New CBO Report on Health Care Legislation (Excise Tax )

As BTD has been writing this morning, the new CBO report (pdf) is out crunching numbers on the proposed health care legislation. For those interested in the effect of the excise tax on high-end, small-group insurance plans, here's my take on what it says (shorter verison: ditch your plan for one providing fewer benefits if you want to avoid higher premiums):

First, what the excise tax is:

Beginning in 2013, insurance policies with relatively high premiums would be subject to a 40 percent excise tax on the amount by which the premiums exceeded a specified threshold. That threshold would be set initially at $8,500 for single policies and $23,000 for family policies (with certain exceptions); after 2013, those amounts would be indexed to overall inflation plus 1 percentage point.

Next: the effects of the excise tax on high-premium insurance policies offered through employers: [More...]

On balance, the average premium among the affected workers would be about 9 percent to 12 percent less than under current law.

Why? Because of the number of workers who would opt for lower cost plans with fewer benefits to avoid higher premiums they will face for their current plans, which will occur because the insurers will pass the cost of the excise tax onto them in the form of higher premiums:

Specifically, an estimated 19 percent of workers with employment-based coverage would be affected by the excise tax in that year. Those individuals who kept their high-premium policies would pay a higher premium than under current law, with the difference in premiums roughly equal to the amount of the tax.

However, CBO and JCT estimate that most people would avoid the cost of the excise tax by enrolling in plans that had lower premiums; those reductions would result from choosing plans that either pay a smaller share of covered health care costs (which would reduce premiums directly as well as indirectly by leading to less use of covered medical services), manage benefits more tightly, or cover fewer services.

....Thus, people who remained in high-premium plans would pay higher premiums under the excise tax than under current law, and people who shifted to lower-premium plans would pay lower premiums under the excise tax than under current law—with other factors held constant.

So the excise tax will lower premiums because we'll be switching to plans with lesser and fewer benefits to avoid the increase in premiums we'd face if we kept our current plans since the insurers will be passing the excise tax onto us.

More on the passing of fees to the consumer:

The legislation would impose several new fees on firms in the health sector. New fees would be imposed on providers of health insurance and on manufacturers and importers of medical devices. Both of those fees would be largely passed through to consumers in the form of higher premiums for private coverage.

Since premiums seem to rise every year anyway, I can't say that premiums for these plans wouldn't be as high or higher in 2013 if we didn't pass the legislation and excise tax. Thoughts?

< CBO: Health Insurance Premium Assistance Bill Hindered By Exchanges | Inviting Ridicule >
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    I think (5.00 / 1) (#1)
    by dissenter on Mon Nov 30, 2009 at 01:33:12 PM EST
    This is the worst bill I have ever seen. First I will get hit with excise taxes because my business is too small to negotiate for decent rates. Contrary to what a guy said down a few threads small business premiums are in fact tied to age. So assuming that I could be on the exchange my premiums will be too high so I will get taxed.

    But alas we couldn't even be on the exchange. My husband is a LEGAL US resident but wouldn't be able to be in the exchange for five years despite the fact he pays US taxes. I guess this means we would not be able to actually get insurance that we could afford so then we would get to pay penalty taxes for not having insurance.

    And what makes this even richer is that we risk our lives all over the globe for the US Govt (which contrary to popular belief) doesn't pay health insurance premiums for contractors who do USAID work. They will cover us for injuries in a war zone but they don't pay regular health insurance which covers illnesses in the States.

    Add this to another popular myth (seen quite regularly on the Rachel Maddow show) that people who work in afghanistan are all rich gunslingers with foreign bank accounts. Most of us are USAID contractors that don't make much more money than we would in the States and we pay lots of taxes in the US including self employment tax (even though we are there at the behest of the US Govt). Having chosen a profession that helps people you then get to go to your insurance company and say, "hey I do work for the State Dept in Afghanistan will you insure me" and see what their reaction is to you. Then tell them your age. Double smack a roo. And from this, I am now a rich insurance holder in addition to a child killer in the eyes of half the media.

    Yes, what a fine, fair country we live in. Maybe I would be better off just to lose my house and collect food stamps because all I am doing at this point in paying taxes for everyone else.

    This bill is so bad it is beyond insulting. It is bad policy on every level and I am sick and tired of listening to talking heads with their safe jobs and insurance in DC telling everyone else to pay the health care bills for everyone else when others can barely survive. We aren't living in the 1950's. Millions of Americans pay full price for health benefits only to find out the insurance extortion scheme now labels them rich.

    Pretty soon, we will be nothing but a country of contractors.

    IMO the goal has shifted from (5.00 / 1) (#2)
    by MO Blue on Mon Nov 30, 2009 at 02:10:12 PM EST
    providing good quality health care for all to shifting more of the costs of care to individuals while allowing insurers and pharma increase rates at will.

    According to whitehouse.gov
    premiums rose 6.2% over inflation in 2009.

