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Here’s Why CBO Projects 10% Lower Premiums Under the Republican Health Care Bill

Mother Jones

One of the surprising things about the CBO score of AHCA, the Republican health care bill, is their conclusion that premiums will fall starting in 2020. By 2026, average premiums will be 10 percent lower than they would be under Obamacare. But why? Here’s CBO:

First, the mix of people enrolled in coverage obtained in the nongroup market is anticipated to be younger, on average, than the mix under current law. Second, premiums, on average, are estimated to fall because of the elimination of actuarial value requirements, which would result in plans that cover a lower share of health care costs, on average.

….By 2026, CBO and JCT project, premiums in the nongroup market would be 20 percent to 25 percent lower for a 21-year-old and 8 percent to 10 percent lower for a 40-year-old—but 20 percent to 25 percent higher for a 64-year-old.

Hmmm. Let’s translate this into English. First, CBO assumes that premiums will go up for old people, forcing many of them to drop out of the market. Since old people have expensive premiums, fewer old people means the average for the remaining pool will be lower.1 Second, AHCA policies will cover far less of your medical expenses, so naturally they’ll be cheaper.

The chart below shows how this “reduces” average premiums. If you use CBO’s projections and do a little arithmetic assuming a modestly younger pool, you get the average premium estimate for the overall pool shown on the left. AHCA is cheaper than Obamacare.

But the current age breakdown in the Obamacare insurance pool is 28 percent young, 38 percent middle-aged, and 26 percent old. What if you assume that stays the same? You get the premium estimates in the middle.

Finally, what if you assume that AHCA paid for 87 percent of your medical bills, just like Obamacare? Then you get the premium estimate on the right.

In other words, if you compare apples to apples, AHCA produces far higher overall premiums than Obamacare.2

Note that CBO didn’t do anything wrong here. They simply did their projections based on a (correct) assumption that AHCA would be too expensive for many old people and would produce crappier policies that had higher deductibles and paid far less of your medical bills. The “average” premium is lower, but obviously not in a way that helps anybody in real life.3

1Think about it this way. If a high school sends all its A students to a magnet school across town, the school’s average GPA will go down. This is despite the fact that nobody’s grades have actually changed.

2This is a fairly extreme example because the actuarial value changes a lot (87 percent vs. 65 percent) for the cheaper policies preferred by low-income folks. CBO has a second example that uses a middle-class worker, and it produces similar but less dramatic results.

3Hardly anybody, that is. If you’re young and don’t get any medical care, then the lower premiums really do help you.

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Here’s Why CBO Projects 10% Lower Premiums Under the Republican Health Care Bill

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The GOP Controls Congress So Now It Can Change How Math Works

Mother Jones

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When Republicans took control of both houses of Congress earlier this month, they won an important new power: They can change how Congress does math.

Seriously. Republicans, led by Rep. Paul Ryan (R-Wisc.), their budget guru, are considering altering the way Congress calculates the costs of tax cuts—a move that could make big tax cuts for the rich appear less costly than they really are.

Here’s how it would work. In January, Republicans will be in charge of Congress. And that includes the Joint Committee on Taxation (JCT), which calculates how tax laws affect revenue, and the Congressional Budget Office (CBO), which produces official budget projections. Right now, when the CBO and the JCT calculate the impact of tax laws on government income, they consider how Americans might alter their behavior in response to tax rate changes. But the tax-math bodies do not evaluate how tax legislation could affect economic growth—largely because those sorts of impacts are hard to predict. Republicans have long claimed that tax cuts lead to greater economic activity that inexorably yields more tax revenues—a point much disputed. But Ryan, who in January will head up the House Ways and Means committee—which has jurisdiction over tax reform—and his fellow GOPers are looking to enshrine this Republican belief into the hard and fast calculations of Capitol Hill’s number-crunchers.

Last THIS week, in an interview with the Washington Post, Ryan said he will push to make sure that the two congressional budget scorekeepers use this accounting method when evaluating GOP tax reform legislation. Orrin Hatch (R-Utah), who will chair the Senate finance committee starting in January, said last week that he was open to implementing the change.

Ryan and Hatch can implement dynamic scoring by simply ordering the two budget scorekeepers to accept this budgeting method. Not only that, Republicans can require the CBO and JCT to use very optimistic assumptions about how tax cuts affect the economy—including people’s motivation to work, the response of the Federal Reserve, and household and business decisions on how much to work, save, and invest. Budget analysts then plug those assumptions into several models estimating economic growth, and GOPers can cherry-pick the model that produces the largest number. “The risk is that a Congress that is politically motivated takes the most unrealistic models and plugs in highly rosy assumptions,” says Chye-Ching Huang, a budget expert at the left-leaning Center on Budget and Policy Priorities.

If Republicans don’t want to make these complex choices themselves, they can install directors at the CBO and JCT who they think will use the kind of assumptions they like, Huang adds. Neither congressional Dems nor President Barack Obama can prevent any of this.

Republicans have pushed for this budget-math tweak since the Reagan days. And for years, policy wonks have debated the merits of this novel budgeting method, known as dynamic scoring. Kenneth Kies, a GOP-nominated former director of the JCT, told the Washington Examiner last week that this accounting trick falls “somewhere between pure mathematics and theology.” Because this arcane tweak can make tax cuts for the wealthy appear to cost the government less than they actually do, it is extremely appealing to Republicans. If they make this change, they could argue that new tax cuts would partly pay for themselves.

Democrats say the budgeting trick is a gimmick designed to allow Republicans to chop taxes for the rich without paying the political cost. Ryan’s office did not respond to a request for comment.

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The GOP Controls Congress So Now It Can Change How Math Works

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