An unhealthy proposal

October 6, 2008 | 11:58 AMDavid Zingmond

In the past two weeks, the major candidates have said very little in the way of specifics regarding healthcare. The financial crises that have been rocking the country and the focus on foreign affairs in the first presidential debate moved discussions far away from issues regarding healthcare. However, with the upcoming second presidential debate to focus on domestic issues, discussions regarding healthcare have reemerged. Although California is solidly in the Democratic camp, Obama campaign ads on healthcare have started to air. I have not as yet seen any McCain ads here.

The details of the candidates’ proposals and their parties’ platforms are not fully detailed, but the McCain outline is worrisome, which proposes to tax employer health benefits (as income) and to provide vouchers to families for health insurance. McCain has identified an area of healthcare coverage that is a residual of World War II benefits, when wartime wage controls were in place and companies extended healthcare benefits in lieu of pay increases. Granted that these benefits are not the way that we might want them to be implemented now, but his solution quite misses the mark in the number of ways. In a nutshell, he is proposing to dismantle the current employment-based healthcare system in favor of individuals purchasing health insurance subsidized by vouchers.

The idea of vouchers is based on the premise that there is a competitive market for health plans for individuals in this country and that individuals will make the correct choices regarding purchasing health insurance. In fact, the market for non-employee-based healthcare is a bit of a joke. Ask someone over the age of 40 who has tried to purchase health insurance lately. The average cost per person for healthcare nationally is in the range of $4,000. Individual plans would be higher. As a group, individuals are far harder to insure than a group employed by a single employer. People who are employed at large firms tend be healthier and thus provide a much lower risk pool than the group of individuals who seek insurance from the community. Self-employed and unemployed individuals who seek insurance tend to be sicker because they include a mix of persons who are healthier and a group who are sicker (e.g. too sick to work full-time).

The second issue is the idea that dollars given over to healthcare benefits would be used by individuals on healthcare if these dollars were (1) taxed and (2) redistributed to individuals to spend as they wish. The greater likelihood is that some would decide to not purchase health insurance, chancing that they are either too healthy to get sick or need a physician or that they need those precious dollars for other uses. In tough economic times, basic healthcare can become a luxury. The choice to redistribute healthcare benefits would likely increase disparities in healthcare coverage based upon income and financial resources.

Both campaigns propose to reduce the problem that “pre-existing” conditions have on individuals seeking healthcare insurance. Ever since insurers dropped community ratings and generated different rates for different individuals, groups of individuals have become “uninsurable.” This would be a topic for an entire other entry, but needless to say, even grouping such individuals (as McCain proposes) would not lead to an improvement in their ability to gain health insurance.

I would count the McCain proposal as unreasonable at best. It does not realistically propose to increase healthcare to more people. It does not propose to decrease costs to individuals or to the system as a whole. It does not create a market for individuals to purchase healthcare insurance, nor does it set realistic standards that might govern such purchasing (if we got that far). The only way to make progress in this area is to identify the principals that will ensure solutions. This means pragmatism over ideology. I am not sure that the Republican Party is ready to embrace mandating healthcare coverage for everyone. In contrast, the Obama proposal makes modifications that would ensure an incremental increase in healthcare coverage. I prefer half a slice to nothing at all.

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Comments

David Zingmond says:

Recognizing that the world is imperfect does not mean that you scrap the world. If Senator McCain thinks that individuals who buy their own insurance should have a better way to do so, he should propose a system that does not have such profound up front weaknesses. Paul Krugman wrote about the McCain proposal yesterday in the NY Times. He has some cogent complementary arguments that are worth reviewing.

Mike says:

Mr. McCain recognizes that a large part of the health care problem is that the tax code favors employer funded health insurance. The system which began as a response to FDR's wage and price controls, is built on tax breaks that allow employers to buy health insurance with pre tax dollars. Mr. McCain doesn't want to scrap employer-based insurance. He would keep part of the tax deduction in place, but he wants to fundamentally change the way the system works and instead give the self employed and individuals a tax break for buying their own insurance.

David Zingmond says:

Yes, competition might have the effect of dampening short term direct healthcare costs as firms compete on price (over quality). The $5,000 credit has to be taken in the face of the average of $12,000+ that is the estimated cost of providing healthcare for a single family. The folks who would be least affected by cost considerations would be the wealthiest and the healthiest, while the big middle group of people would be faced with gambling that their coverage could be deferred for a year. Basic healthcare should not be subject to such stresses. At this point, co-pays are increasing and certain items (e.g. cosmetic surgery, treatments for erectile dysfunction, and infertility therapy) are hardly even covered. Yes, increasing direct costs to consumers will get them to change their behavior (and be more cost sensitive), but unfortunately, this situation actually worsens care / behaviors in individuals with chronic illnesses (as shown in the RAND Health Insurance Experiment).

dfp says:

Wouldn’t McCain’s plan tend to suppress the escalating cost of health insurance? I think that for everyone receiving an employment benefit of health insurance, the plan would set a psychological price ceiling of $5,000 (the tax credit) divided by the employee’s marginal tax rate (say 25%). So $5,000 divided by 25% = $20,000. Any plan more expensive than $20,000 would cost the employee something.