The healthcare reform positions of the two major presidential candidates were each lambasted by rival economists.
by Emily P. Walker, Washington Correspondent, MedPage Today
WASHINGTON, Sept. 18 — The healthcare reform positions of the two major presidential candidates were each lambasted predictably by rival economists in what amounted to a head-to-head adversarial debate, published in Health Affairs.
For instance, after five years under the healthcare plan of John McCain, the number of uninsured people in America would increase by five million, predicted Sherry Glied, Ph.D., a professor and chair of the Department of Health Policy and Management at the Mailman School of Public Health of Columbia University in New York.
But Barack Obama’s plan ignores economic drivers of the healthcare market and could cost $1.1 trillion in 10 years, wrote Gail Wilensky, Ph.D., a senior fellow at Project HOPE in Bethesda, Md., in a paper entitled The Obama Plan: More Regulation, Unsustainable Spending.
Explain that the articles described here are by opposing economists, criticizing the Obama healthcare reform bill on one hand and the McCain healthcare reform plan on the other.
Faulting the McCain plan
In a paper picking apart the McCain plan, Dr. Glied and colleagues asserted that the three major features of his plan will affect actual insurance enrollment rates. Those three features are taxing premiums paid by employers on their employees’ health insurance, introducing a tax credit to be used to purchase health insurance ($2,500 for individuals and $5,000 for families), and allowing people to purchase policies from insurers licensed in other states.
“His plan would alter the nature, source, and financing of coverage for the nearly 160 million Americans who now receive health insurance through their employers,” they wrote.
McCain proposes scrapping the current tax exemption employers are granted for buying coverage for their workers. Under the current system, in order to qualify for the tax subsidy, employers must provide similar benefits to high- and low-wage workers under an IRS nondiscrimination rule.
The current employer-based system has also been shown to appeal to younger, low-risk employees, whose inclusion in their employer’s plan subsidizes the cost of older, sicker workers.
“For these reasons, the tax exclusion has been described as ‘part of the glue that holds employment groups together as risk pools for purchasing health benefits,'” Dr. Glied and colleagues said.
The authors predicted that by peeling away that “glue,” about 20 million people would lose employer coverage because of the high cost burden to the employer. That number does not take into account the low-skilled employees who might lose coverage if their employer discriminated against them, and in the absence of the nondiscrimination rule, only provided coverage to more valued, highly-skilled workers. It also does not take into account the potential cost of breaking up risk-pools if low-risk workers decide not to keep their employer’s insurance.
The article estimates that about 21 million people would take up nongroup coverage under McCain’s plan, which is one million more than those predicted to leave their employer’s plan. So in the short-term, there would be a slight gain in the number of people who are insured.
But the long-term impact is another story, study authors said. The tax credit that McCain’s plan would provide will keep up with inflation, but inflation generally rises more slowly than the annual increase in healthcare costs.
“The value of the credit would be eroded so much that in just five years, five million more people would be uninsured,” the authors contended.
But more notable than the number of people who are predicted to lose insurance, is the type of insurance most people will have.
“The bigger story is that while the level of coverage doesn’t change a lot, the nature of the coverage changes dramatically,” co-author Thomas Buchmueller, Ph.D., told MedPage Today. Dr. Buchmueller is a health economist at the University of Michigan.
The nongroup market on which McCain’s plan will largely rely has major shortcomings, even by McCain’s own admission, the authors said.
Nongroup plans tend to be much less generous than group plans so the quality of insurance coverage would be less, the authors said. The nongroup insurance market also has whopping overhead costs and plans often discriminate against sick people.
Under McCain’s plan, those high-risk people could join high-risk pools in other states, but judging from failures in states that operate such programs (such as Florida, which has not accepted new enrollees since 1991), the $7 billion to $10 billion McCain has proposed to subsidize the high-risk pools won’t provide coverage to more than three million additional people, the researchers said.
McCain proposes to only loosely regulate these markets at the national level. Less government regulation will spur competition and keep costs down while boosting quality, Dr. Buchmueller said.
“Everything we know about nongroup insurance markets, however, suggests that this vision is wrong,” the Health Affairs article authors said.
They said that a national unregulated market would allow insurance providers to ignore state laws, which could cause policyholders to lose out on state insurance laws that require coverage of mental health services, breast cancer reconstructive surgery, and cervical cancer screenings.
Faulting the Obama plan
Meanwhile, Dr. Wilensky wrote that the Obama plan “ignores the core economic incentives that drive healthcare.”
In their article, she and her colleagues focused on a few key features of the Obama plan — the creation of a National Heath Plan, a Health Insurance Exchange, a reinsurance subsidy, a “pay-or-play” requirement for larger employers, and the mandate that all children be insured.
