White House’s Fuzzy Math on Premium Increases
Yesterday afternoon the White House released a blog posting highlighting a new Commonwealth Fund study on insurance premiums. The Administration claimed the study illustrated how the health care law “could save families over $3,000 per year.” Unfortunately, the reality of the study – which itself relies on dubious assumptions – doesn’t match the rhetoric of the claims.
The blog posting quotes the Commonwealth study: “The…researchers found that if the trends continued the ‘average premium for family coverage will rise 79 percent by 2020, to more than $23,000.’” The White House then quoted another section of the report to claim its supposed savings for families:
“If premium growth were to slow to 1 percentage point below the projected national growth rate, the cost of family coverage would drop an average of $995 annually by 2015. Annual savings for families and employers would increase to $2,323 by 2020…Even greater amounts could be saved if the annual premium growth rates were to slow by 1.5 percentage points. An average of $1,475 could be saved annually on family coverage by 2015. The savings would more than double to $3,403 annually by 2020.”
There are two serious flaws in logic with this approach, however – a convenient assumption made by the study’s authors, and a convenient omission by the White House. First, the study PRESUMES that premium growth will slow as a result of the law, without including much evidence that such a slowdown will occur.* That’s like presuming a 30% annual return on a 401(k) – you can assume it will happen, but will it really? Probably not…
Second, the White House blog posting glosses over the fact that the Commonwealth study – even under its rosy scenarios – only presumes a reduction in the increase of premiums, NOT the reduction in absolute terms the President promised. The study concludes that in 2009, premiums averaged $13,027 per family. Exhibit 5 of the study illustrates that under the maximum achievable “savings,” premiums in 2020 will be $19,938 per family – or nearly $7,000 higher than they were last year.
So in other words, under the best scenario the Administration can document, premiums over the next decade will rise by ONLY $6,911 – far from the $2,500 reduction in premiums that candidate Obama promised to deliver within his first term. This latest “success story” illustrates why, for millions of struggling American families, the “Affordable Care Act” may well turn out to be anything but.
* The Commonwealth study does cite an earlier paper by David Cutler claiming that the health care law will reduce costs by $590 billion over a decade. However, David Cutler was the also same Obama campaign adviser who co-wrote the famous memo attempting to defend candidate Obama’s assertion that his health plan would save $200 billion per year, or $2 trillion over ten years. Both memos raise an obvious question: If Cutler felt the need to reduce the estimated savings from health “reform” by more than 70 percent in two short years, why should anyone believe his revised assumption now?