The CBO’s projection that individual and family premiums will be 10% to 13% higher than otherwise is much too optimistic. The reality is likely to be much worse.

As Gene Steuerle pointed out the other day, over the course of a year more than one third of all workers suffer a bout of unemployment, leave the workforce, enter it, partially retire, move to part-time employment, get married, get divorced, have a child, or have a child leave home. And as my Health Alert pointed out, the bills before Congress have no mechanism for dealing with the problem of short-term uninsurance. Those losing coverage who are sick will quickly sign up for new insurance. Those who are healthy will wait until the next open enrollment period. And they may wait much longer.

As Steuerle notes, an individual mandate will be enforced based on two-year-old tax returns. Plus the fine for being uninsured is only $750, compared to a $5,200 premium. A little more than half the buyers (57%) in the new health insurance exchange will get subsidies but $750 may be cheaper than subsidized insurance for many of those.

In Massachusetts (with mandates and fines), individuals are enrolling, having their surgery, and then dropping out. And why not? That certainly makes financial sense. As Greg Scandlen has noted, the national uninsurance rate is only a couple of points higher than the national uninsured drivers rate — even though auto liability insurance is mandatory in all but three states.

To the degree that sick people enroll, while healthy people disenroll or go bare, average premiums will have to rise even more. Massachusetts, for example, has the highest premiums in the country.

As for group health insurance, the report projects little change from the current path — with (2016)premiums reaching $7,300 (individual) and $20,100 (family). But this ignores the 40% tax on “Cadillac plans” that will hit one out of every five workers.

The CBO report released today underscores two key facts.

First, and most important, the CBO estimates indicate that health reform will significantly lower administrative costs. This improvement will leave billions of dollars on the table to pay for extending and deepening coverage. The CBO report indicates that the average price of insurance will go down for the nongroup and small group markets and be unchanged for the large group market. In the non-group market there will be a sharp increase in the quantity of insurance that is more than offset, on the average, by subsidies buyers in that market will receive. The gross amount spent on health care will go up initially, as more people are insured and coverage is deepened. But the net cost will, on the average, go down.

To say that health reform boosts costs, if one leaves subsidies aside, is like saying that if you offer to pay for half the cost of my winter vacations, my spending on winter vacations will go up if you ignore the fact that you are paying half the cost.

Second, in any system as complicated as the U.S. system is today, health reform inevitably redistributes who pays for health care. The conclusion that the report will prove problematic may be correct, because there will be some losers as well as gainers and critics will latch on to those cases where people lose. But the right message is that administrative costs are estimated go down, leaving money on the table for covering more people and covering them better.

Senate Finance Committee Chairman Max Baucus, D-Mont., pointed out the bright side of the CBO report on premiums, and said it showed the Senate bill would lower premiums for a majority of people. Here's what he had to say in a statement today:

“The analysis we received today indicates that whether you work for a small business, a large company or you work for yourself, the vast majority of Americans will see lower premiums than they would if we don’t pass health reform. Employees of large businesses could see up to a three percent reduction in health insurance premiums compared to what they would pay if we don’t act. Tax credits for small businesses would reduce premiums up to 11 percent for employees of those companies and tax credits for individuals would cut premiums by up to 59 percent for people buying coverage in the individual market. We also learned that the millions of Americans who are underinsured – who don’t have enough coverage to prevent them from financial ruin – would be able to purchase significantly more coverage for an affordable price. This conclusion, combined with other findings in the report, clearly demonstrates that the Senate health reform bill will move our health system toward a consumer-oriented insurance market where affordable coverage is within reach for millions of Americans, no matter what size company they work for, and that’s the right direction.”

Among the cognoscenti in healthy reform, two rules have long being viewed as the sine qua non of successful health reform.

First, the reform should heap additional money on the providers of health care, lest they be displeased and sabotage the reform.

Second, the benefits from the reform should precede the pain of paying for them, lest the savvy public be displeased by the reform.

On first blush, Professor Blendon does have a point with his argument that the currently proposed reform runs the risk of violating both hallowed rules.

While the proposed reform does not actually reduce the flow of money to the providers of health care over the next decade – all cuts in provider payments under public programs are to be recycled back to providers to pay for newly insured Americans – it does not heap new money on them save, perhaps, for the health insurance industry. This runs dangerously close to violating the first rule.

Furthermore, because the White House and the Congressional designers of the reform actually wish to be fiscally responsible and not add to the deficit – a policy viewed as a form of social deviance in Washington, D.C. – and because they must not exceed some magic upper limit, they have the onset of benefits lag considerable behind the onset of Medicare cuts and higher taxes. This violates the second rule.

In this regard, the Democrats on the Hill could have learned from the previous Administration and its allies on Capitol Hill, who passed the Medicare Prescription Drug and Modernization Act of 2003 (the MMA ’03) on November 22, 2003. Republican Minority Leader of the House John Boehner, R-Ohio, who comments on this blog as well, voted for this vast new federal entitlement and could teach his colleagues across the aisle a thing or two on how to do health reform successfully.

To be sure, the benefits under the MMA ‘03 also started only in 2006 – a substantial lag in the onset of benefit, then said to be designed to make the law fit under an arbitrary budget cap of $400 billion for the first 10 years. This might seem to violate Rule No. 2. Not so. The designers of the MMA ‘03 were much too clever to commit that mistake. They designed the law so that its benefits preceded the pain of paying for them not only by a few years, but by entire decades.

