Tuesday, March 30, 2010

AP Analysis of Health “Reform:” Higher Premiums

The Associated Press is out with a new analysis this morning showing how the health legislation signed last week will raise premiums for young adults.  Specifically, the AP’s analysis, conducted by a subsidiary of the Rand Institute, found that the narrower community rating provisions will raise premiums for individuals under age 35 by 17%, or nearly $500 per year.  Moreover, the analysis only examined the impact of community rating, and did NOT analyze the impact of the richer benefits package required under the law; the Congressional Budget Office found that those mandates would raise premium costs by as much as 30%, over and above the impact of the rating requirements discussed below.

These new findings will only strengthen the concern that young, healthy people will have a strong financial incentive to drop coverage and pay the tax penalty for violating the individual mandate, as many are currently doing under Massachusetts’ reform initiative.  In other words, a 17% premium increase could represent the lower bounds of what might happen if the new exchanges end up with a largely (if not exclusively) older, sicker population.  Regardless, after spending $2.6 trillion on a government takeover of health care, many may question how rising premiums – which violate the President’s campaign promise to lower insurance costs by $2,500 “by the end of my first term as President” – constitute “reform” in the first place.