Off the Charts Blog | Center on Budget and Policy Priorities

Insurers have begun to submit, to states, the rates they want to charge for coverage in 2014, and their proposals show that the new, federally financed premium subsidies that health reform will make available in 2014 will help reduce what low- and moderate-income people will have to pay for coverage.  In many cases, the subsidies — for which people up to 400 percent of the poverty line will be eligible — will more than compensate for the average premium increases that health insurers are warning about in the individual insurance market, as we’ve explained.

Take Oregon, where the Insurance Division provides transparent information about the rates that insurers have proposed for the individual and small-group insurance markets and examples of how much people would pay in different parts of the state under the proposed rates.  (The rates are still under review.)

The chart below, which illustrates an example drawn from Oregon’s proposed rates, illustrates how subsidies would cut insurance costs for several sample enrollees.  The subsidies are based on the cost of a benchmark plan available in the Portland area and are structured so that people won’t pay more than a set percentage of their income for basic coverage.

As the example shows, people with lower incomes will get more help paying their premiums than people with higher incomes.  The subsidies will also take age into account, so enrollees’ contributions will be the same no matter their age, even though the base price of plans will be higher for people who are older compared to those who are young.  (In addition to the premium subsidies, people at lower income levels also will be eligible for help with the deductibles and co-payments charged under their plans.)

The story is similar in California, where officials announced yesterday the plans that the state’s insurance exchange, known as Covered California, is likely to offer.  The announcement also included preliminary information about sample rates, which showed how subsidies could significantly reduce what low- and moderate-income people will pay for coverage.

These subsidies will make health coverage more affordable for millions of people.  In a future post, we’ll explain how these enrollees can further reduce or increase their premium contributions depending on which plan they pick.

Starting in October, millions of uninsured Americans will be able to enroll in private health coverage through health reform’s new health insurance marketplaces (also called “exchanges”).  But a program designed to help people apply for and enroll in coverage has come under fire, despite its origins in other successful enrollment efforts.

Under health reform, so-called “navigators” — including community and consumer nonprofits, unions, and trade groups — will help people sign up for insurance through the marketplaces, understand their options, and enroll in the right plan.  Critics contend that these assisters could provide poor-quality services or take business away from insurance agents.  But past experience, coupled with the rules that have been proposed to govern the navigators’ work, shows that those concerns are unfounded.

The exchange model included navigators because similar “helper” programs have worked well to connect people with the programs and services for which they’re eligible, including Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP).  For example, the federally funded and administered State Health Insurance Assistance Program offers one-on-one guidance to Medicare beneficiaries in every state.  And similar assister programs have played a significant role in increasing enrollment in Medicaid and CHIP across the country; some 86 percent of eligible children are now enrolled in Medicaid and CHIP, an all-time high.

The Department of Health and Human Services based the navigator program under health reform on these successes and proposed rules that would help ensure that the assisters will be professional and well-trained.  The proposed rules create robust training standards to prepare navigators to provide high-quality assistance and strong conflict of interest standards to ensure that navigators act in consumers’ best interests.

Contrary to criticisms, the navigator program is well designed.  These assisters will help uninsured people find — and join — the plan that’s right for them.

The Congressional Budget Office’s (CBO) latest Medicare estimates show that opponents of health reform were wrong:  phasing down overpayments to the insurance companies that serve some Medicare beneficiaries through the Medicare Advantage program won’t gut the program or lead insurers to drop out.  Instead, CBO expects Medicare Advantage to keep growing.

Before health reform (in 2009), Medicare paid Medicare Advantage plans 14 percent more per beneficiary than it would cost to cover these people in regular Medicare, according to the Medicare Payment Advisory Commission (MedPAC).  These overpayments drove up premiums for people in regular Medicare and weakened Medicare’s finances.

Health reform began shrinking the overpayments last year.  Eventually it will bring Medicare Advantage payments more in line with the cost of regular Medicare.  (Even if policymakers went further and required that Medicare Advantage plans receive no more than what regular Medicare costs, the plans would still be overpaid.  That’s because they enroll healthier-than-average — hence lower-cost — beneficiaries and Medicare’s “risk adjustment” mechanism can’t fully account for these differences in determining plans’ payment rates.)

Opponents of health reform claimed that cutting the overpayments would harm millions of beneficiaries and devastate Medicare Advantage.  Insurers use the overpayments to provide some benefits that regular Medicare doesn’t offer, they argued, so insurers would have no choice but to institute deep benefit cuts.  They might even withdraw from the program.

