McCain on Health Care

McCain on Health Care

In the National Journal, Ronald Brownstein discusses the real risk of the McCain health care plan. "It's not the taxes -- it's the erosion of risk-sharing between the healthy and the sick."

This week's most important debate wasn't the meandering town hall duel between Barack Obama and John McCain. That encounter was understandably scored by polls and most pundits as a win for Obama, who seemed steadier than an over-caffeinated McCain. But lackluster questions and a constrictive format meant it did little to clarify the decision facing voters.

Far more instructive was the argument Obama instigated with McCain last week over health care. In several speeches, Obama accurately framed the central contrast between the nominees' approaches. The bedrock goal of Obama's plan is to reinforce the sharing of risk and cost between healthy and sick, young and old. By contrast, McCain, hoping to expand choice, would erode risk-sharing and accept sharper distinctions between the healthy and sick in both the availability and cost of coverage. One plan prizes solidarity; the other, autonomy.

Most Americans now receive their health insurance at work. That system promotes risk-sharing because employers don't vary the premiums based on a worker's age or health: The old and sick are subsidized by the young and healthy, who are then subsidized as they age. McCain would upend that system. Today employers can deduct as a business expense the contributions they make to a worker's health insurance premiums. Workers, though, are not taxed on the value of their employer's contribution. That "exclusion" provides a powerful tax incentive for work-based coverage. McCain would end the exclusion so that workers pay taxes on their employer's premium contribution. Instead, he would provide a tax credit ($2,500 for individuals and $5,000 for families) that workers could apply to the cost of obtaining health insurance. In an ad this week, the Obama campaign described that trade as "the largest middle-class tax increase in history."

That's flat wrong. For all but the highest earners with the most-expensive insurance plans, the credit would more than offset the additional taxes workers would face from ending the exclusion, the nonpartisan Tax Policy Center calculates. The real problem with McCain's idea is that, without the economic incentive provided by the exclusion, more employers might stop offering coverage. And even employers who want to continue could find it difficult because younger workers would be likely to use their credit to buy stripped-down, cheaper coverage on their own.

That would leave employers covering only older and sicker workers, which could quickly swell premiums to unaffordable levels. That concern prompted the U.S. Chamber of Commerce and the Business Roundtable to criticize McCain's plan in an eye-opening New York Times article on Tuesday. McCain's camp insists that his proposal would not undermine employer-based coverage. But few experts agree. Several studies have projected that his plan would move about 20 million people from employer-based coverage to the individual insurance market. And in that market, older or sicker consumers face much higher costs than the healthy -- if they can buy coverage at all.

McCain would further deregulate the individual market by allowing any insurance policy approved in any state to be sold in every state. He says that would provide consumers more choices, but it would also undercut state laws requiring insurers to cover specific treatments, like cervical or breast cancer screening for women. An insurer could locate in the one state that does not require it to fund mammograms (Utah) and sell in all 50 states. Even more worrisome, notes health economist Jonathan Gruber, is that insurance companies offering more-comprehensive policies for individuals would face the same risk as employers -- losing healthy young workers to cut-rate plans from the least-regulated states. That would further unravel risk-sharing and increase prices for the sick.

Obama's goals couldn't differ more. Through incentives for (and mandates on) employers, the expansion of government programs, and new nationwide rules for insurers (such as requiring them to cover all applicants, regardless of their health), he wants to insure more Americans through large pools that promote risk-sharing. McCain's approach would save people money when they are young but expose them to greater financial and health risks as they age. It repudiates the essence of insurance, which aims to spread risk not only across the population but across an individual's lifetime. Obama is wrong to portray McCain's plan as a tax hike. And the Democrat's alternative raises its own tough questions, especially about cost. But Obama does not exaggerate when he says that his rival is offering a "radical" new vision of how Americans can safeguard their health.

Obama v. McCain

The "deer in the headlights" moment.

McCain on Health Care

In a recent column, Paul Krugman laid out how John McCain’s policy proposals could impact the health insurance of countless Americans. An excerpt:

Most Americans under 65 currently get health insurance through their employers. That’s largely because the tax code favors such insurance: your employer’s contribution to insurance premiums isn’t considered taxable income, as long as the employer’s health plan follows certain rules. In particular, the same plan has to be available to all employees, regardless of the size of their paycheck or the state of their health.

This system does a fairly effective job of protecting those it reaches, but it leaves many Americans out in the cold. Workers whose employers don’t offer coverage are forced to seek individual health insurance, often in vain. For one thing, insurance companies offering “nongroup” coverage generally refuse to cover anyone with a pre-existing medical condition. And individual insurance is very expensive, because insurers spend large sums weeding out “high-risk” applicants — that is, anyone who seems likely to actually need the insurance.

So what should be done? Barack Obama offers incremental reform: regulation of insurers to prevent discrimination against the less healthy, subsidies to help lower-income families buy insurance, and public insurance plans that compete with the private sector. His plan falls short of universal coverage, but it would sharply reduce the number of uninsured.

Mr. McCain, on the other hand, wants to blow up the current system, by eliminating the tax break for employer-provided insurance. And he doesn’t offer a workable alternative. Without the tax break, many employers would drop their current health plans. Several recent nonpartisan studies estimate that under the McCain plan around 20 million Americans currently covered by their employers would lose their health insurance.

As compensation, the McCain plan would give people a tax credit — $2,500 for an individual, $5,000 for a family — that could be used to buy health insurance in the individual market. At the same time, Mr. McCain would deregulate insurance, leaving insurance companies free to deny coverage to those with health problems — and his proposal for a “high-risk pool” for hard cases would provide little help.

So what would happen? The good news, such as it is, is that more people would buy individual insurance. Indeed, the total number of uninsured Americans might decline marginally under the McCain plan — although many more Americans would be without insurance than under the Obama plan.

But the people gaining insurance would be those who need it least: relatively healthy Americans with high incomes. Why? Because insurance companies want to cover only healthy people, and even among the healthy only those able to pay a lot in addition to their tax credit would be able to afford coverage (remember, it’s a $5,000 credit, but the average family policy actually costs more than $12,000).

Meanwhile, the people losing insurance would be those who need it most: lower-income workers who wouldn’t be able to afford individual insurance even with the tax credit, and Americans with health problems whom insurance companies won’t cover.

And in the process of comforting the comfortable while afflicting the afflicted, the McCain plan would also lead to a huge, expensive increase in bureaucracy: insurers selling individual health plans spend 29 percent of the premiums they receive on administration, largely because they employ so many people to screen applicants. This compares with costs of 12 percent for group plans and just 3 percent for Medicare.

In short, the McCain plan makes no sense at all, unless you have faith that the magic of the marketplace can solve all problems. And Mr. McCain does: a much-quoted article published under his name declares that “Opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products less burdened by the worst excesses of state-based regulation.”

I agree: the McCain plan would do for health care what deregulation has done for banking. And I’m terrified.