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Cost Benefit

Will you pay more for health insurance under the current Senate bill?

On Monday morning, a week ago, the Congressional Budget Office predicted that, for most people, insurance would cost the same or less if the Senate's health care reform bill passes. By the afternoon, critics of health care reform rushed to the microphones, claiming vindication. CBO, these critics insisted, had determined reform would mean higher costs!

What happened? The simple answer is that the critics were being deliberately deceptive. And they almost certainly were. But there's also a more complicated answer. The critics were taking advantage of widespread confusion over the definition of cost--a confusion that has been hanging over this debate for the last few months and is continuing to distort it.

Until now, the CBO, which is Washington's official scorekeeper, has been assessing reform proposals largely on the basis of how they would affect the federal budget. And whenever CBO has issued one of its assessments, critics have focused largely on CBO's estimates of government outlays--that is, the amount of money a bill would require Washington to spend on expanding government health insurance programs or providing people with financial assistance to buy insurance.

These numbers inevitably sound big. Most of the bills CBO has analyzed have called for outlays in the neighborhood of $1 trillion over 10 years. And while that figure represents just a fraction of the total federal budget--government outlays for the same period will be more than $40 trillion--it still represents an increase in what Washington will be spending. That's bound to upset anybody whose primary concern is the size of government.

But sometimes government needs to grow, in order to take on responsibilities the private sector can't handle on its own. And when that's the case--as it seems to be with health care--the only relevant question is whether an initiative adds to the federal deficit. Here, the news has been largely good. The bill before the Senate now would raise some tax revenue while finding savings in other government programs. The net result, according to CBO, would be lower deficits overall. (It reached a similar conclusion about the House bill.)

Of course, that's not the end of the story. The most important issue for most Americans isn't what the government spends on health care. It's what they, as individuals and families, spend on health care. That's the question the CBO finally addressed this week--although the findings were, in fairness, a bit hard to follow.

The vast majority of Americans with private insurance get coverage through employers. For these people, CBO predicted, premiums would stay about the same or come down a bit if the Senate bill became law. That wouldn't be the $2,500 in annual savings that President Obama famously promised during the campaign. But it also wouldn't be the huge hike in premiums critics had been predicting.

Where the price of health insurance would start to change radically is in the non-group market--that is, for people who buy on their own, as individuals, rather than through an employer. Premiums for these people, who number a little more than 30 million, would tend to go up. That's one of the points reform critics seized upon in their press conferences.

But the more interesting and relevant story was why CBO expected premiums to go up. For the most part, CBO found, it was because people would be getting health insurance that provided more benefits and covered medical bills more completely--coverage that often wasn't available to people in the non-group market before. In many cases, CBO determined from its economic models, people would actually opt to buy more expensive insurance than necessary simply because they valued the added protection.

In addition, CBO noted, while premiums in the non-group market would rise, the majority of people buying insurance on their own would simultaneously become eligible for federal subsidies. For the majority of these people, the subsidies would more than offset the increase in premiums, so that they'd end up paying less--even as they were getting better coverage.

To be sure, not everybody would be so lucky. People making more than four times the poverty line, or $88,000 a year for a family of four, wouldnt be eligible for subsidies. They'd end up paying more. So would some, although not all, people who now have cheap insurance because they are young, healthy, and have minimal benefits. They'd be a small minority of the total U.S. population, but still a few million people. They, too, figured prominently in last week's anti-reform propaganda.

But it's virtually impossible to design a reform scheme that doesn't, in the early stages, involve at least some transfer of money away from the healthy and wealthy. The point of insurance is to pool risk, bringing in contributions from relatively healthy people, so that medical bills don't fall too heavily on the sick. And if government is going to offer subsidies to the poor and middle-class, it's bound to finance those subsidies through taxes on the wealthy.

Keep in mind that CBO is very skeptical about reform's ability to make medical care itself less expensive. If it turns out that better use of information technology, more scrutiny of treatments, and other innovations reduce the incidence of wasteful medical treatments--as many experts believe will happen--then it's possible everybody, even the very healthy and very wealthy, would end up spending less on health care, at least in the long term.

And if not? Then even those few people who do end up paying more for their insurance would still gain something: The peace of mind that they'll still have coverage even if they suddenly stop making a lot of money, as well as the knowledge that insurance will meet their needs if they get sick. That's something worth celebrating, even if the reform critics don't agree.

Jonathan Cohn is a senior editor of The New Republic. This column is a collaboration between TNR and Kaiser Health News. KHN is an editorially independent news service and is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization, which is not affiliated with Kaiser Permanente.

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