Let’s hear from the Democrats

The DNC begins its convention in Charlotte today, one week after a reasonably successful Republican convention in Tampa.  (That is if you measure success by a 6-point bump in the polls.)  A stark difference between the two parties will be their approach to President Obama’s signature domestic policy achievement, the Affordable Care Act.  The Republican mantra “Repeal and Replace” was repeated frequently.

 Preconvention comments indicate that the Democrat’s talking points will focus on 3 points: dependents will be able to stay on their parents’ insurance until age 26, contraceptives will be available without copay, and insurance cannot be denied due to pre-existing conditions.  You probably won’t hear much about $716 billion in cuts to Medicare, the individual mandate and tax to ensure participation, or the billions in other taxes to pay for it all.  You will hear about Paul Ryan’s plan to change Medicare as we know it, but you probably will not hear that the Dem’s own Ron Wyden of Oregon is a cosponsor of the legislative proposal. 

You also won’t hear much from Jonathan Gruber, Harvard economist and expert on health policy matters.  You see, in 2009 Gruber using his own micro-simulation model predicted that by 2016 premiums in the individual insurance market would be 13% lower for young people and 31% lower for older Americans.  At the same time the consulting firm PriceWaterhouseCoopers came out with a study that reached far different conclusions.  Instead of lowering premiums, they predicted that those same premiums would be 47% higher.  It was widely publicized that the PWC study was funded by the American Health Insurance Plans.  Waffling members of Congress were appalled that AHIP would resort to such underhanded tactics in their opposition.  Little did they realize that Gruber was not as “objective” as they thought.  He actually served as an outside adviser to the President.  Gruber carried the day and the legislation passed. 

Fast forward to today and Gruber is telling a different story.  Consulting for state legislatures in Wisconsin, Minnesota, and Colorado, his simulation model now seems to indicate that premiums in the state exchanges will rise, not fall.  In Wisconsin they will go up 30% because of the ACA, in Minnesota it will be a 29% increase, and in Colorado the increase will be a modest 19%. 

Why the different conclusions?  Adverse selection will be a bigger problem than originally thought.  Actually, PWC took it into consideration in their study in 2009, but Gruber did not.  During the reform debate, the President stated repeatedly that annual premiums for the average family would fall $2,500.  This will not happen.  More liberal benefits, lower out-of-pocket spending requirements, and generous subsidies serve to increase demand.  Those who qualify for expanded Medicaid will benefit as will low income workers who qualify for subsidies.  But as we’re used to hearing: “There is no such thing as a free lunch.”  Somebody will pay and in this case it will be US taxpayers.   

All week I plan on considering the ACA’s impact on different aspects of the economy and the various stakeholders.  Summarizing the impact on health insurance premiums is easy, they will increase.

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