“Each of these extends the control of government over health insurance, imposing new requirements that will drive up the cost of insurance unless the savings from other policies that have been claimed by the campaign actually materialize,” the authors said.
The National Health Plan would offer coverage to those without employer-provided insurance or for those who do not qualify for a government plan. It would be on par with the benefits federal employees receive.
The authors used the most popular federal employee plan to estimate that the plan would cost $1,027.95 a month for family coverage, $713.48 of which the federal government would pay. That remaining $314.47 might be too much for many families to afford, they said, and the government might have to further subsidize the premiums.
“Such ‘affordability’ subsidies would be an ever-growing share of the federal budget if health spending continues its upward climb,” the authors said.
Cost-savings could be realized if lower-end plans were offered, similar to the plan the government offers to mail carriers, or possibly even a cheaper version than that, the authors said.
The Health Insurance Exchange would offer people an array of plans from various providers, who could never deny coverage or turn down an applicant on the basis of health status. Requiring companies to adhere to the standards of the federal employee plan might provide coverage for more people, but it would inevitably drive up costs, the authors said.
The Obama plan would reimburse employers for some costs incurred by extremely high-cost people covered under an employer’s health plan, which Obama has called “reinsurance.” According to the authors, most employers already receive protection for catastrophic health costs, and employers that are self-insured usually purchase coverage for unpredicted costs.
“The Obama provision provides little additional protection against the uncertainty of health spending for the private market,” the authors wrote.
Moreover, deciding which catastrophic costs deserve a bail-out would impose further government regulation.
As for the “pay-or-play” mandate that would require employers to either pay a meaningful portion of their employees’ healthcare costs, or be taxed by the federal government, the added cost burden for the employer would be felt by the employee, the authors said.
“A reduction in pay or loss of jobs would occur whether the employer chooses to offer coverage or pay the health tax,” they wrote.
The authors pointed out that while a hallmark of the Obama plan is the preservation of the employer-based health insurance system, mandating employer coverage may have the opposite effect.
“If the tax payment is low relative to the costs of insurance, employers may decide to ‘cash out’ their insurance contributions and ‘pay’ rather than ‘play’ into the support of the government plan,” the authors said.
A better idea would be scrapping the tax exemption completely and using a tax credit for employees to buy insurance, like that of McCain’s plan, the authors suggested.
Meanwhile, the mandate that all children have insurance would end up harming those who will inevitably still decide against coverage, they said.
Obama has said his plan will save the average family $2,500 a year on insurance premiums. To get an idea of what the plan would cost the federal government, the authors looked at a similar proposal by the Commonwealth Fund that would increase federal spending by about $162.5 billion, not counting the $82 billion the Commonwealth Fund predicted in annual savings from the new plan. In 10 years, the proposal could increase federal spending by $1.1. trillion, even taking in to account the $82 billion in savings.
“That is not exactly an easy load to lift fiscally when you realize one of the reasons we’re talking about healthcare, in addition to, of course, wanting to insure more people, is that the cost of healthcare is rising so rapidly that it is becoming less and less affordable,” co-author Joe Antos, Ph.D., a Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute, told MedPage Today.
“Adding a trillion dollar bill over the next 10 years doesn’t really sound like a great way to make healthcare more affordable,” he said.
A hybrid plan
Aiming to reach common ground, a third article by Mark Pauly, Ph.D., a professor of Health Care Management at the Wharton School of the University of Pennsylvania, suggested that blending some elements of both plans would make for “an appropriate give and take.”
Dr. Pauly suggested that some elements, such as increased options and leaving the ultimate decision up to the consumer, are common to both plans.
Dr. Pauly said Obama’s plan mandates and McCain’s elimination of the tax exemption for employers who provide coverage to employers can “have a toxic effect on business view on health reform.”
A hybrid plan would offer multiple individual and small-group options but also maintain group insurance for those who prefer it to participating in a more costly individual market. It would rely on the tax credits of McCain’s plan, but would make those credits correlate to income, so the richest people aren’t receiving the same flat rate as the poorest people.
The plan would contain McCain’s idea of guaranteed-renewability of one’s plan at the same rate, hopefully preventing the need for high-risk pools, assuming people get insurance when they are healthy so their coverage is continuous if they have a medical emergency or develop a health problem.
For the hypothetical combo-plan to work, McCain would have to accept that public plans are an option and that tax credits need to be adjusted based on income, while Obama would have to give up his pay-or-play plan for employers and agree to paying credits to employees instead.
On his academic Web site, Dr. Pauly reported consulting for the U.S. Department of Health and Human Services, Merck, and the American Enterprise Institute.
Reviewed by Zalman S. Agus, MD; Emeritus Professor, University of Pennsylvania School of Medicine.
Published: September 18, 2008
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