Don't Put Too Much Faith In Kaiser Foundation Subsidy Calculator

The Kaiser Family Foundation is a often a good source of health care information. I appreciated what they a trying to do with their subsidy calculator, but, unfortunately, it could leave many Americans with a false impression of how much reform will cost them once the bill is implemented.

The issue is that the calculator is presenting the results “in terms of 2009 premium and income levels to enable better comparisons to current circumstances.” This glosses over the biggest problem with our health care system. Not only does our health care cost too much now, but our health care inflation is out of control. For example, for the last several years the average premiums for a family of four have been increasing by roughly a $1,000 a year. I don't think most economists expect either reform bill to really reduce the growth rate in premiums over the next five years, and I doubt there is a single economist who will bet premiums will not grow at a rate faster than wages over the next five years.

By calculating results in today's dollars and premiums, the subsidy calculator will give a segment of people an unduly rosy prediction about how much insurance will cost as a result of reform and the affordability tax credits. For people who the calculator currently says will receive subsidies, the relative cost of their health insurance premiums compared to their income should be similar to what it will be in 2015 when reform is fully underway (since tax credits are determined by a percentage of income). But for people who make over 400% FPL, or make less than 400% FPL, but, due to their age were told by the calculator that their premiums would be low enough they would not need tax credits, the calculation will not reflect reality.

For example, the calculator for the Senate bill says a 30-year-old single adult making $33,000 would only pay $2,676 (8.1% of their income) on health care premiums and would receive no subsidies using today's premium prices. While this might be true if the rules in the bill were already in place in 2009, reforms will not really be in effect until 2014. Premiums are sure to rise faster than wages between now and 2015. By 2015, it is very *likely that insurance premiums for a 30-year-old will be much higher than 8.1% of his income, and probably higher than 9.8% (the limit at which one starts getting government subsidies).

The Kasier Family Foundation subsidies calculator is a useful but flawed tool. They can not actually predict what the exact growth rate in premiums will be between now and when reform starts, so the calculator ignores this important variable by making all the calculations based on today's costs and wages. For some, the calculator will be a relatively accurate prediction of relative premium costs compared to income. But, for a significant segment of people, the calculator is giving individuals the false impression that their premiums would be noticeably lower than they will almost certainly turn out to be.