Senate Bill: Do Premiums Go Up or Down?

Democratic Sen. Chuck Schumer tweeted that premiums would be 300 percent higher under the Senate Republican health care bill for a 64-year-old earning $ 56,800 in 2026, compared with current law. Republican Sen. John Barrasso said the bill “lowers the rates for insurance 30 percent a couple years from now.” Both cited the Congressional Budget Office. Who’s right? They both are.

On premiums, there’s something for both parties in the nonpartisan CBO’s analysis of the GOP’s Better Care Reconciliation Act.

That bill — just like the Affordable Care Act, and the House Republicans’ bill — would affect premiums on the individual market in different ways, depending on individual circumstances. Let’s go through the details.

It’s all about the individual market. We’ve said this time and time again: These claims about premiums concern a relatively small segment of the insurance market where those without employer plans or coverage through a program like Medicaid buy their own insurance. About 7 percent of Americans buy individual, or nongroup, market plans, while 49 percent get coverage through employers. But politicians often leave out that important detail, perhaps giving the impression that all premiums would be significantly affected.

It’s compared with current law — the Affordable Care Act. The price of insurance isn’t something that typically goes down. The figures that Schumer, Barrasso (who made his comment at a press conference on June 27) and the CBO use are compared with current law. So, a 30 percent decrease in a few years may still be an increase from what premiums are right now.

What does happen in the next few years? “The legislation would increase average premiums in the nongroup market prior to 2020 and lower average premiums thereafter, relative to projections under current law,” the report by the CBO and Joint Committee on Taxation says. The report considers premiums for benchmark plans — currently the second-lowest cost silver plan — which are used to calculate the amount of tax credits.

In 2018, average benchmark premiums for single individuals “would be about 20 percent higher” than under current law, the CBO said, “mainly because the penalty for not having insurance would be eliminated, inducing fewer comparatively healthy people to sign up.” The following year, average premiums would be about 10 percent higher than under current law, but by 2020, the average premiums “would be about 30 percent lower than under current law.”

Why the drop? The Senate bill would use a less expensive benchmark plan starting in 2020. That year, benchmark plans would pay a smaller percentage of benefits than under current law. Plus, CBO said, funding in the bill to directly reduce premiums would do exactly that.

The current benchmark plans have an actuarial value of 70 percent, which means they pay, on average, 70 percent of the cost of benefits that are covered. The Senate plan would lower the actuarial value to 58 percent. So those benchmark plans pay out a lower percentage of covered benefit costs, on average, but that means the premiums are lower. It also means, CBO said, that the deductibles for those benchmark plans would be higher than the deductibles for benchmark plans under current law.

In about a decade — in 2026 — average benchmark plan premiums in “most of the country” would be about 20 percent below what we’d see under current law, CBO said. It notes that the averages for 2020 and 2026 include a wide range of impacts in different parts of the country, partly because of waivers some states would get to change required benefits or other aspects of the individual market.

Why would some 64-year-olds see a big increase? The Senate bill, as does the House GOP bill, allows insurers to charge older Americans five times as much as younger Americans for premiums (starting in 2019). The ratio under the ACA, or current law, is 3:1. This means premium costs for older individuals will be higher under the legislation than under current law.

For example, CBO estimates that a premium for a bronze-level plan for a 64-year-old in 2026 — not including any tax credits — would be $ 12,900 for the year under current law and $ 16,000 under the Senate bill. The difference is greater for a silver plan — $ 15,300 under the ACA and $ 20,500 under the Senate bill. A 21-year-old, however, would see lower premiums under the Senate plan ($ 3,200 for a bronze plan versus $ 4,300 under current law).

Schumer’s tweet was about a 64-year-old earning $ 56,800. That’s 375 percent of the federal poverty level in 2026, making that person eligible for tax credits under the ACA but not under the Senate bill, which cuts off subsidies after income of 350 percent of the poverty level. When it comes to how the bill could affect net premium costs, the change in subsidies adds another layer of complexity.

What about subsidies and out-of-pocket costs? Many buying plans on the individual market don’t pay the full premiums, because they get tax credits that reduce the cost. The Affordable Care Act provides tax credits to those earning between 100 percent and 400 percent of the federal poverty level. The Senate bill would make them available to those earning between 0 percent and 350 percent of the poverty level. And it would adjust those credits based on age for those earning above 150 percent, so that younger individuals pay less toward their premiums.

That, coupled with the 5:1 pricing variation based on age, is bad news for a 64-year-old earning $ 56,800 in 2026, an income level above the tax-credit cut-off. Schumer’s tweet included a graphic that said: “According to CBO, Congress’ Non-Partisan Budget Office: In 2026, if you’re 64 years old with an income of $ 56,800, under current law, you pay a $ 6,800 premium for a silver plan. Under the Senate GOP bill, you’ll pay a $ 20,500 premium for that plan. That’s a premium increase of 300%.” That’s an accurate summary of the CBO report (see Table 5).

A 40-year-old, single person earning that much or more wouldn’t see much of a difference in premium costs. And a 21-year-old earning $ 56,800 or more would pay about $ 1,000 less under the Senate bill for a yearly premium compared with current law, whether it’s a bronze- or silver-level plan, according to CBO’s projections. If that 21-year-old earned only $ 26,500 (175 percent of the poverty level in 2026), the situation is reversed: That person would pay less under current law.

CBO doesn’t provide estimates on family premiums.

And then there are out-of-pocket costs to consider. One reason benchmark premiums are lower on average under the Senate bill is because those plans cover a lower percentage of benefit costs. Some people — say, the young and healthy — would rather have the lower premium and a higher deductible or copay; others wouldn’t. CBO said: “Some people enrolled in nongroup insurance would experience substantial increases in what they would spend on health care even though benchmark premiums would decline, on average, in 2020 and later years.”

Also, in 2020, the Senate bill eliminates cost-sharing subsidies that lower out-of-pocket costs for those earning between 100 percent and 250 percent of the poverty level.

Determining the individual impact. Changes to the individual market made by the ACA, and the proposed changes under the Senate Republican bill, would affect people differently, depending on a variety of circumstances — age, income and health spending, among them. To get an idea of how the Senate bill could change premiums for you personally, use the nonpartisan Kaiser Family Foundation’s interactive map.

CBO’s Table 5 also gives scenarios for three different ages and four different income levels. In general, be wary of politicians’ claims about premiums going up or down. They may be referring to specific situations, and even averages don’t tell the whole story. As the CBO report shows, there’s great variation on how premiums would change under the Senate bill, depending on the individual person.

Editor’s Note: Please see our item “The Facts on the GOP Health Care Bills” for more about the House and Senate bills and how they compare with each other and the Affordable Care Act.

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