ALEXANDRIA, VA -- The Congressional Budget Office (CBO) released on Monday, Nov. 30, an analysis of the impact of the Senate's health care reform bill on health insurance premiums. The analysis is important in light of President Obama's promise that health insurance premiums would be $2,500 lower under his proposal by the end of his first term in office.

What the CBO analysis shows is that health insurance premiums will be going up, not down --and by a lot. However, CAHI believes the CBO estimate significantly underestimates the premium increase, especially in the individual (i.e., nongroup) health insurance market.

CAHI's original estimate in our Community Rating Study predicts that health insurance premiums will nearly double in the nongroup market. That's in part due to the adverse selection that will occur under the new proposals. People who can buy health insurance when they need it (i.e., guaranteed issue) will have an incentive to wait until they need coverage, especially if the penalty for not buying coverage is low.

The CBO estimate seems to assume that the cost for the uninsured entering the market will be lower than the average already in the market. But that will only be true if the young, healthy uninsured actually buy coverage. Yet they tend to have lower incomes and have the least to gain by buying coverage now if they can't be denied later. As a result, the lower-cost young may postpone joining.

We also know there will be a pent-up demand for care, both from the uninsured and those who are getting expanded coverage. The result will be an increased demand at the same time that people will be less sensitive to costs. Put the two together and you have a blueprint for higher costs.

In short, CAHI thinks the CBO analysis, while helpful and moving in the right direction, significantly underestimates the premium increases. We expect that once all the new regulations hit to see premiums double almost immediately in the individual market, with significant, though lower, increases in the group market. And premiums will continue a sharp rise after that. How do we know? That has been the experience of every state that has passed similar legislation, and CAHI explored the subject extensively in Destroying Insurance Markets by Conrad Meier.

The Senate bill breaks the president's promise to lower the cost of health insurance and should be rejected. It's time to start from scratch with reforms that engage the consumer and encourage patients to be value-conscious health care shoppers. Empowering patients, not government, is the only way to lower health care costs.

About the Council for Affordable Health Insurance

Founded in 1992, CAHI is a nonprofit, nonpartisan research and advocacy association whose mission is to promote access, affordability and choice in American health care. CAHI's membership includes health insurance companies (active in the individual, small group, HSA and senior markets), small businesses, physicians, actuaries and insurance producers and brokers.

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