Too Hot for Politics to Handle?: Hard Questions about Health Insurance

Presidential candidates often fall back on language and images from their respective parties. Mc Cain and Republicans tout the virtues of private insurance and competitive markets in making health care more accessible and priceworthy. Obama and Democrats emphasize the urgency of widening access and the critical role of government in restraining the insurance company behavior that impedes it. But McCain is no hard-line conservative, and Obama, though generally liberal, is not terribly enamored of the heavy hand of central government. Given the moderate nature of their views and the fact that both layer their proposals for health care reform on a base of market competition, one might expect some genuine dialogue to emerge from them about actual solutions to the country's horrendous problems of access and cost.

But don't hold your breath. The hard questions these candidates should face are so disturbing for each of them that neither may rise to the challenge.

The Plans in Brief

The proposals are not difficult to summarize. Here are the central points of McCain's plan:

1. 1. The centerpiece is to break the strong current connection between private insurance and employment by replacing the taxable income exclusion for employer-sponsored insurance with a universal tax credit of $2,500 for individuals and $5,000 for families. The current taxable income exclusion dampens market forces that could discipline costs, for it constitutes a subsidy of more than 40 percent of every additional dollar that employers and employees spend on private health insurance.¹ Part of the problem is that the subsidy is uncapped: as plans become more expansive and expensive, all premium dollars still carry this discount, so why should subscribers be all that concerned about rising costs? Also, the tax subsidy is regressive: those with higher incomes benefit much more than low-wage earners, who owe little income tax to start with. McCain's tax credit, by contrast, is notably progressive, and its benefits are not contingent on employment.

2. 2. Still, a private insurance market, even when assisted by a sizeable tax credit, will not by itself provide affordable insurance to high-risk subscribers who are not already members of a larger, more diverse pool. To address this deficiency, McCain proposes giving states seven to ten billion dollars of federal assistance for forming special high-risk insurance pools.

3. 3. Also, McCain would allow pools to form across state lines to increase portability with jobs and residence.

4. 4. Cost pressures would allegedly be dampened by compensating health providers based on the quality of their work, not merely the volume of procedures they perform.

5. 5. To help control costs, McCain has broken with Bush to advocate federal negotiation of drug prices for Medicare Plan D—just as the Department of Veterans Affairs does for drugs, McCain is quick to note. Importation ("reimportation") of lower-priced drugs from other countries would also be allowed.

6. 6. Like Bush and many other Republicans, however, McCain supports higher government expenditure for private Medicare Advantage plans than for Medicare's standard public insurance.

Like McCain, Obama does not advocate a mandate that all individuals be insured. He does propose five measures to expand access:

1. 1. Not only would the State Children's Health Insurance Program be expanded to cover more children from low- and middle-income families, but insurance would be mandatory for all children. For them—as distinct from the general population—Obama believes it possible to achieve the true affordability needed to make a mandate feasible and fair.

2. 2. Obama would bar insurers from excluding the existing medical conditions of new subscribers and charging high-risk subscribers higher rates. Premiums would thus be rated largely by the insured person's "community," rather than "experience," greatly increasing affordability for the chronically ill.

3. 3. A national health insurance exchange, with government providing comparative information on standard coverage, would increase portability and provide access to many individual subscribers.

4. 4. Subsidies would be provided to close the remaining affordability gap for all relatively low-income subscribers.

5. 5. By employing a modest "play or pay" requirement on all but very small businesses, Obama would build...