Cutting costs, or simply shifting them?

Peter Suderman examines for Reason’s “Hit & Run” blog the difference between cutting health care costs and shifting them from one payer to another.

The administration’s premium averages are based on out-of-pocket costs after the law’s tax credits and subsidies are factored in. Those subsidies end up offsetting quite a bit of the cost of insurance under Obamacare. But if you strip away the subsidies, individual market health insurance has, on average, become significantly more expensive in the wake of Obamacare, according to a newly published analysis by the Manhattan Institute.

Relying on a 3,137 county comparison of the five cheapest individual plans available prior to Obamacare with the five cheapest plans through the exchanges, the study by health policy fellow Yevgeniy Feyman found that, on average, premiums were up 49 percent under Obamacare. Again, that’s an average, and it masks some variation—in New York, which had unusually restrictive, badly designed health insurance market rules prior to Obamacare, premiums are actually down quite a bit—but it indicates that the overall trend for unsubsidized premiums is up.

The difference, then, is being made up by federal subsidies. According to the administration’s report, those subsidies are carrying 76 percent of the total cost of subsidized insurance plans selected in the federal exchange. The out-of-pocket average is $82. But the actual average premium price, without subsidies, is $346.

To the extent that insurance is relatively cheap, it’s because taxpayers are footing a big chunk of the bill. Obamacare didn’t reduce the price of insurance; if anything it raised it—and then used tax revenues to cover the difference.

That’s frequently how subsidies work—they lower the out-of-pocket price tag, but, by separating consumers from meaningful price signals, they also distort markets in ways that drive up the overall cost, leaving the public to pick up the ever-growing tab.

Katherine Restrepo highlights the new Manhattan Institute analysis here.

Mitch Kokai / Senior Political Analyst

Mitch Kokai is senior political analyst for the John Locke Foundation. He joined JLF in December 2005 as director of communications. That followed more than four years as chie...

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