Because I have received numerous questions about this CBO letter, both on the website and via email, I will present a deeper analysis of the report.
The goal of the health care legislation is to lower the cost of health care; however, the letter states in many places and for many occasions the cost of health care will rise as a result of the proposed law.
People less than 400% of the Federal Poverty Level will receive subsidies:
the amount that subsidized enrollees would pay for nongroup coverage would be roughly 56 percent to 59 percent lower, on average, than the nongroup premiums charged under current law (page 7).
This, however, should not be confused with lowering the cost, as the cost burden is simply from individual consumers onto the federal government, which, of course, gets the money from ‘somewhere’ (a term I use loosely). The federal government will either pay for the cost burden through taxes, which comes from a larger pool of consumers, or the federal government will simply borrow the money from the Federal Reserve, and the Fed simply creates the money out of thin air, in the same manner that the Fed creates all money. The subsidy plan, then, only shifts the cost burden onto a larger group of consumers or increases the national debt.
According to page 24, the number of people receiving subsidies will be about 18 million, with the subsidies paying two-thirds or just under 67% of their insurance premiums. This means that 18 million will be more able to pay for medical services under the plan; this will lead to an increase in the demand for medical services, which, overtime, will lead to higher premium costs.
As stated on page 24, about 5 million people will not receive subsidies, and as stated on page 6, their premiums are expected to increase; in some cases families will experience an increase of $2000 per policy.
Further, the plan imposes an excise tax on high-premium insurance plans:
The tax on such policies would be 40 percent of the amount by which the premium exceeded the threshold. In general, that threshold would be set at $8,500 for single policies and $23,000 for family policies in 2013 (the first year in which the tax would be levied), although a number of temporary and permanent exceptions would apply. After 2013, those dollar amounts would be indexed to overall inflation plus 1 percentage point. CBO and JCT estimate that, under current law, about 19 percent of employment-based policies would have premiums that exceeded the threshold in 2016. [. . .] For policies whose premiums remained above the threshold, the tax would probably be passed through as a roughly corresponding increase in premiums (page 25).
The purpose of the excise tax on high-premium insurance is to reduce or eliminate such policies from the market; in other words, the plan uses fiscal policy to change the market rationing of certain health insurance plans, i.e. a rationing of care.
