedule in the law for individuals and families at different income brackets. This was subtracted from the average out-of-pocket costs for a bronze plan to assess the savings.

The potential premium effects in the text and chart are rounded to the nearest $100. Note: the premium effects shown here differ from earlier estimates from HHS due to the January 20, 2011 update of the poverty guidelines.

(The table from which the numbers in the release and the report are derived can be accessed at the link below. Only the footnotes to the table are reproduced here.)

Source: DHHS
1. CBO 11/30/09 estimate of prior law national average individual market single premium ($5,500), deflated to 2014 assuming 6% annual premium growth and adjusted pro-rata for a plan with an actuarial value of 60%. Family premium is the single premium multiplied by a family factor of 2.7
2. CBO 11/30/09 estimate of average cost sharing under reform ($1,900 / $5,200), deflated to 2014 assuming 6% annual health cost growth, pro-rated for a plan with an actuarial value of 60%.
3. Assumes CBO 11/30/09 gross savings of 20%, not counting the premium cost of buying up benefits.
4. Income inflated to 2014 assuming general inflation of 1.7% per year (CBO, August 2010)

Today’s selections from the Department of Health & Human Services (HHS) are not so much for the purpose of reading and studying, but rather are presented to provide documentation to support today’s comment. HHS is touting the savings in insurance premiums that will result from having enacted the Patient Protection and Affordable Care Act. The fine print is important in understanding what this touted savings really is.

HHS is comparing family plans that will be offered in the state insurance exchanges with family plans that are currently offered in the individual insurance market. The current plans are terrible, which is the main point that HHS should have made. To keep premiums down to a level that families can barely afford, the existing plans provide very limited benefits, potentially exposing families to very high out-of-pocket expenses.

So that the savings can be calculated on an apples to apples comparison, HHS has selected the most austere plan to be offered in the exchanges – the bronze plan, which has an actuarial value of 60 percent – a plan that’s about as lousy as those on the individual market today. This leaves the family exposed to 40 percent of their health care costs (though admittedly with inadequate income-indexed subsidies, which is important but not covered here further).

The family has the option to buy up to a silver plan, but then the touted savings goes away. Furthermore, the silver plan is also an under-insurance product since its actuarial value is still only 70 percent, leaving the family responsible for 30 percent of the costs. Although still a lousy plan, as HHS says, “this benefit enhancement is a choice, not a requirement.” What a choice.

Gold and platinum plans with actuarial values of 80 percent and 90 percent will be offered in the exchanges, but very few families will move up to those plans since they must pay the full additional premium. Only the wealthiest families will be able to afford the difference.

The title of HHS’s release says “lower insurance premiums” and “more choices.” But what they bury in their report is that you get lower premiums only if you choose a crappy plan similar to those currently available in the individual market.

We can do far better than that. We can enact an improved Medicare for all. Then you wouldn’t have to worry about unaffordable premiums and out-of-pocket expenses since they would be replaced with equitable taxes which would be affordable for all.