The Election Choices in Health Care
The presidential candidates differ on the merits of tying health insurance to a job.
In few policy arenas are the choices as fundamental as they are for health care. Barack Obama favors increased federal control to build a "universal" system in stages. John McCain prefers to maximize the incentives for individuals and families to buy private health insurance on their own.
* Government options. The core of Mr. Obama's reform is a new government insurance program, open to nearly everyone, including the young and even the affluent. His goal is to have everyone insured by 2012. According to the Lewin Group, independent health-care consultants, the number of Americans with private coverage would drop by nearly 22 million from 157 million starting the first year, as people shifted toward the public option. People with coverage either through Mr. Obama's plan, Medicaid or the federal-state children's program (Schip) would increase by about 48 million.
Mr. Obama estimates the cost between $50 billion and $65 billion a year when fully phased in, though others say it would be far more. To fund it, he would impose a "pay or play" tax on employers. This would require all but the smallest employers either to provide insurance for their workers, or pay a tax on some portion of their payroll.
Mr. Obama hasn't said what the tax rate would be. If it's high, government costs would be lower and more employers might offer coverage, paying for it out of wages. If it's low, many employers would dump their coverage and pay the tax instead, transferring workers to the public option. Mr. Obama has also not elaborated on how the government would reimburse providers under his plan. The rates could be used to undercut private insurers. According to Lewin estimates, these undefined variables could boost the exodus to government to more than 60 million.
* Tax bias. Mr. McCain wants to reallocate the current federal tax breaks for health insurance. These cost the equivalent of $246 billion in 2007, yet only people who buy insurance through their employers receive this dispensation. Mr. McCain would extend tax benefits to all Americans, regardless of where they acquire their coverage, gradually replacing the workplace deduction with a refundable tax credit of $2,500 for individuals and $5,000 for families.
According to the Tax Policy Center, the McCain plan will cost $1.3 trillion over the next decade (vs. $1.6 trillion for Mr. Obama's), while the average household will be better off by $1,241 in 2009.
Some would stick with the coverage they currently enjoy, as one choice among many. Others (including of course the uninsured) would apply their credit outside their workplace, rather than taking whatever their boss offered. Though the individual market now covers only 9% of the population, equalizing the tax treatment for health care would stimulate the demand for new, more affordable insurance. With more decision-making power concentrated in the hands of individuals, Mr. McCain argues the plan would ease the third-party payer problem, where health-care dollars are laundered through insurers or the government, thereby inflating health spending.
Mr. Obama charges that the McCain tax credit would undermine the employer-based system. It would, though probably much less than Mr. Obama's government option. In any event, even some of Mr. Obama's advisers have argued against tying insurance to any specific job, and Mr. McCain's tax credit would follow the worker, rather than the job.
* Insurance mandates. Mr. Obama would impose new nationwide rules on insurance companies to prohibit "cherry picking," where companies sometimes reject applicants on the basis of pre-existing conditions. Instead, he supports "guaranteed issue," which forces insurers to accept all comers. Mr. Obama would also require every carrier's benefits to be similar to those that federal employees now receive.
Mr. McCain believes such regulations are one reason health coverage is so expensive. To that end, he would allow consumers to buy into any health plan in any state, which is currently prohibited. Though this would pose some logistical and regulatory difficulties, Mr. McCain argues it would amplify competition among insurers as well as allow people to seek out the policies that best suit their needs.
* Health-care costs. Federal spending on Medicare and Medicaid is already exploding, even without Mr. Obama's new plan. Over the past three decades, national health spending has more than doubled as a share of GDP, and, according to the Congressional Budget Office, it will double again by 2035. Medicare and Medicaid, which account for 4% of GDP today, are expected to rise to 9% in the same year.
Both candidates support such cost-control reforms as electronic recordkeeping and more coordinated and preventative care. But these are not likely to have a significant effect. Mr. Obama's wager is that savings can be realized by increasing the size of the government insurance pool, thus promoting "efficiency." The reality would probably be cost controls on providers and services, which is what Medicare began to impose in the 1980s as its costs soared.
Mr. McCain's bet is that costs can be brought down by giving people more control over their health-care dollars, thus restoring price signals to the health-care marketplace. Mr. Obama's approach is the going favorite with Democratic majorities in Congress.
The author of this story is Dr. John Ray, who blogs at Socialized Medicine.