But, while part of the overpayments pay for extra benefits, insurers keep a substantial part as profit and to cover overhead.  For example, as we wrote in 2009, MedPAC found that Medicare paid Medicare Advantage plans an average of $1.30 for every $1 in additional benefits they delivered.

If insurers become more efficient, they can still provide some extra benefits and offer other inducements to enroll, despite the cuts in excessive payments.  (In fact, Medicare originally allowed insurers to provide additional benefits only if they covered Medicare beneficiaries at less cost than regular Medicare.)

CBO projects that Medicare Advantage plans will continue to thrive.  It expects enrollment in Medicare Advantage (plus some other, much smaller plans that predated Medicare Advantage) to grow from 13 million last year to 18 million by 2019, even with health reform.  That’s hardly a sign of the program’s impending collapse.

A House subcommittee is putting health reform in the hot seat again today, when it holds a hearing on the “looming premium rate shock” that health insurers have warned about.  But widespread rate shock isn’t looming.  In at least a few states where insurers have already proposed their 2014 premium rates, the doomsday predictions of skyrocketing premiums have not materialized.

Yes, a relatively small number of people with coverage in the existing individual insurance market can expect premium increases in 2014, particularly if they are young and healthy, are not eligible for new federal subsidies or expanded Medicaid coverage, and have a relatively skimpy plan today.  But others will pay less, and still others will be able to get better benefits for about the same premiums.

Moreover, health reform means that uninsured people and those who have health problems will no longer be shut out or priced out of the individual insurance market.  Millions of people will be eligible for new federal subsidies to help them pay their premiums and cost-sharing charges, which will offset supposed rate shock for many people.

The House Energy and Commerce Oversight and Investigations Subcommittee, collected a trove of documents from insurance companies to prepare for its hearing today.  The documents tend to emphasize the largest potential rate increases and the types of people — men, in particular — who may experience them.  Insurers developed many of these projections as the industry was lobbying to repeal or delay specific provisions of the health care law, such as the health insurance tax and new restrictions on what older people can be charged for coverage compared to younger people.  They don’t necessarily reflect the premiums these companies actually plan to charge consumers in 2014, and it’s not clear how many of the higher-rate scenarios will actually occur.

Now, the companies are preparing to sell insurance in a reformed marketplace.  We are starting to see the actual premiums that insurance companies want to charge next year, and greater transparency and competition are helping tamp down premiums, at least in some states.  In Washington state, some people would pay less in premiums or pay about the same prices for more comprehensive coverage if recently proposed premiums take effect, in contrast to what the industry had predicted.  And in Oregon, after the insurance department posted proposed rates from various insurers, two companies with relatively higher premiums said they would redo their requests and submit lower rates after seeing their competitors’ rates.

In both of those states, regulators are reviewing the insurers’ rate proposals to decide whether to approve them under health reform.  Other states are doing the same, so more data points are on the way.  We expect that they, too, will show little evidence of widespread rate shock.

Health care cost growth has slowed substantially, as the latest projections from the Congressional Budget Office (CBO) make clear  Since late 2010, CBO has reduced its projection of cumulative Medicare and Medicaid spending over the 2011-2020 period by $900 billion (or nearly 10 percent over that period).

That date’s important because it was in late 2010 — and based on CBO’s August 2010 projections — when fiscal commission co-chairs Erskine Bowles and Alan Simpson issued their original budget proposal, which called for over $300 billion in Medicare cuts and nearly $60 billion in Medicaid savings through 2020. The original Bowles-Simpson proposal is often considered an appropriate benchmark for evaluating other deficit-reduction plans.

The figure below compares CBO’s Medicare and Medicaid projections from August 2010 with the projections that CBO released last week.  (The note to the figure explains adjustments that we have made to provide comparability.)  Medicaid spending is $311 billion lower, and Medicare outlays have come down by $590 billion — far more than the savings that Bowles-Simpson recommended.

No one knows how long this good news will continue.  Some analysts conclude that fundamental changes in the health care system are responsible for most of the slowdown in cost growth.  Others find that the recession is the primary factor, with systemic changes less important.

Even if cost growth remains moderate, however, Medicare and Medicaid spending will keep rising as more baby boomers become eligible for benefits.  Making the U.S. health care system more efficient thus remains a major budget challenge.

But CBO’s new projections provide further evidence that Medicare and Medicaid are not in crisis.  Responsible reforms, such as those in President Obama’s budget (which would produce $400 billion in health care entitlement savings in the next ten years and $1trillion in savings in the subsequent decade), can help restore fiscal responsibility without shifting costs to vulnerable beneficiaries or states.  There is no need for sweeping and misguided changes, such as establishing a per capita cap in Medicaid or raising the age of eligibility for Medicare.