If in Doubt Assume I'm Wrong & Ezra Klein is Right

Ezra says (and thanks to KathyF for pointing it out to me) that the article I quoted in my last post was not an accurate reflection of the CBO report. In truth, says the Prophet Ezra, the 10-15% increase in the predicted average premium is based entirely on an assumption that people will chose to buy more expensive plans. The idea is, as I understand it, that because many people will be able to offset their health insurance with government subsidies, some people will chose to purchase better coverage than they could otherwise afford.

First, the bottom line of the report is simple: The CBO says premiums will go down for the vast majority of Americans, and that the same insurance policy will cost less under reform.

The confusion comes in the CBO's analysis of the individual market, which serves about a tenth of the population. CBO expects prices in the individual market to rise by 10 or 12 percent, an expectation driven entirely by predictions that individuals will purchase policies that are much more comprehensive, and thus somewhat more expensive, then the insurance they can afford now. Then the CBO turns to look at the impact of the subsidies, which will cut premium costs by a bit over 50 percent for a bit over 50 percent of the market.

But as the CBO explains on page five, part of the increase in the type of insurance being purchased is the result of "people’s decisions to purchase more extensive coverage in response to the structure of subsidies." In other words, the change is driven by the subsidies, not offset by them.

Meanwhile, as I understand it, the tax on "Cadillac" plans - health insurance that offers little to no additional health outcomes, but a more lusurious service will tend to discourage people from buying these plans (though of course anyone is still free to do so if they wish). On average, then, under the new legislation most people will wind up with a plan somewhere in the middle of the cost charts - robust enough to cover all chronic conditions and to prevent health bankrupcy, but using the power of the market to discourage people from wasting medical resources where they could be better used.

This stuff is complicated, and I'm no expert. But I trust Ezra on this issue more than me, so go read him.