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MCCAIN'S HEALTH CARE PLAN: HEALTH INSURANCE YOU CAN'T BELIEVE IN, OR RELY ON.
Health Affairs has released two papers offering critical analyses of the candidate's health care plans today, and one paper outlining what a synthesis approach would look like. The first, written by Thomas Buchmueller, Sherry A. Glied, Anne Royalty, and Katherine Swartz, examines the cost and coverage implications of McCain's proposal. "Senator McCain's health plan has three central features," they write. "Withdrawing the current tax exclusion of employer payments for employer-sponsored coverage (in other words, taxing premiums paid by employers), introducing a refundable individual health insurance tax credit, and deregulating nongroup insurance by permitting the purchase of policies across state lines."
The big mover here is is the tax increase on employer-based health care, which is achieved by ending its deductability. There are two things worth knowing about the way the exclusion works now: First, it makes health care much cheaper for employers. Second, to qualify for the tax exclusion, you can't discriminate among sick and healthy workers, nor among young and old workers. In general, you might expect this to drive out the young and healthy. But it doesn't, because the savings from deductability still make employer-based insurance cheaper and more comprehensive than what they could purchase on the individual market.
"Eliminating the tax exclusion would greatly reduce the number of people who obtain health insurance through their employers," write the authors. "This decline would be driven by three factors: the effective price of employer-sponsored coverage would increase, the nondiscrimination rules would no longer apply, and low-risk employees would have less incentive to remain in employer-sponsored groups...the elimination of the income tax preference for employer-sponsored insurance would cause twenty million Americans to lose such coverage."
Italics, as you might imagine, are mine. But this is the main fact worth knowing, and repeating, about John McCain's health care plan: Its first-order effect would be to take employer health insurance away from 20 million Americans who currently have it. And this estimate is on the low-end. The authors write that it only looks at what employers would do in response to the new tax rules. It does not examine "the number of low-wage workers who might lose employer-sponsored insurance when employers are no longer bound by the nondiscrimination rules, nor do they capture the impact of breaking up existing risk pools." In other words, 20 million plus will lose their employer-based health insurance.
That, of course, is not the whole story. Kicked out of employer pools and pocketing a shiny new tax credit, a fair number may seek care on the individual market. The problem, though, is that care on the individual market is far worse. Here, I'll let the authors explain in full:
Administrative expenses are twice as high in nongroup markets as in group markets. The costs are higher because insurers in this market spend considerable resources on medical underwriting, and economies of scale are lost. It is much more expensive to sell insurance to millions of individuals one individual at a time than it is to sell to a much smaller number of employer groups, each comprising thousands of employees. For a typical family that moves from group to individual coverage, therefore, the move to nongroup insurance will raise premiums for an identical policy by more than $2,000 per year. Shifting people into the nongroup market would not save money for most Americans. Rather, it would lead to increased spending on administrative costs and a decrease in the portion of health spending that actually goes to providing care.One reason that nongroup plans appear less costly is that they offer less coverage. The typical deductible in nongroup plans is about $2,750, compared to about $1,000 for group policies. Coinsurance rates average 26 percent in nongroup plans, compared to 20 percent in a typical employer-based plan. For plans with copayments, the average copayment in the nongroup market is between $30 and $40 per doctor visit, well above that of group plans. Many services are not covered at all. Thus, much of the apparent savings from shifting to nongroup coverage would be offset by higher out-of-pocket costs for care.
And this is examining healthy applicants. The ill are simply denied coverage outright. "A recent survey looks at the experience of people who are less healthy in nongroup markets.21 One-third of such people buying or looking into nongroup coverage were denied coverage or charged more because of a pre-existing condition. Nearly half found it difficult or impossible to find the coverage they needed, and more than two-thirds found it difficult or impossible to find affordable coverage."
Bottom line: Even if you pay exactly as much as your employer did, your plan will still be worse. The authors estimate that most people will choose health care plans that are far less comprehensive than what their employers offered, and also feature premiums that are about a 1/3rd cheaper. In comparison to what they had before, this will barely count as health insurance. But for about 21 million people, it will be exactly what they can afford.
The plan also has a Trojan horse. The tax credit that meant to help people purchase individual market insurance is not indexed to health costs -- which rise much faster than inflation -- or really to anything at all. That means, year-by-year, it buys you less. Even if the McCain administration did index it to core inflation -- an assumption the authors are making because leaving it totally unindexed would be too cruel a joke -- "the value of the credit would be eroded so much that in just five years, five million more people would be uninsured."
