Will Health Reform Law Make Premiums More Expensive or More Affordable?

President Barack Obama defended the benefits of the Affordable Care Act in a news conference, part of a broader effort to sell the law amid continuing criticism from Republicans. MIT’s Jonathan Gruber and Avik Roy of the Manhattan Institute join Jeffrey Brown to debate the cost of coverage under the health reform law.

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    Much of the public remains skeptical or unaware, an important component has been delayed, and Republicans continue their attempts to derail it.

    But President Obama again today offered a strong defense of his signature health care reform law. His remarks came as deadlines approach for its implementation.

    President Obama ratcheted up his campaign to sell the health care law today in a speech in the East Room of the White House.


    The Affordable Care Act is doing what it's designed to do: deliver more choices, better benefits, a check on rising costs, and higher-quality health care.


    The president highlighted a relatively obscure part of the law, which he himself now regularly refers to as Obamacare, that requires insurers to spend 80 percent of premium dollars on medical care or send rebates to their customers.


    I bet, if you took a poll, most folks wouldn't know when that check comes in that this was because of Obamacare that they got this extra money in their pockets. But that's what's happening.


    Today's speech was part of a broader effort to sell the law. It comes amid continuing criticism from Republicans and worry from some supporters about its implementation.

    Health insurance exchanges, one of the law's central components, begin to open Oct. 1.


    New online marketplaces will allow consumers to go online and compare private health care insurance plans, just like you would compare over the Internet the best deal on flat-screen TVs or cars or any other product that is important to your lives. And you're going to see competition in ways that we haven't seen before.


    The president chose not to address the decision earlier this month to delay the insurance employer mandate until 2015.

    Other major parts of the law, such as an individual mandate, will still take effect as scheduled.

    But opponents have seized on the delay as a sign of greater problems with the law. Yesterday, the Republican-led House voted to delay the individual mandate that requires most Americans to get coverage next year or pay a penalty.

  • House Speaker John Boehner:


    Listen, this is about basic fairness. To say that, well, we're going to — we're going to relax this mandate for a year on American business, but we're going to continue to stick it to individuals and families is strictly, and simply, unfair to the American people.

  • MAN:

    All those in favor say aye.



  • MAN:

    Those opposed, no.




    The House vote marked at least the 38th time that Republicans have tried to eliminate or scale back the Affordable Care Act.

    Republican Representative Luke Messer of Indiana:


    Obamacare is not working. The American people know that. Now it seems that President Obama knows that, too. The president's unilateral decision to violate the law and delay the employer mandate, postpone some of the law's worst damages for businesses, fundamental fairness dictates that individuals get the same reprieve.


    Yesterday's vote came on the same day New York State announced its insurance premiums on the individual market are expected to drop 50 percent.

    Today, the Obama administration put out its own report on the expected cost of premiums once the new exchanges take effect. It concluded that 10 states, plus the District of Columbia, would be able to offer monthly premiums that will be 18 percent lower than initially projected by the Congressional Budget Office. Those estimates were for a lower-cost plan that would run about $320 a month for an individual.

    But other states have come up with very different and higher numbers. Last week, Ohio issued its own estimate. It reported the average individual market health insurance plan would jump 88 percent next year.

    The question of how much insurance will cost is a crucial one for the success of the law.

    And we explore the issue further with Jonathan Gruber, an economist at the Massachusetts Institute of Technology. He worked with the administration on the health reform law and is a key architect of the Massachusetts law.

    And Avik Roy, senior fellow at the Manhattan Institute, he served as Mitt Romney's health care adviser during the 2012 presidential campaign.

    Well, welcome to both of you.

    Jonathan Gruber, starting as a sort of general starting point, is there a simple answer as to whether the health reform law will lower or raise premiums?

    JONATHAN GRUBER, Massachusetts Institute of Technology: There's never a simple answer with something as complicated as health care, but there's a three-part answer.

    The first part is, for most Americans who have private health insurance who get it from their large employers, nothing changes.

    The second part of the answer is, for the second largest groups, those who get insurance from small employers, what they're going to see is increased premium certainty. They won't see their premiums jump 50 percent in the year because someone gets sick.

    And on average, they are going to see rates basically stay the same. Some will go up some, some will come down some, but basically stay the same. The third group is individuals.

    Now, the effect on individuals is going to vary a lot across states, because — depend on how regulated the individual market was before this law.

    But what we are going to see is on average the premiums individuals face will go up, but that will be offset by the fact that the Affordable Care Act includes tax credits to cover the cost of health insurance. After you factor in tax credits, premiums will go down on average.


    All right, we will go through some of the details.

    But first I want to ask Avik Roy the same question. The general proposition, what do you see?

  • AVIK ROY, The Manhattan Institute:

    So, I agree with most of John's framework.

    I would say that it's important to understand that in the small group market and the large group market, you are still going to see insurance rates go up because insurance rates just go up every year with health care inflation, something that unfortunately the Affordable Care Act doesn't do that much to dent.

    In the individual market, he's right that certain states will do OK because they are highly regulated already. They are regulated much the way the Affordable Care Act regulates the entire country.

    But in unregulated or lightly regulated states, such as California, where today an individual who is say 40 years old can buy an insurance plan that is reasonably good for say $94 a year, they're going to see substantial increases.

    And the subsidies won't offset increases for everyone. So, there will be a certain slice of low-income individuals who will benefit, but there's — the majority will not.

    Even if you get a partial subsidy, your rates will still go up. And if you're not eligible for a subsidy, you get hit twice, because not only does your insurance rate goes up, but you are paying the taxes to fund subsidies that go to other people.


