The McCain and Obama Plans for U.S. Health Care Reform

[Guest guest]

In this instance you get to decide which plan makes sense, and which is most

likely to be implemented. ~ Karl

==

The Partisan Divide - The McCain and Obama Plans for U.S. Health Care Reform

Oberlander, Ph.D.

In the face of escalating costs, uneven quality of care, and the growth of

the uninsured population, there is broad agreement that the U.S. health care

system requires reform. However, Democrats and Republicans remain sharply

divided over how to reform it, as evidenced by the health care plans offered

by the parties' presidential candidates. The ambitious reform agendas of

Senators McCain (R-AZ) and Barack Obama (D-IL) would take the U.S.

health care system in very different directions.

McCain's plan embraces market forces and promotes individually purchased

insurance (see red box). Its centerpiece is a change in the tax treatment of

health insurance. Currently, workers do not pay taxes on health insurance

premiums paid by their employers. The McCain plan would eliminate this tax

exclusion and use the revenue generated - projected to be $3.6 trillion over

10 years - to pay for refundable tax credits for Americans obtaining private

insurance ($2,500 for individuals, $5,000 for families). Uninsured Americans

could use their credits to help buy insurance coverage on the individual

market, and workers with employer-sponsored insurance could use theirs to

offset the cost of paying taxes on their employers' premium contributions or

to purchase coverage on their own.

Key Elements of McCain's Plan for Health Care Reform.

The McCain campaign emphasizes key advantages of this approach. First, the

current tax exclusion disproportionately benefits higher-income Americans,

since its value depends on a worker's tax bracket.1 Providing an equal

credit to all Americans is a fairer allocation of federal revenues, and

since the credit is refundable, even those who do not pay taxes would

qualify for federal payments. Second, the tax exclusion benefits only

persons with employer-sponsored insurance, whereas under the McCain plan

everyone, including the unemployed and workers whose employers do not offer

coverage, would receive a credit to purchase insurance regardless of where

they obtained it.

In terms of cost control, the McCain plan offers several initiatives aimed

at spurring competition and changing the status quo in health insurance and

medical practice. It would deregulate the insurance market to allow insurers

to sell policies across state lines; residents of states that extensively

regulate insurance (for example, by mandating covered benefits) would be

able to shop nationwide for less comprehensive, less costly health insurance

policies than those available in their home states.

McCain's plan also calls for changing the way Medicare pays for medical

services - moving away from fee-for-service reimbursement and toward bundled

payment for episodes of care and payments based on outcomes. The hope is

that Medicare payment reform would drive broader changes in the health care

system.

In addition, replacing the invisible, unlimited tax exclusion with a

visible, limited tax credit could slow health care spending. Making employer

premium payments taxable income would make insurance costs more transparent

to workers, many of whom are unaware how much their employers are paying for

their insurance. And since Americans would receive a fixed credit, the

expectation is that they would seek out lower-cost, less comprehensive

insurance plans, fostering competition among insurers. Other cost-control

provisions include speeding up generic-drug development, encouraging

prevention, improving care for chronic diseases, and adopting medical

malpractice reform.

How the McCain plan would affect costs and coverage is uncertain. Nobody

knows how effective repealing the tax exclusion would be in controlling

costs, but if it turns out not to be a magic bullet, the plan lacks other

mechanisms for reliably slowing spending. Prevention, better care for

chronic conditions, and enhanced competition represent aspirations rather

than concrete policies for controlling costs.

In addition, most uninsured Americans would probably remain uninsured under

the McCain plan. Given the high price of health insurance, even with the new

tax credits, many lower-income people would still not be able to afford

coverage. And if the credits are not indexed to the rate of growth in health

care spending, that affordability gap would grow over time (as would the

number of Americans who would pay higher taxes for employer-sponsored health

insurance). Indeed, with the proposed credits, many Americans could afford

only high-deductible insurance policies. The McCain plan could consequently

trigger a move from comprehensive insurance toward thinner coverage policies

that shift costs onto sicker patients. Moreover, some employers,

particularly smaller businesses, might stop offering insurance if the tax

benefits of employer-sponsored insurance were eliminated. As a result, some

currently insured workers could lose coverage.

Perhaps the most serious problem with McCain's plan is its reliance on the

individual insurance market. Individual insurance policies are

administratively expensive, typically involve medical underwriting so that

sick persons and those with preexisting conditions are charged higher

premiums (premiums also increase with age) or are denied coverage

altogether, and generally offer less comprehensive benefits than

employer-sponsored insurance.2

The McCain campaign has proposed a " guaranteed access plan, " whereby the

federal government would work with states to create insurance alternatives

for those unable to afford coverage on the individual market. The plan

builds on the experiences of the 34 states that operate high-risk pools for

residents who are deemed to be medically uninsurable. Yet such a program is

unlikely to remedy problems inherent in the individual market. State

high-risk pools ironically suffer from the same problems (high costs,

limited benefits, preexisting-condition exclusions) that plague the

insurance markets from which they are supposed to offer refuge.3

Furthermore, the McCain plan for interstate insurance markets could weaken

regulatory protections in some states.

