September 16, 2008
12:00 a.m. Eastern Time
Experts Critique McCain And Obama Health Plans
Mark Pauly Of Wharton Offers Possible Compromise Blend Of Both Proposals
Bethesda, MD -- What are the key factors and potential problems raised by the health reform plans of presidential candidates Sen. John McCain (R-AZ) and Sen. Barack Obama (D-IL)? How might the plans be improved, and how might the best elements of the two proposals be combined in a compromise package? Those are the topics examined in three papers published today on the Health Affairs Web site. http://content.healthaffairs.org/cgi/content/full/hlthaff.27.6.w462/DC2
University of Michigan professor Thomas Buchmueller and coauthors argue that the McCain plan would strip consumers of protections while producing few actual gains in the number of Americans with health coverage. Meanwhile, Joe Antos of the American Enterprise Institute and coauthors fault the Obama plan for attempting to impose behavioral changes through top-down regulation, rather than addressing the perverse economic incentives that drive health care costs. In a final paper, Wharton’s Mark Pauly outlines a strategy for blending the McCain and Obama approaches to produce a compromise reform plan.
The McCain Plan Critiqued
Senator McCain’s health plan would eliminate the current tax exclusion of employer payments for health insurance, replace the exclusion with a refundable tax credit for those who purchase coverage ($2,500 per year for individuals, $5,000 per year for families), and encourage Americans to move to a national market for nongroup coverage, say Buchmueller and coauthors Sherry Glied of Columbia, Anne Royalty of Indiana University-Purdue University at Indianapolis, and Katherine Swartz of Harvard. As a mid-range estimate, the researchers suggest that 20 million Americans would lose coverage as a result of the elimination of the tax exclusion proposed by the McCain plan. http://content.healthaffairs.org/cgi/content/abstract/hlthaff.27.6.w472
Buchmueller, Glied, Royalty, and Swartz also estimate that a roughly similar number of Americans would use Senator McCain’s tax credits to purchase nongroup coverage with lower premiums but also less generous benefits, with the net result that the number of uninsured Americans would remain approximately the same as today. They warn, however: “Over time, a refundable tax credit would not automatically adjust as health care costs increase -- which is quite different from the current tax exclusion of employer premium payments . . . . Even if the tax credit were indexed to the Consumer Price Index (CPI), if the annual growth in premiums exceeded CPI-measured inflation by 6 percent -- as was the case between 1999 and 2007 -- the value of the credit would be eroded so much that in just five years, five million more people would be uninsured.”
The authors offer several improvements to the McCain proposal, which a prior study by the Tax Policy Center has suggested might cost the government as much as $1.4 trillion over ten years. For example, they suggest that “a publicly funded reinsurance program for the nongroup market
. . . or a system of risk adjustments of that market . . . would make it much easier for higher-risk people to purchase nongroup coverage.” They also advocate means-testing the McCain tax credit and indexing it to the cost of health care.
The Obama Plan Critiqued
Senator Obama’s plan includes a national Health Insurance Exchange (HIE) that would offer individuals a choice of health plans, including -- for those without access to existing public programs -- a publicly funded National Health Plan. The NHP’s benefits would have to be broadly similar to one of the national plans offered to members of Congress and others through the Federal Employees Benefits Health Benefits (FEHB) program, and all other plans offered through the HIE would have to be at least as generous as the NHP. http://content.healthaffairs.org/cgi/content/abstract/hlthaff.27.6.w462
The most popular FEHB plan, the Blue Cross Blue Shield Standard Option, offers a broad array of medical services and carries a monthly premium of more than $1,000, note Antos and coauthors Gail Wilensky of Project HOPE (a volunteer McCain campaign adviser) and Hanns Kuttner, who was until recently at the University of Michigan. If the NHP -- and consequently all HIE plans -- are as costly as this Blues plan, families would not be able to afford coverage without subsidies amounting to “a large new entitlement, raising concerns . . . about the financial sustainability of the reform.” Based on the estimated cost of a similar Commonwealth Fund proposal, Antos and colleagues believe that the Obama campaign’s cost projection of $50-$65 billion a year may understate the true cost of its plan by roughly $100 billion annually.
Antos, Wilensky, and Kuttner offer several potential improvements to the Obama plan. They suggest capping or eliminating the tax exclusion for employer health benefits, and they say that the NHP benefits “should be set at a level that provides high-value coverage and is fiscally sustainable. That almost certainly means a plan that is at the low end of options currently offered through the FEHB program, but it might be lower.”
A Compromise Package
What would a compromise proposal that blended the best elements of the McCain and Obama plan look like? Pauly offers one possible vision. He opposes the “play-or-pay” employer mandate proposed by Obama, under which employers would either have to provide health coverage to their employers or pay a tax equivalent to 6 percent of payroll costs. Such mandates and taxes “have a toxic effect on business views of health reform,” even though economists generally believe that employees pay for their health benefits through lower wages, as well as explicit premiums: “In the tragic paradox of health reform (as illustrated most recently in Massachusetts), substantive employer mandates kindle fierce employer opposition, even though, according to economics, employers are not the major stakeholders but are primarily conduits for payment for workers’ health insurance,” Pauly observes. http://content.healthaffairs.org/cgi/content/abstract/hlthaff.27.6.w482
Indeed, he continues, “Employment-based insurance (whether mandated or voluntary) makes choices opaque if not biased.” Since the tax exclusion for employer-provided benefits also goes disproportionately to higher-income workers, Pauly opts for capping the exclusion and reducing the cap over time. In the exclusion’s stead, he proposes a refundable tax credit that would blend elements of both the McCain and Obama approaches:
Tax credits for insurance would vary inversely with income (as in the Obama plan) but would be available to all households that obtain qualified insurance, whether as group or individual insurance (as in the McCain plan). Insurance options in the individual market would include both private and government-run or -contracted plans, with guarantees of neutral treatment of each. Minimum qualifying coverage would have low out-of-pocket payments for lower-income but more generously subsidized households, but would permit better-off households to choose plans with higher deductibles if they prefer.
Pauly points out that “such compromises could create major financing gaps in each plan,” and he notes: “General revenue taxes would have to be increased to close either gap, and that may be the hardest part of hard reality when it comes to proposing plans to reduce the number of uninsured Americans.”
The article by Buchmueller and coauthors will be available when the embargo lifts at http://content.healthaffairs.org/cgi/content/abstract/hlthaff.27.6.w472
The article by Antos and coauthors will be available when the embargo lifts at http://content.healthaffairs.org/cgi/content/abstract/hlthaff.27.6.w462
The article by Pauly will be available when the embargo lifts at http://content.healthaffairs.org/cgi/content/abstract/hlthaff.27.6.w482
ABOUT HEALTH AFFAIRS:
Health Affairs, published by Project HOPE, is the leading journal of health policy. The peer-reviewed journal appears bimonthly in print with additional online-only papers published weekly as Health Affairs Web Exclusives at www.healthaffairs.org. The full text of each Health Affairs Web Exclusive is available free of charge to all Web site visitors for a two-week period following posting, after which it will switch to pay-per-view for nonsubscribers. Web Exclusives are supported in part by a grant from the Commonwealth Fund.
©2008 Project HOPEThe People-to-People Health Foundation, Inc.