Tony Fratto: Health Insurance Rates Will Rise With Baucus Bill

The health insurance industry deserves what it gets - if only its clumsy actions didn't have such dire implications for the rest of us.

AHIP, the health insurance lobby, released a long overdue study this week demonstrating that health insurance provisions in legislation scheduled for a vote in the Senate Finance Committee today will result in higher premiums for Americans across the board.

While the study is woefully late to debate and incomplete - inspiring hyperventilating from Democrats and the White House - the basic conclusions are fundamentally sound as far as they go:

1) Insurance reforms mandating coverage of sick people at below-actuarial rates will raise premium costs for healthy people buying the same insurance - especially if the individual coverage mandates allow some young and healthy people to evade the mandate; and

Healthcare coverage and the hastle of forms
Healthcare coverage and the hastle of forms

2) Premiums will also rise as taxes on insurers and health care providers are passed through to beneficiaries.

For workers who get their health insurance through their employer, higher premiums will also result in lower wages - a decades-long trend that will be undisturbed by the Baucus bill.

These results - higher premiums and lower wages - are logical and indisputable. The White House points to the creation of health insurance exchanges to put downward pressure on premiums, but the exchanges are so limited, and with other inequities in the health care system preserved, that exchanges can only have a very small effect.

If we as a society are willing to accept the trade-off of lower wages, higher taxes, and higher premiums in order to bring some of the uninsured (remember, the Baucus bill is not "universal coverage") into the formal health care system, then we can have a debate on those grounds. But that is the inevitable trade-off.

In fact, the Baucus bill anticipates this result by proposing to subsidize low- and middle-income wage earners who will face higher insurance premiums.

As Keith Hennessey points out in his excellent analysis, higher health care costs will result from bringing millions of uninsured into the formal health care system. This is Econ 101: significantly raising demand for health services, absent a corresponding increase in supply will result in higher prices. (There are no plans to increase the numbers of hospitals, clinics, doctors, and nurses in the near term; people aren't going to get magically healthier anytime soon; and people with insurance consume more - and more costly, not less, medical services than those without insurance.)

Waiting until the eve of the Senate Finance Committee vote today when this analysis would have been far more useful earlier in the debate was dumb. AHIP believed it could play in the tall grass and not get bitten by snakes.

I have no interest in saving the insurance lobby from itself. The industry deserves what it gets from its too-tricky-by-half strategy. But the rest of us don't deserve to go down with them.

There are better ways to improve our health care delivery system, cover more of the uninsured, and to generate broad competition that will lower costs. The Democrats' bills don't get us there.

Fortunately, there's still time to have an honest debate about the true costs and implications of the Democrats' plans for health reform as legislation makes its way to the floor.

Tony Fratto is a CNBC on-air contributor and most recently served as Deputy Assistant to the President and Deputy Press Secretary for the Bush Administration.