What Exactly Is Holding Up Health-Care Reform? MIT's Gruber's Answer: Actuarial Value.

I have been following the health-care debate for much longer than I thought it would be possible, watching more C-Span than I had ever desired or thought possible. And, sometimes, I cannot help but wonder (cue Carrie Bradshaw voice-over here): What exactly are the House and the Senate fighting over? Why won’t the House just pass the Senate bill and get this health-care reform effort done this week? Even after issuing a strong directive earlier today, Obama does not expect action until the end of the month. But the two bills have a broadly similar structure and the same goal: extend health insurance to more Americans. What is the holdup?

Two words: actuarial value.

That's the great answer from Jonathan Gruber, MIT’s health-care economist extraordinaire who spoke at Columbia University on the future of health-care reform and why it’s still not so certain—last night, pre-Obama speech, he ballparked the odds of it passing at 57 percent. His answer was actually much longer than two words, so here's a better explanation of what I learned.

Yes, there are the squabbles over abortion and the Cadillac tax that have gotten in health-care reform’s way, and will likely continue to do so. But, in Gruber’s view, what has really held things up is a fight between the Senate and the House over how much the lowest-ncome Americans ought to pay for their insurance.

When you look at the premiums, Senate and House subsidies are actually pretty similar; the lowest-income Americans would only pay less than 5 percent of their income on these month-to-month fees, and receive subsidies to make their payments so low.

But there's a huge gulf between the two plans’ actuarial value: how much they expect subscribers to pay in total.

In nonwonk terms, actuarial value is what percent of health-care costs an average subscriber can expect to be on the hook for. An insurance plan with a 70 percent actuarial value, for example, can expect their insurance to pick up 70 percent of the tab and cover 30 percent themselves. Short story: lower actuarial value, higher cost for the policyholder.

And over on the Senate bill, the actuarial values of plans that low-income Americans would likely enroll in are consistently lower than those of the House. The midlevel health insurance in the Senate bill, the silver plan, has an actuarial value of 70 percent. The comparable House-side plan—the enhanced plan—has an actuarial value of 85 percent. And for all other tiers of plans—bronze through platinum on the Senate side; basic through premium plus in House language—the Senate bill would require consistently lower actuarial values. (If you want to get into the weeds how actuarial values effect different levels of low-income families, the Center on Budget and Policy Priorities has done an excellent job with two helpful reports here and here).
Those differences in actuarial values add up to huge differences in spending for low-income families. According to some number crunching by think tank Community Catalyst, the expected health-care costs—the premiums, the deductibles, the copays, everything—for a family of three earning $27,465 would be $5,130, or 18.7 percent of their income. Over on the House side, the expected costs are much lower: $1,824, or 6.6 percent of income. Here's the full breakdown:

For a family of three earning less than $30,000, a $3,000 difference in health-care costs is huge, a determination of where 10 percent of their income would go. And this, in Gruber’s view, has been one of the biggest holdups for the House, why they will not pass the Senate bill carte blanche: it extends health-care reform to low-income Americans but not necessarily in an affordable way. And this helps explain why, 126 days after Nancy Pelosi introduced her health-care reform bill in the House, the debate remains a lively one—one that, even in its final weeks, leaves many issues to sort out.