How so? The answer is that no taxes at all were ever raised to pay for this new, vast federal entitlement, nor was government spending cut to pay for it. The benefits came first, and the pain of paying for them decades later. Since 2006, the cost of the MMA ‘03 entitlement has simply been added to the federal deficit and financed with public debt, a good part of it owed to China and to other foreign nations. The cuts in government spending and added taxes to pay off the accumulated deficits under the MMA ‘03 will be borne only by our children or their children.

During the period 2010-2019, for example, the MMA ’03 will, according to CMS projections, add $1 trillion to the federal deficit, and $180 billion or so more if the extra payments to the Medicare Advantage plans called for in the MMA ’03 continue.

That is how one designs and passes successful health-reform legislation in 21st century America. It is a form of statecraft the more naïve Democrats have yet to master. Perhaps one day they will.

One final thought. Even if the onset of benefits under the current health reform were made to coincide with the onset of public-spending cuts and added taxes to pay for those benefits, the pain of the payment cuts and added taxes would fall on different folks than those who most directly benefit from the reform. Thus, there would still be roughly the same amount of unrequited pain and the predictable wailing it triggers.

As Professor Blendon might remind us, the population groups who will bear the pain of paying for the reform – or who fear that their current health insurance coverage might erode -- do vote in larger percentages than do those who will reap the benefits of those reforms. This may yet turn out to be a larger problem than the lag between costs and benefits.

After all, the White House has two things they *love* to say about health "reform":

1) We have to stop kicking the can down the road and act right now, and
2) Every day we don't act 14,000 people lose health insurance

Now, what would you call enacting a bill that raises taxes on day one and doesn't implement "reform" provisions for 4 years, if not "kicking the can down the road"? And a bill that is frontloaded in taxes, such that over time we will be forced to raise taxes or grit our teeth and see extreme cuts in public programs to keep the new entitlement sustainable? Is that not kicking the can down the road? Has anyone read the CBO letter on the CLASS Act, where they are pretty clear that over time it explodes?

Or is the bill implemented in this way just to keep the official CBO score below a trillion bucks? And if so, how does the President feel about (4 years X 365 days X 14,000 people) 20 and a half million people losing health insurance because of this ploy? Especially considering that we could enact free market reform virtually over night at very low costs?

So far, the silence is deafening. If anyone who answers has cited the 14,000 number, I would love to hear his or her take on why delaying enactment for 4 years to doctor a CBO score is okay.

There is a prevailing belief among many in Washington that if enough votes can be garnered in the Congress to enact some major health care bill, it ultimately will be popular with the public and become an established part of the health policy landscape, like Medicare.

But looking back at history suggests that this outcome is not an absolute certainty. It depends on the design of the legislation and its impact during the early, most vulnerable years.

Two examples of where the story ended quite badly are the first Massachusetts universal health care bill in 1988 and the Medicare Catastrophic Insurance Act in 1988. In 1988, Massachusetts Governor Michael Dukakis signed the Health Security Act into law intended to provide universal health coverage in the state. It required all employers to contribute to their employees’ health insurance (very similar to that found in the current House bill).

The employer mandate provision was not to take effect for four years. By then public and media interest had shifted to other issues. Meanwhile, business groups remained relentless in their continuing opposition. The universal coverage provisions were never implemented and were finally repealed by the legislature. All that was left was an expansion of public programs for low-income residents and a mandate that college students should have health insurance coverage.

In the Medicare Catastrophic case, in order to make the proposed Medicare expansion deficit neutral (sound familiar?), a new surcharge was placed on the income tax of seniors. The tax was to be collected a year before the new benefits would be available. In response to what looked like a populist revolt by seniors, the law was repealed prior to any benefits ever being provided.

Political figures appeared to have learned from these failures. Both in Medicare Part D and in the second Massachusetts universal health care bill, benefits for many came early on and taxes and penalties came later.

In the Massachusetts bill enacted in 2006, subsidies for lower-middle income people to purchase private insurance were initiated early on, as were the “exchanges” where small business and individuals would purchase more affordable group insurance coverage. In addition, expanded coverage for low-income people through public programs started quickly. Penalties for individuals and businesses were not implemented initially and were kept low. There were no new taxes enacted to pay for this legislation. As a result of this strategy, the public remained supportive of the current law. Polls in 2009 showed that after three years of operation, 79% of Massachusetts residents wanted the law to continue and only 11% favored its repeal.

The design of the final legislation in Washington is not clear. But it is possible that its framework for implementation will be closer to the first Massachusetts universal coverage legislation and the Medicare Catastrophic Plan. In the early years, nothing much happens for middle-income people except their taxes rise. History suggests that this approach may help with the aggregate budget problem but may leave the law vulnerable to efforts to repeal or modifications. This would be the case because much of the nation did not feel they had gained anything from the new legislation.

This is all part of the Democrats’ attempts to sell the American people on a massive government-run approach to health care – an approach that survey after survey shows Americans are rejecting. Democrats don’t talk about how the tax hikes on families and small businesses begin immediately. They don’t talk about how the Medicare cuts to seniors’ benefits start right away too. But they do delay the supposed benefits of their ‘reforms’ in a Bernie Madoff-like numbers scam to make their plan appear less costly than it actually is. If health care reform is such an emergency, why make the political decision to delay the benefits for up to five years? Americans want real reforms now – without turning the current system upside down. That’s why Republicans offered a step-by-step, common-sense approach to health care reform – one that would lower health care premiums by up to 10 percent according to the Congressional Budget Office. That’s exactly what the American people are looking for.