McCain vs. Obama: Health care reform

With 47 million Americans without health care in America, and another 25 million Americans who are underinsured to the point that they are struggling to pay their medical bills, health care reform is going to be a big issue for people, including 10.7 percent of the population — or 1,033,000 — in Michigan who are without health care insurance. We have agreement across the political divides that America needs health care reform, yet a partisan divide exists when it come to how to go about bringing effective change.

The latest issue of The New England Journal of Medicine compares the pros and cons of each candidate’s health care reform plan.

First up, John McCain’s plan:

McCain’s plan embraces market forces and promotes individually purchased insurance. 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.

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 bracket.  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.

Before you say ‘Wait, what about all the uninsured people?’ let me tell you flat out, there is nothing in this plan for them. But not only would the uninsured and underinsured remain the same, the McCain plan could make health care actually worse than it currently is:

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.

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. Furthermore, the McCain plan for interstate insurance markets could weaken regulatory protections in some states.

Now on to Obama’s plan:

Barack Obama’s reform plan relies on an employer mandate, new public and private insurance programs, and insurance-market regulation. 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

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.

Insurance for one and all. The downside seems to be that it’s difficult to tell if the plan will actually work with the anticipated mechanisms in place to finance to cost:

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. 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.

It’s hard to imagine something that doesn’t take into account over 47 million Americans being billed as health care “reform.” It also seems difficult to fathom that anyone would oppose a plan that does take every American into consideration because it doesn’t come with up-front guarantees that funding will go smoothly and without a hitch, particularly when we’re speaking of $50 billion to $65 billion. When we’re spending $12 billion to $16 billion in Iraq per month, the funding seems a very petty bickering point on something that would potentially improve the quality of life for millions of people.