Then there's McCain's plan to bulldoze state regulations and create a truly national market. "The main effect of establishing a national market would be to undo state laws designed to establish minimum levels of coverage and protect consumers. In a national market where state licenses are not required, insurers will charter in places where regulations are scarce--much like credit card companies do today. As a result, people guaranteed basic benefits today would find those benefits eliminated under the McCain plan...People also would lose access to many benefit protections. For example, forty-seven states now require mental health parity, forty-nine states require coverage of breast cancer reconstructive surgery, and twenty-nine require coverage of cervical cancer screening. All of these requirements--as well as regulations in several states that limit the rates that can be charged to higher-cost consumers and that limit who can be excluded from a health plan--would be eliminated under the McCain plan."
In other words, the health industry will evolve to imitate the credit industry, where most companies crouch in states like South Dakota that have made the devil's bargain to attract their business by refusing to regulate. As we can see in the credit crisis, the outcome of dismantling regulatory protections has not been good for consumers, nor conducted transparently, nor checked by government oversight. It is not a model one would naturally select for exportation. McCain is exporting it to heath care.
And nor is it cheap. Estimates are that the tax related provisions will costs $1.3 trillion over 10 years. Additionally, there will be much in the way of cost shifting: "These changes would have the effect of shifting costs from insurance premiums toward out-of-pocket payments, and people with chronic or acute illnesses would likely incur much higher out-of-pocket health care costs than they do now."
Since this was a bit of a long post, here's the simple takeaway: McCain's health care plan would increase taxes on employer based health insurance and price 20 million plus Americans out of the coverage they currently rely on. In return, he'd give them a tax credit that is not indexed to health costs, and will become worthless as the years pass. He'd push them into the individual market, where higher administrative costs and underwriting practices mean that if individuals try to purchase the exact policy offered by their employers, they will pay $2,000 more per year. In addition, the sick can be turned away, and the state regulations that ensure some minimum level of benefits will be dismantled. All this will cost us $1.3 trillion over 10 years, and set the rules so that more of the expense falls on the sick and less rests on the healthy.
In other words, his plan makes health care more expensive, less comprehensive, and less secure. It is health reform you can't believe in, or rely upon.
Update: Jon Cohn has more on McCain's plan, and also a powerful story relating actual people's experiences on the individual market.
COMMENTS (44)
Well every American has health insurance in the emergency room anyway, Ezra!
Posted by: Ron E. | September 16, 2008 10:10 AM
One thing that bothers me about just about any plan McCain puts forward is the six (minimum) extra seats the Dems will have in the Senate. One would think, that to be realistic at all, McCain's proposals would have to be at their most extreme... moderate to have a prayer. As worrisome as this plan is, it's just not in reality to actually happen. This assumes that Democrats will have a spine about it, of course.
Posted by: Byrd | September 16, 2008 10:18 AM
Let's see a similar review of Health Affairs' analysis of Obama's plan. It's far from positive. I quote, "It greatly increases the federal regulation of private insurance, but does not address the core economic incentives that drive health care spending. That ommission along with the very susbstantial short-term savings claimed raises serious questions about its fiscal sustainability." What good is a plan if we can't pay for it?
McCain's plan has its own problems. But I take issue with your (and Health Affairs') attitude towards mandates. While some, such as cervical cancer screening, are undoubtedly good, many unnecessarily increase cost, such as: mandated treatment for drug abuse, chiropractic service, in vitro fertilization, acupuncture, baldness treatment, etc. Additionally, I'm skeptical that plans would automatically drop things such as cancer screening. If consumers value those services, they will be provided. Why not allow plans to offer a menu of items and then allow consumers or employers to choose among them??
Posted by: MBP | September 16, 2008 10:22 AM
"Additionally, I'm skeptical that plans would automatically drop things such as cancer screening. If consumers value those services, they will be provided."
Ha! Good joke, man! Seriously, have you ever dealt with a health insurance company? You know that a service paid for comes out of their profit, right? The whole reason the mandate exists is that the insurance companies don't want to pay for it, and wouldn't, unless someone's looking over their shoulder.