In contrast to McCain's emphasis on markets and deregulation, Barack

Obama's reform plan relies on an employer mandate, new public and private

insurance programs, and insurance-market regulation (see blue box). The core

of the Obama plan is a requirement that employers either offer their workers

insurance or pay a tax to help finance coverage for the uninsured (some

small businesses would be exempt, and others would be subsidized). The Obama

plan would also create two new options for obtaining health insurance: a new

government health plan (similar to Medicare) and a national health insurance

exchange (a purchasing pool analogous to the Massachusetts Connector) that

would offer a choice of private insurance options. Both would be open to

persons without access to group health insurance or other public insurance,

as well as to small businesses that wanted to purchase coverage for their

workers. Income-related subsidies would be provided to help lower-income

persons afford coverage. And private insurers could not deny coverage

because of preexisting conditions or charge substantially higher premiums to

sick enrollees: the Obama plan would end medical underwriting according to

health status.

Key Elements of Barack Obama's Plan for Health Care Reform.

The Obama campaign emphasizes that its plan offers a choice of insurance

options. Rather than deciding whether public or private insurance is a

better model, the plan would allow people to choose between them. In

addition, the new national health plan and insurance exchange would provide

insurance pooling and purchasing power that, along with insurance-market

regulation, would effectively address the problems that Americans without

group coverage encounter when trying to purchase affordable insurance on the

individual market.

The Obama campaign says that the insurance exchange, by providing broader

pooling and cutting marketing expenses, can reduce administrative expenses

in private insurance and promote competition. The plan also calls for a new

system of reinsurance, whereby the federal government would reimburse

employers for a portion of the costs they incur for employees with

high-cost, catastrophic medical cases - theoretically enabling businesses to

reduce insurance premiums and particularly benefiting smaller businesses

whose risk pools are too small to spread the costs of expensive cases.

Other cost-control measures include accelerated adoption of electronic

medical records, promoting disease management and better coordination of

long-term care, paying providers on the basis of performance and outcomes,

strengthening prevention, permitting the federal government to negotiate

prescription-drug prices for Medicare patients, cutting excessive payments

to private health plans contracting with Medicare, and establishing an

institute for comparative-effectiveness research to generate information

about effective treatments.

The Obama plan's precise impact on coverage is impossible to gauge. If the

payroll tax is set low, many businesses would choose to pay it rather than

offer coverage, and enrollment in a new national health plan could be

substantial. The capacity of the Obama plan to expand insurance coverage

depends on the scope of subsidies, premium prices, and the effectiveness of

automatic enrollment or other participation-boosting policies, but details

of those policies are not clear. Since the plan lacks an individual mandate

for adults (coverage is mandated for children), it would not cover all the

uninsured and therefore would provide universal access to insurance rather

than universal coverage. However, most Americans without insurance would

gain coverage through the new public and private insurance options, and

Obama has not ruled out adopting an individual mandate in the future if the

plan does not produce universal coverage.

Although the Obama plan would substantially expand access to insurance, it

lacks reliable cost-control mechanisms and a viable financing source.

Reinsurance would shift private-sector costs for catastrophic cases to the

government but would not reduce total health care expenditures. The plan

also assumes that substantial savings will be achieved by increasing the use

of electronic medical records, improving the management of chronic

conditions, and strengthening prevention, but none of these worthwhile

measures is likely to control costs in the short run. The new national

health plan could control costs, but its effectiveness in slowing spending

would depend on its enrollment and the political willingness to restrain

provider payments.

The Obama campaign says it would finance the $50 billion to $65 billion in

new federal spending for its health plan by allowing tax cuts adopted in

2001 and 2003 for families making over $250,000 to expire. However, the

Congressional Budget Office (CBO) already assumes in its projections that

these tax cuts will end after 2010, so their expiration will not generate

new revenues to satisfy congressional budget rules.4 And if savings from

prevention, disease management, and electronic medical records are not

realized - or if the CBO does not validate them as an acceptable financing

source - then the Obama plan would need substantial additional revenues to

fund expanded coverage.

The McCain and Obama health plans are best viewed as sketches rather than

finished portraits, with many important details yet to be revealed. Still,

the 2008 presidential election clearly offers voters dramatically different

alternatives. The candidates' opposing visions of health care reform reflect

fundamentally different assumptions about the virtues and vices of markets

and government. With the debate over how to reform U.S. health care far from

settled, whoever wins the presidency can expect fierce opposition to any

attempt at comprehensive reform.

No potential conflict of interest relevant to this article was reported.

Source Information

Dr. Oberlander is an associate professor of social medicine and of health

policy and administration at the University of North Carolina, Chapel Hill.

References

Reischauer RD. Benefits with risks -- Bush's tax-based health care

proposals. N Engl J Med 2007;356:1393-1395. [Free Full Text]

Pollitz K, Sorian R. Ensuring health security: is the individual market

ready for prime time? Health Aff (Millwood) 2002;:W372-W376.

Chollet D. Expanding individual health insurance coverage: are high-risk

pools the answer? Health Aff (Millwood) 2002;:W349-W352.

The budget and economic outlook: fiscal years 2008 to 2018. Washington, DC:

Congressional Budget Office, January 2008. (Accessed August 1, 2008, at

http://www.cbo.gov/ftpdocs/89xx/doc8917/01-23-2008_BudgetOutlook.pdf.)

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PubMed Citation

This article has been cited by other articles:

sey, S., Curfman, G. D., Drazen, J. M. (2008). Health of the Nation --

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