Reading Between the Lies

Before you begin reading this blog, I need to warn you about something: It’s long and may seem overwhelming, but I strongly encourage you to read it. I’ve tried to be clear and concise to the best of my abilities. Once you understand this particular point versus what we’ve been told, you’ll begin to see why we need to question the information we’ve been given. It is definitely worth finishing, and I’d be glad to answer any questions anyone has to the best of my abilities.

On Monday (July 19, 2010), I had the pleasure of speaking to a nice lady at Senator Evan Bayh’s DC office. And I do mean it; she was very kind and listened to everything I had to say. But before we get into that call, we first need to review some statements made by our government.

Before my call, I reviewed a report created by the Congressional Budget Office (CBO) for none other than Senator Bayh. In summary, the report was to determine the net effects on the pricing of premiums under the new legislation. The document was sent to Senator Bayh on November 30, 2009, and the CBO has determined that although they “have not updated those estimates, the effects of the enacted legislation are expected to be quite similar.” (Read the report here.)

That document was to be my starting point to review information from a variety of government sources. My plan wasn’t to contradict anything in the report (although I question some of the data in it). In fact, my arguments assume that the data is correct, and that’s the biggest problem I have with what’s being presented by politicians. It doesn’t line up with their own data if you look at what the CBO has reported. Plus, you need to keep one thing in mind: at least twice (pages 9 and 27), the CBO refers to “the substantial degree of uncertainty” and “the considerable uncertainty” surrounding these estimates. But since the politicians are treating this report as gospel truth, so will we for the purpose of this blog.

Also, I need to make some clarifications of terminology. People enrolled in a plan before March 23, 2010 can be grandfathered in that plan. (The CBO referred to these plans as being under current law at the time the report was written.) In other words, some of the new benefit requirements do not need to be applied to them. They get a free pass on some of the legislation, sort of. If you enroll in a new plan on March 23 or later, then you’ll be required to take on the new rules, which will bring some new benefits (and other stuff) in the future. These are nongrandfathered plans, or plans under the new healthcare reform.

During my call with Senator Bayh’s office, I wanted to focus in particular on one piece of information on the White House website because obviously, I knew they wouldn’t have time to address all of my concerns in one phone call. And if this were wrong, who knows what else could be wrong? The questions I had were in regards to individual, or nongroup, health insurance. Here’s the information, direct from the site (Read it here.)

Q: Will I pay more than I am paying today?
A: No.

• You will likely pay less---perhaps much less. If you buy coverage like you have today on your own, premiums are expected to drop by 14 to 20 percent. If you get coverage through your job, premiums could decline by up to 3 percent.
  
• In addition, many Americans buying coverage in the individual market will qualify for tax credits that reduce their premiums by an average of nearly 60 percent – and they will get better coverage than what they have today.
  

Let’s break these statements down into smaller chunks. We’ll start with the first bullet, which indicates insurance rates could drop by 14 to 20 percent for coverage like you have today. Remember, these are the grandfathered plans.

1. In actuality, the first problem arises with the question. Do you see that word today at the end of the question? According to the CBO, these rate decreases of 14% to 20% are predicted for the year 2016. Notice that President Obama implies that these rate decreases will be immediate. The chart is even entitled, “Effect of Senate Proposal on Average Premiums for Health Insurance in 2016.” How could he miss that one?
   
2. There isn't any mention of inflation for the costs of medical care, which will continue to drive up rates. The CBO must have predicted them in their work, as you’ll see below. If healthcare costs continue to rise, so will premiums.
   
3. When I called the CBO several weeks ago, they did not tell me their assumed rate of increase for premiums, so I had to guess. By 2016, the CBO predicted average rates would be $5,500 for one individual under then current law (not under reform). I guessed annual rate increases of 10%, starting in 2010. After doing some math, I calculated a starting point of about $3,100 annually in 2010. I did find a website that indicated I was close, with average rates being around $2,900 in October 2009 for one person on an individual plan. So if you get the best decrease of 20% in 2016, you’ll be paying $4,400 (80% of $5,500), which is $1,300 more than you’re paying today. As a side note, the CBO estimated the cost for one individual insurance policy to be $5,800 in 2016 under the healthcare reform. Isn’t that amount $300 more than what they predicted under the old law?
   