    Jonathan Gruber, respond to that. So, it's different as opposed to what you were starting to talk about, the difference within different states.


    Yes, it's different in different states.

    Look, the idea of insurance is that the healthy contribute more than they expect to get at the end of the year. The sick collect more than they contributed. And over time we are all both healthy and sick so it all evens out.

    The problem is you can't get insurance to work that way in the private market, because if you just leave the private market alone, what happens is insurance companies don't want the sick guys, right? They're not going to make money on them. They just want the healthy guys.

    So, what they do in states like California and other states is they exclude the sick from coverage, and the healthy get very skimpy coverage. So, for instance, the $94 plan that Avik mentioned is not good coverage. It's a plan with maybe a $10,000 deductible. These are really — or a plan which caps the benefits you can get.

    What happens is states that are not regulated end up with insurance where the sick can't get it and healthy get very skimpy plans. The result of the law will be the sick and healthy will pay same price. Plans will be more generous.

    We both agree some are going to pay more. I think it's a minority of people. By my estimates, after you factor in tax credits, about a third of those currently buying in the individual market will pay more, and about two-thirds will pay less.


    Avik Roy, first, I want to clarify. You said $94 a month, I think, as opposed to a year?


    Ninety-four dollars a month, and that's for a 44-year-old individual, single and childless.


    Let me ask you about that impact of tax credits that Jonathan Gruber was talking about. Doesn't that offset — or to what degree does it offset any rise in premiums?


    Yes, so two actuaries looked into this in the magazine "Contingencies," which is published by the American Academy of Actuaries.

    And they estimated that if you are between 20 and 30 years of age, 80 percent of people, even despite the impact of subsidies, will see increases. And for people who are 30 to 40, it's about 30 to 40 percent of people will still see increases, despite subsidies.

    So, the subsidies will have impacts for some people, but other people will see substantial rises. And here is the thing.

    Jonathan had this framework where he said, well, the deal with insurance is that healthy people pay more, so that sick people can pay less. That's one way to think of insurance.

    Another way to think of insurance is the way we think of car insurance or auto insurance, which is I want to be protected. I want to protect myself if I get into a collision or my car gets stolen, but I don't want to subsidize — I don't want my rates to go higher because there are drunk drivers running around who are crashing their cars all the time.

    So, if insurance is a bad deal for me, I have more of an incentive to drop out of the market, despite the individual mandate and some of the other factors in the law that try to dragoon people in, even though they're being forced to subsidize people where they don't actually benefit from the amount they're spending on their health insurance.


    Well, Jonathan Gruber, feel free to respond to that, but I do want to clarify to both of you just so the audience understands, the population that we're talking about in all of this, right? Do we agree on that, the size of the population and who is affected?


    Yes. Yes.

    I mean, the population is — first of all, it's those who buy individual insurance now who's really affected. That is currently about 7 percent of the U.S. population.

    Second of all — of the non-elderly population — second of all it's the young healthy group, individuals who are not poor, which is about a third of that group.

    So, we're talking about something like maybe 2.5 percent of people in the U.S. might see rates go up, something on the order of that.


    I would add something.


    Go ahead.


    … which is that, if you look at the Congressional Budget Office's estimates and you add up all the people that the Congressional Budget Office projects will be shopping for insurance on their own, either through the ACA exchanges or through other means, it adds up to about 77 million people by 2016.

    So it is a substantial number of people, because it's not just the people who buy insurance today on the individual market. It's the people who are uninsured who should be buying insurance on the individual market, but don't, either because they think it's a raw deal for them or because they can't afford it or for some other reason.


    And, Jonathan Gruber, now that we're getting close, things are starting to kick in and we are getting closer to fuller implementation, what are the key uncertainties here as we try to figure out what's going to happen? What are you looking for?


    Well, I think there's really two big sources of uncertainty.

    The biggest source of uncertainty is this issue of the Medicaid expansions. State policy-makers are making absolutely short-sighted, really there's no other word but stupid decisions not to expand their state Medicaid programs, despite the fact it's federally financed, leaving millions of Americans without health insurance coverage, and adding confusion in implementation, because if I go to an exchange tomorrow or in January and my income is 99 percent of the poverty line, they say, sorry, you're out of luck if you're in Texas or Florida, because there's no Medicaid.

    But if I'm 101 percent of the poverty line, I get great subsidies. I think that uncertainty, it's going to be a problem.

    The second source of uncertainty is people not really understanding the laws in place, understanding the benefits of the law. The misinformation that is being passed out is going to confuse people.

    And unless people understand what the law could do for them, they might not sign up and that might limit the benefits of the law.


    And, Avik Roy, same question to you. What uncertainties do you see?


    I would say that the biggest uncertainty is whether or not healthy and young people will sign up for insurance under the ACA exchanges.

    And I think that is why you heard the president give that speech today. It wasn't really so much for political reasons. It was because if young and healthy people don't sign up for the exchanges, you will have a result that is a lot like the New York insurance market of today, where insurance cost $800, $900 a month for people. It's unaffordable, because young and healthy people drop out of the market.

    So, there's a lot of concern I think among the administration and its officials that young and healthy people will see this as a raw deal — and I think correctly — and not sign up for the cross-subsidy, where they are spending a lot more for insurance to subsidize other people, where the money doesn't benefit directly.


    Jonathan Gruber, just the last word on that one, on that specifically, on the young people, healthy people?


    I think Avik is exactly right.

    It's critical that the young and healthy sign up. I think they will because there's going to be low-cost insurance products available and many of them will get tax credits.


    All right, Jonathan Gruber and Avik Roy, thank you both very much.




    My pleasure.