    Health insurance premiums for American families continue to skyrocket.  A report released by
    the Kaiser Family Foundation (KFF) on September 15th, reported that the average annual family
    premium for employer-sponsored health insurance rose to $13,375 in 2009.1  This represents an
    increase of 5.5 percent increase in premiums for families in the past year when inflation actually fell by 0.7 percent. .  

    Yep and just how many people who (5.00 / 1) (#3)
    by inclusiveheart on Mon Nov 30, 2009 at 02:48:34 PM EST
    will no longer be barred by insurance companies from purchasing coverage because of a pre-existing condition will actually be able to afford the coverage they need?

    The whole reason that this debate came to the fore was that fewer and fewer people were able to find affordable coverage; and that those who were paying for coverage were not really covered it turns out.  

    The problem was never that the private insurers weren't able to charge high premiums for lesser coverage - they have been charging too much for substandard service for sometime now and that is what so angered so many people that healthcare reform became a hot political issue.

    Now we have a bill that punishes people who have decent coverage.  So much about this bill does exactly the opposite of what a rational interpretation of reform was supposed to do.  

    And just in case anyone has forgotten reform had three key elements:

    1. Increase access to healthcare services.
    2. Provide affordability.
    3. Control costs.

    Not one of these stated goals is really being delivered; and the second two are probably going to be undermined by this bill which will in turn probably erode the very modest gains that things like the expansion of Medicaid would garner in terms of expanding access.

    I'm confused (none / 0) (#4)
    by ZtoA on Mon Nov 30, 2009 at 02:59:04 PM EST
    as a self employed person who has been repeatedly denied insurance because of a pre-existing, does this mean insurance companies will have to cover me at uncontrolled premium costs which I will be mandated to buy (whether I can afford to or not) and then taxed on top of that?

    Or the young people just getting out of college who cannot find full time work with benefits.... and who have pre-existing conditions - are they in the same boat?

    These demographics are not that rare. Would seem to be not the best thing for the general consumer driven economy.

    Krugman Sez: CBO says New Bill is Awesome (none / 0) (#5)
    by Dan the Man on Mon Nov 30, 2009 at 04:59:14 PM EST

    "It's good news from the point of view of reform advocates: premiums would stay about the same for people with group coverage, while falling significantly for most of those in the small-group or individual markets."

    "But here's the thing: senior Republican politicians suffer from reading comprehension. (To be fair, the CBO report is written in a remarkably elliptical style). Several have already claimed that the report shows that premiums will rise."

    And in this fantasy world (none / 0) (#6)
    by dissenter on Mon Nov 30, 2009 at 06:12:32 PM EST
    Everyone lives in the same place, with the same taxes, the same cost of living and the same job opportunities.



    What a P.O.S. (none / 0) (#7)
    by Abdul Abulbul Amir on Mon Nov 30, 2009 at 06:21:31 PM EST
    The senate bill really is a piece of stuff.

    Many consumers will see the price of their health care premiums increase.  Consumers that are happy with the covedrage policy of their current carrier will have no choice but to see those policies go away.  

    It has a one size fits all features and prices approach.  When cut back from full time work to part time, I increased the deductables on my car insurance to lower the premiums.  Not with the POS senate bill.  Gak!

    Never did I think (none / 0) (#8)
    by Lora on Mon Nov 30, 2009 at 06:34:13 PM EST
    Obama and the Dems would deliver any meaningful health care reform.

    So far I haven't seen any evidence to suggest otherwise.

    Here are my thoughts (none / 0) (#9)
    by FreakyBeaky on Mon Nov 30, 2009 at 11:59:58 PM EST
    Capitalism 101 says that businesses maximize their profits by keeping expenses as low as possible and charging the highest price the market will bear.  Arguments by or on behalf of business and industry that they will pass their costs on to their customers are therefore usually bunk, and they make me tired.  An ordinary business that knows what it is doing is already charging as high a price as is humanly and economically possible.  

    But suppose the business in question is not ordinary.  Suppose it is big and powerful enough to exercise monopoly power, and is able to manipulate the market, and to a certain extent dictate prices regardless.  Sound like any businesses you know?  Oil?  Health insurance, perhaps?  You don't say.

    So when the health insurance industry says it will pass its costs on to the consumer, I hear it saying two things:  "We can raise prices any time we want, and the health plan tax will be this year's justification," and "We are in dire need of stronger regulation and a windfall profits tax to protect our customers, and to create the semblance of a level economic playing field."

    The bottom line is premiums are likely going up absent tackling health care, and may be going up anyway (CBO says no - I hope they are right).  As this continues, you will see businesses and individuals dropping so-called "Cadillac" health insurance, and paying just as much or more for plans with fewer benefits.  The Caddy plans will be marketed to those who are price-insensitive (I think these are called the "haves and have-mores"), and more people and businesses will be pushed out of the health insurance market entirely.  Profits will still be obscene, though, because the remaining customers will be paying more.  

    Probably more thoughts than you were interested in, but what the hell, they're free (and worth every penny).