Posted by: alli | September 16, 2008 10:28 AM
I'm inclined to place my hopes along the same lines as Byrd. However, I think that there is going to be enormous pressure on the next administration/Congress to do something about health care, and in such situations, Congress is predisposed to just do "something," even if that something is more harmful than helpful. (E.g., No Child left Behind, the USA PATRIOT Act, Medicare Part D.)
If this proposal is where we start negotiations, what are the points each side gives on? My guess is that the tax credit would get indexed to inflation, the high-risk pool gets some sort of nominal funding, and employers who offer plans get less leeway to discriminate.
Posted by: Anonymous | September 16, 2008 10:36 AM
Additionally, I'm skeptical that plans would automatically drop things such as cancer screening. If consumers value those services, they will be provided. Why not allow plans to offer a menu of items and then allow consumers or employers to choose among them??
Hey, while we're at it, let's eliminate all safety mandates on cars, too! If people want seatbelts and airbags, and doors that don't pop open in a crash, the auto industry will just naturally provide it to them!
And we can see how great self-regulation has been for the commercial meat industry! They never, ever, ever produce meat in unhealthy conditions, or sell bacteria-laden beef that kills innocent consumers! The market would never put up with it!
MBP, you need to ask yourself why these minimum standards laws were passed in the first place. It's because in the unregulated environment, the industry wasn't meeting the minimum standards people demanded.
Posted by: Pesto | September 16, 2008 10:37 AM
MBP -
In what states are treatments for in vitro, baldness, acupuncture, and baldness mandated? Specific examples, please.
Posted by: Anonymous | September 16, 2008 10:39 AM
Best of luck to McCain on that. Even a lot of the Republicans in congress aren't going to go along with eliminating state mandates, or the power states have over regulating insurance in their local markets. Not exactly a pro "state's rights" position, either.
Any form of healthcare reform is going to have an uphill battle, and McCain's is no exception.
If he wants to break state mandates, he could start with fuel formulations. Having federalized fuel formulations would make gasoline more easily portable and responsive to market demands, thus easing supply issue and lowering the price--busting state mandates on health insurance has no such benefits, but that's where he wants to step on the state's toes.
I doubt it's going to happen.
Posted by: Kevin S. Willis | September 16, 2008 11:05 AM
Ezra,
This is where I would go after McCain and Palin during the debates. Connect their laissez-faire attitude with serious fiscal problems for millions of Americans. There is no way that McCain could obtain health insurance on the non-group market for $2500, or even $5000. There is no way that Palin could provide insurance for her family on $5000, or maybe even $10000. "Could you obtain health insurance cheaper under your plan than Obama's plan?" That's the question.
Posted by: William Smith | September 16, 2008 11:06 AM
Will list specific examples of state mandated services ASAP. But to answer the question of why mandates exist in the first place. A little cynicism is in order -- many mandates exist because the providers of these services lobby state legislators to make them requirements for all insurance plans. Chiropractic care is mandated because chiropractors are a concentrated consituency that advocates for it, while the general public has only a small individual stake in whether it is passed. Thus, higher insurance premiums for all of us even if we don't value and will never use chiropractic care.
Flu vaccinations are not mandated, yet they are covered by all insurers. Why? Because the small cost of vaccination saves employers money in the future.
Let's remember what health insurers try to do: help employers manage medical costs (and don't claim they make outsize profits -- average after-tax margin is 4.5% across the industry. Much lower than pharma, oil, retail, software. And return on capital is 10-13% -- not badm but not great). If cervical cancer screening has a positive net present value for the employer (in terms of lower costs in the future), it will be covered. I won't make the ssame argument for individual plans because turnover in these plans is very high.
Posted by: MBP | September 16, 2008 11:06 AM
But, but, but, John McCain is on the side of the small business owner. It is Obama that would tax them out of operation, right?
Posted by: TBone | September 16, 2008 11:10 AM
Also, forgot to add that any employer that self-insures (and most large companies do this) is exempt from all state mandates. This means GM, Coca Cola, Microsoft, etc. Yet, where is the outcry from employees of these companies over the necessary benefits that they are being denied? It isn't there because companies must offer competitive compensation to retain employees.
Posted by: MBP | September 16, 2008 11:17 AM
MBP - Self-funded plans are a dying breed; for example, I was recently insured by The Coca-Cola Company's plan, and it's through a private carrier. So you're not only grasping at straws, you're making things up.