4. Now let’s examine the phrase “if you buy coverage like you have today.” If you haven’t figured this out yet, I hate to break it to you, but you may not be able to buy insurance like you have today by the end of the year. In fact, if you purchased it after March 23, 2010, you’re already set to get the nongrandfathered plans. If you’ve had a plan for a long time, don’t change too much about your plan or else you may have to kiss that grandfathered version good-bye. And don’t even think about changing insurers. So in reality, you can’t “buy” coverage like you have today. The best you may be allowed to do is renew what you currently have. Pretty sneaky, huh?
   
5. The CBO predicted rates in 2016 by examining three broad categories, two of which reduce rates, and compared the effects of changing the law to doing nothing. Essentially, the CBO compared grandfathered and nongrandfathered plans to determine cost changes. For example, let’s say a grandfathered plan has a premium of $1,000. Then a nongrandfathered plan would have a rate of $800, with the 20% decrease. You can’t turn around and decrease the grandfathered plans by 20% as well to make them $800. Otherwise, there would not be any net change. Consider it this way. Both Store A and Store B sell goods for the exact same price. Store B then makes some administration decision so they can lower their prices by 20%. Now Store B is 20% lower in cost than Store A, a valid comparison. But if Store A also reduces their prices by 20%, then you can no longer say Store B is 20% lower. True, both stores are 20% lower than their original price, but in comparison to each other, they are exactly the same. So by lowering both grandfathered and nongrandathered plans by 20% as Obama states will happen, the CBO couldn't say that one will be 20% less than the other.
   
6. But that’s not the only deception President Obama has in those numbers. Half of that 14% to 20% discount supposedly comes from a decrease in administration costs for insurance plans due to the new rules. However, those rules may not all apply to grandfathered plans.
   
7. The other half of that discount is from “economies of scale,” so to speak. There will be more healthy people enrolled in the plan, so that should reduce costs, right? Oh, yeah, there’s that crazy March 23 date, though. The problem here – insurers can’t add people to the grandfathered plans any more. Gotcha!

One could potentially make a few counterpoints to my arguments above. For example, if you can save money in the nongrandfathered plans, those savings could be passed on to people in the grandfathered plans as well, but that’s up to the insurance company’s discretion. Additionally, due to the benefit options and rates, young, healthy adults are the ones most likely to remain on grandfathered plans, if they got them before March 23. As a result, there should be fewer claims in them, which would keep down costs. Finally, one could say that the CBO was comparing plans in general under the two versions of the law, not comparing grandfathered to nongrandfathered. Is there a difference? I don’t really know, and I don’t think I’ll find anyone who does.

I warned you that there was a lot of material here, and we’ve only covered the first bullet point. Before we continue, read the second bullet point again. Does it sound like you will not only save up to 20%, but perhaps another 60% as well, for a whopping 80% discount? Sound true good to be true? Well, it is.

1. Don’t let the phrase “in addition” fool you; the numbers can’t be added together. If your current premium is $1,000, you won’t be paying $200 after an 80 percent discount. We must take one discount at a time. First, we’d take off 20 percent, or $200, bringing the new premium amount to $800. Then we’d get an average of 60 percent from tax credits, which amounts to another $480. So after we subtract the $480 from $800, we’re left with a $320 premium, not that lovely $200 premium.
   
2. But even $320 sounds great, right? Well, it’s not the whole story. The CBO predicted that rates under the new law would be 10% to 13% higher in 2016, not lower. In reality, your premium is going to be more than what you’re paying now. You could get some tax credits and subsidies, but technically, it’s not reducing your premiums being paid to insurers. But if you subtract those from your higher premium, you’ll get to the $320 range (assuming you get the best discounts and highest subsidies).
   
3. Now here’s the real kicker. What I’ve just explained isn’t entirely true either. The two bullet points are mutually exclusive. You can’t get both. So at most, you'll save up to 60% in 2016. But since rates are going to be higher under the healthcare reform, all of that 60% decrease comes from tax credits and subsidies averaging about two-thirds of the total premium. As for that $1000 premium, you’ll be shelling out more than that. But you could get some back with the tax benefits, but it won’t bring you down to $320.
   
4. Of course, tax credits and subsidies don't just appear by magic. Someone, somewhere, has to pay the price. That either has to come from increased taxes or decreased spending.

Again, my apologies for the long blog. Unfortunately, it’s not very exciting reading, but I believe we need to be aware of the information we’re being presented. I’ve made some generalities here for ease of arguments, just like the CBO had to make in their document. However, I’ve tried to present the information as clearly and accurately as possible. And as I mentioned earlier, if you have any questions, please let me know.

And if you’re still awake, you may be wondering what Bayh’s office had to say about all this. I guess you’ll have to read the next blog.