CBO's Analysis of Premiums Under the Chairman's Mark of the America's Healthy Future Act

September 23, 2009

Yesterday CBO released a letter responding to questions from the Chairman of the Senate Finance Committee about the subsidies offered through the insurance exchanges and enrollees payments for that coverage under the specifications for the Chairmans mark for proposed health care legislation that were provided by the staff of the Finance Committee on September 15, 2009. It also discusses the factors that affect a comparison of those figures to the amounts that individuals and families would pay, on average, for employment-based coverage or individually purchased policies under current law. CBO has not completed a review of the document entitled Chairmans Mark, Americas Healthy Future Act, which CBO understands has been subsequently modified.

Subsidies and Payments Under the Proposal

CBO analyzed the subsidies that enrollees would receive for premiums and cost sharingand the amounts they would have to pay, on averageif they purchased coverage in the new insurance exchanges that would be established under the Chairmans proposal. Those subsidies and payments would vary depending on an individuals or familys income relative to the federal poverty level (FPL). The table accompanying that letter illustrates average subsidies and payments for single individuals and families of four at different income levels in 2016, based on the estimates that CBO and the staff of the Joint Committee on Taxation (JCT) have developed for that proposal.

The analysis focuses on enrollees who purchase one of the low-cost silver plans offered in the exchanges because federal subsidies would be tied to the premiums of those plans. Such a plan would have an actuarial value of 70 percent, which represents the average share of costs for covered benefits that would be paid by the plan. Under the proposal, premiums would vary by geographic area to reflect differences in average spending for health care and would also vary by age, but the table shows the approximate national average of premiumsabout $4,700 for single policies and about $14,400 for family policies in 2016. Enrollees could purchase more extensive coverage or a more expensive plan for an additional premium.

Those projected premium amounts include the effect of the fees that would be imposed under the proposal on manufacturers and importers of brand name drugs and medical devices, on health insurance providers, and on clinical laboratories. Those fees would increase costs for the affected firms, which would be passed on to purchasers and would ultimately raise insurance premiums by a corresponding amount. According to JCTs estimate, those fees would add about 1 percent to the affected premiums. The projected premium amounts for exchange plans do not include the effect of the excise tax on insurance plans with relatively high premiums, because individually purchased plans would not be subject to that excise tax.

Under the proposal, the maximum share of income that enrollees would have to pay for a low-cost silver plan in 2013 would range from 3 percent for those with income equal to the FPL to 13 percent for those with income equal to 300 percent of the FPL. Those with income between 300 percent and 400 percent of the FPL would have the same 13 percent cap. After 2013, those income caps would all be indexed so that the share of the premiums that enrollees paid (in each income band) would be maintained over time. As a result, the income caps would gradually become higher over time; they are estimated to range from 3.2 percent to 13.9 percent in 2016. A family of four, for example, would have to pay premiums of about $1,400 if its income was $30,000 (about 125 percent of the projected FPL in 2016), or $8,300 if its income was $66,000 (or 275 percent of the FPL).

The magnitude of the premium subsidy that enrollees received would depend on how the premiums compared to those income caps. According to the estimate by CBO and JCT, the average premiums for a low-cost silver plan for an individual in 2016 would be less than the 13.9 percent cap on premiums as a share of income that would apply in that year for single people with income above roughly 300 percent of the FPLso no subsidy would be projected for those with income higher than that amount. Our analysis also indicates that families with income equal to 400 percent of the FPL would probably receive some subsidy because the expected family premiums in 2016 would exceed 13.9 percent of their income (about $96,000 in 2016).

Under the proposal, enrollees with income below 200 percent of the FPL would also be given cost-sharing subsidies to raise the actuarial value of their coverage to either 90 percent (for those with income between 100 percent and 150 percent of the FPL) or 80 percent (for those between with income between 150 percent and 200 percent of the FPL).

CBO also estimated the sum of enrollee premiums and average cost-sharing amounts for the middle of each income band and the average share of income that such spending would represent. For single enrollees, premiums plus cost-sharing payments would range from about $1,200 for those with income of about $14,700, to $6,300 for those with income above $34,000. For families, premiums plus cost-sharing payments would range from about $2,900 for those with income of $30,000, to nearly $20,000 for those with income above $96,000.

Comparisons with Arrangements Under Current Law

To put those figures in perspective, the amounts of premiums and cost sharing in the proposed insurance exchanges can be compared with the amounts people would pay in that same year under current law, either for employment-based coverage or for individually purchased (nongroup) coverage. Under current law, average premiums for employment-based coverage, the primary source of health insurance for the non-elderly population, are expected to be about $7,500 for a single policy and about $19,000 for a family policy in 2016; average premiums for non-group coverage in 2016 are projected to be about $6,000 for individuals and about $11,000 for family coverage.

Making appropriate comparisons is difficult, however, because insurance premiums can vary under current lawand thus can differ from premiums under a proposalfor many reasonssome of which would tend to make exchange premiums higher than current-law premiums and some of which would tend to make them lower. Differences could be affected by the extent of the coverage that is provided; the rates and methods used to pay providers of health care; the quantity and intensity of services provided; the insurers' administrative costs; state regulations; the employment status of those insured and employers' decisions about offering coverage; and the underlying health of the enrollee pool. The differences in premiums would partly reflect differences in the actuarial value of insurance plans, so there would be differences in cost-sharing requirements that would have the opposite effects on household budgets (other factors held equal). Further, the characteristics of people enrolled in the proposed exchanges would differ from the characteristics of people enrolled in employment-based coverage or the individual market under current law, so differences in average premiums would not equal the differences in premiums faced by a given group of enrollees across those different settings. In light of those complexities, quantifying the net effects of the Chairmans proposal on the amounts paid by individuals and families to obtain health care is very difficult. CBO has not modeled all of those factors and cannot quantify them or calculate the net effects at this time.