Posted by: Anonymous | September 16, 2008 12:18 PM
I like Health Affairs a lot. But take a look at the two analyses of the health care proposals. The review of Obama's is written by Joe Antos, a scholar at the American Enterprise Institute, Gail Wilensky, an adviser to the McCain campaign and former official in the Bush I administration, and some guy named Hanns Kuttner who was also, I think, an official in the Bush I White House.
Are you going to get an objective analysis of Obama's plan out of those three? Couldn't Health Affairs find some other analysts?
Posted by: SteveH | September 16, 2008 12:37 PM
Anonymous wrote: "Self-funded plans are a dying breed..."
You're confusing self-funded with self administered. Coke hired a company to run their self-funded plan.
Posted by: SteveH | September 16, 2008 12:40 PM
The last commenter is correct. Enrollment in self-funded plans continues to grow and enrollment in fully-insured or risk-based plans continues to shrink. 2 reasons why: Employers can avoid state mandated benefits and they don't pay a risk premium to the health insurer.
Posted by: MBP | September 16, 2008 3:29 PM
If health insurance premiums are no longer tax deductible employers will drop them as fast as they can.
This is more right-wing "magic-of-the marketplace" lunacy just like we've witnessed on Wall Street the last few days.
Posted by: Pug | September 16, 2008 4:50 PM
I'd like to see John McCain dive into that wonderful private market and get himself a health insurance policy.
Oh, I forgot, he's already covered under a privileged group policy and under socialized medicine, er...Medicare.
Posted by: Pug | September 16, 2008 4:55 PM
I want to see single payer health care. As long as most people feel that their health insurance is fine through their employer we will never get there. Obama's plan surely will not get us here.
Maybe McCain's approach will make things worse and get us to single payer.
Posted by: Larry | September 16, 2008 5:39 PM
I want to see single payer health care. As long as most people feel that their health insurance is fine through their employer we will never get there.
Obama's plan surely will not get us here. He will make an attempt that will only make what we have now marginally better.
Maybe McCain's approach will make things worse and get employees to the point where they will want single payer.
Posted by: Larry | September 16, 2008 5:41 PM
The analysis here ignores the fundamental problem with Healthcare, its costs are too high, which McCains plan typically addresses. The problem with our Healthcare, is someone else always pays. McCain has to do a better job on explaining how he plans to bridge the current system with his own, and how he will handle pre existing conditions scenarios better, but his plan addresses the fundamental problem. As I understand Obama's plan, he wants employers to pay a tax if they dont offer it, which in the end will either continue the "service for free" mentality of the consumer, thus increasings costs, or drive many employers to just pay the 4% and be done with it because they wont be able to compete with the govt plan and it will be cheaper to manage. If everyone went to a single payer model, you still dont solve the cost problem, you only move it to another entity - who is far less capable of administering then the private sector. I'd greatly like to see McCain refine his plan to cover some of the holes, but if cost is the fundamental problem, creating a true free market system is the solution, not govt mandates and subsidies.
Posted by: pacifica | September 16, 2008 7:45 PM
As someone with a pre-existing condirion that means I will never, ever get insurance ever again-- please contemplate what that would be like, MBP, because you know what? It's your future too-- few of us get healthier as time passes-- I spit on McCain's "proposal". It simply has no connection to reality, and it's especially delusional coming from a man who, if he hadn't spent his entire life on government insurance, would be just like me, living in terror that the inevitable will happen.
John McCain not only has no compassion for the people he hopes to lead. He also has no self-awareness. He seems to think that just because he's HIM, he gets treatment for cancer forever. Doesn't know that in the real world, cancer "recurrents" DIE, yes, DIE, because no one will insure someone who has ever had cancer, like, say, JOHN MCCAIN.
All I want is his insurance-- you know, provided and required and vetted by the government. McCain has had that all his life-- ALL HIS LIFE-- and has survived 4 bouts of cancer because of it. But you know what? He thinks no one but him deserves that. His arrogance, his lack of compassion, and his lack of self=knowledge all make him incapable of truly leading this country. He thinks, apparently, that he deserves topflight medical care, but none of the rest of us do. I don't think that is the attitude of a leader of a democracy.
Posted by: Petra | September 17, 2008 1:59 AM
pacifica-- yes, healthcare costs are a problem in the US. Why? Because companies are trying to make a profit. Health care is far more expensive as a percentage of GNP here than in other developed nations. Why-- they have national health programs.
Controlling costs would be nice... but the American way of controlling costs is to exclude (and it doesn't even frigging WORK) sick people. So what do you say to me, I ask? I have a pre-existing condition. I can't get insurance. My medication-- the standard medication for a perfectly common condition-- is $2000 a month. Can you afford that? If I don't take the medication, I'll be disabled in a few years. I'm a teacher, and I like to think that being able means I can do some good in this nation of ours, you know, teaching children to read, all that. How cost-effective is it to let me and thousands and millions of other productive Americans to descend into very, very expensive disability, at which time we'll all just, I suppose, get on Medicaid and finally, after our health is ruined, finally get national health care?
Europeans and Canadians don't have to stay up nights worrying about this. Do you think Americans should? Do we really deserve LESS than other countries' citizens?
McCain's program does nothing for the many, many millions of us for whom insurance is an impossible dream. Please, go ahead, explain why that isn't important.
Posted by: Petra | September 17, 2008 2:10 AM
There are too many fallacies in this article to make much of a dent in this comment, but one in particular struck a chord with me.
Mr. Klein argues that creating a national market would undo protections states have imposed by regulation. As examples, he cites the required addition of mental health coverage and breast reconstruction coverage.
What he doesn't mention is that it is precisely this meddling in plan coverage that has driven insurers out of the market and the price of premiums outside the average person's reach.
I've had an individual plan in Washington State for over 30 years. Premiums increased at a very moderate pace until a little over 10 years ago, when an activist Democratic insurance commissioner, whose campaign was heavily funded by chiropractors and trial lawyers, began a concerted campaign to "save" all of us helpless consumers. She required our plans to cover chiropractic care, and just to avoid making the favor too obvious, also acupuncturists, massage therapists, and naturopaths. Plans were forced to accept anyone, regardless of preexisting conditions. Of course, many plans folded altogether and the rest skyrocketed in price. For a while there, it was touch and go whether self-employed people like me would be able to find any coverage, until some of the most egregious excesses of our benefactress were reversed. But many were not and prices have continued to climb as more layers of requirements have been added, most recently mental health coverage, the full price of which has not yet found its way into our premiums. Something else to look forward to.
Government now so distorts the health insurance market that one would think the aim all along has been to destroy it. Hmmm. What would be the good of that? Well, it would turn over a huge chunk of our economy to the power-hungry control freaks who have made such a joke of our educational system. It would destroy our freedom of choice in one more area of our lives, further infantilizing our people, and preparing them for the heavily socialized European life that has so sapped the energy and optimism of Europeans they can't even reproduce at levels adequate to maintain their populations.
Posted by: AnnJo | September 17, 2008 8:40 AM
"It would destroy our freedom of choice in one more area of our lives, further infantilizing our people, and preparing them for the heavily socialized European life that has so sapped the energy and optimism of Europeans they can't even reproduce at levels adequate to maintain their populations."
Somehow I have this vision of lazing Europeans, unable even to enjoy sex. But, just like what AnnJo wrote, this vision has no basis in reality.
Posted by: SteveH | September 17, 2008 12:31 PM
So we are supposed to be "all in" for Obama and believe everything he promises? I doubt universal health will be passed in the next 10 years.
Posted by: jeremy | February 24, 2009 2:01 PM
So we are supposed to be "all in" for Obama and believe everything he promises? I doubt universal health will be passed in the next 10 years.
Posted by: jeremy | February 24, 2009 2:03 PM
Wonderful post! Thanks a lot.
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If you are uninsured and does not have insurance, you should check out the website http://UninsuredAmerica.blogspot.com - John Mayer, California
Posted by: Johnmayer | April 17, 2009 6:03 AM
If you are uninsured and does not have insurance, you should check out the website http://UninsuredAmerica.blogspot.com - John Mayer, California
Posted by: Johnmayer | April 18, 2009 1:30 AM
McCain has to do a better job on explaining how he plans to bridge the current system with his own, and how he will handle pre existing conditions scenarios better, but his plan addresses the fundamental problem. As I understand Obama's plan, he wants employers to pay a tax if they dont offer it, which in the end will either continue the "service for free" mentality of the consumer, thus increasings costs, or drive many employers to just pay the 4% and be done with it because they wont be able to compete with the govt plan and it will be cheaper to manage.
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"Self-funded plans are a dying breed..."
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