Overhauling health care: Two divergent visions

Msnbc.com is presenting a weekly series, Briefing Book: Issues ’08, assessing the issues and controversies that the next president will confront.

This week, we look at the starkly different plans to reform the nation’s health care system put forth by John McCain and Barack Obama.

Will voters embrace McCain’s move to tax the health benefits employers provide, creating instead a tax credit they can use to buy private insurance in an increasingly competitive, deregulated market?

Or will they support Obama’s plan that requires employers to provide health insurance or pay taxes, and creates a new national system of private and public options that strictly regulates insurers and guarantees access to care — with the federal government footing the bill?

“There are lots of issues where candidates try to fudge their differences,” said Jonathan B. Oberlander, an associate professor social medicine and health policy at the University of North Carolina at Chapel Hill. “This is not one of them. There is a clear contrast here and ordinary people can get a clear sense of what the candidates believe.”

Why it’s a problem
Health care costs in the United States have been rising exponentially for years, topping $2.2 trillion in 2007, about three times the $714 billion spent in 1990, according to federal estimates. That amounts to nearly $7,500 per person in the U.S. and accounts for 16 percent of the nation’s Gross Domestic Product, or GDP.

At the same time, nearly 46 million Americans remained uninsured last year, and many more struggled to keep up with the rising costs of insurance premiums, deductibles, co-payments and other out-of-pocket medical expenses.

Last spring, nearly three in 10 Americans reported that they or their families have had a tough time paying for health care and insurance after the recent downturn in the economy, according to the Kaiser Family Foundation. And nearly four in 10 said difficulty paying medical bills was leading to serious financial problems, including not paying other bills, going without food or heat, or declaring bankruptcy.

Such forces have kept health care as one of the top five issues cited by voters in three out of four presidential elections since 1992. In July, 73 percent of 2,905 people in a telephone survey ranked health care as “very important” in determining how they’d vote, according to a poll by the Pew Research Center for People and the Press.

Where the candidates stand
Perhaps no other issue so sharply delineates the philosophical differences between the candidates and their parties, Oberlander said.

The McCain plan is based on classic conservative philosophy that focuses on market-driven solutions and strong individualism. “It emphasizes individual responsibility and promotes competition as the answer to high health costs,” Oberlander said.

The Obama plan, on the other hand, is rooted in the notion that the health care market cannot work without government regulation, that substantial federal oversight and investment are required. “The federal government has to take a strong role in making insurance accessible and affordable for Americans. It’s a shared responsibility between government and employers,” explained Oberlander.

Here’s how each candidate plans to achieve those goals, based on information from campaign speeches and Web sites, and from analysis by national health policy experts.

McCain: Tax credits will stimulate competition, choice
McCain wants to overhaul the existing system of employer-based health insurance that now covers more than 60 percent of the non-elderly population in the U.S.

The most revolutionary component of his plan, and possibly the most controversial, is a proposal to tax workers on the benefits their employers now pay for health insurance.

McCain proposes to eliminate the current tax exclusion for employer-paid premiums, and to use revenue generated — an estimated $3.6 trillion over 10 years — to create refundable tax credits of $2,500 for individuals and $5,000 for families.

People could use the credits either to offset the higher taxes from the employer benefits or to purchase private insurance on the open market.

At the same time, McCain wants to move Americans toward a less regulated private insurance market.

“Insurance companies would no longer take your business for granted, offering narrow plans with escalating costs,” McCain said in a speech earlier this year. “It would help change the whole dynamic of the current system, putting individuals and families back in charge and forcing companies to respond with better service at lower cost.”

He theorizes that Americans receiving a fixed credit would be more careful with their health dollars, seeking out lower-cost, less-comprehensive plans and forcing insurers to compete for their share.

McCain wants to eliminate existing restrictions of insurance sales across state lines, allowing people to buy policies nationwide. Currently, insurance is regulated on a state-by-state basis, with some states imposing strict coverage requirements.

McCain also proposes a “guaranteed access plan” to provide care for people unable to acquire insurance on the open market because of pre-existing conditions or catastrophic health problems. The campaign estimates costs at between $7 billion and $10 billion.

The Republican candidate also hopes to reform Medicare to require payments for entire episodes of care, not single procedures, and to pay on the basis of outcomes, not services provided. He wants to emphasize cost savings from prevention, improvements in medical technology, faster approval of generic drugs and medical malpractice reform.

Obama: Access for all and stricter rules for insurers
Obama, on the other hand, wants to build on the existing employer-based health insurance system, expanding it with a National Health Insurance Exchange that would provide a choice of vetted private insurance options and offering those without care access to a new federally funded National Health Plan, similar to the existing Medicare program.

Obama is calling for a mandate dubbed “play or pay” that requires employers to either offer health insurance to their workers or to pay a tax to help fund public care. He wants to require care for all children, and to provide subsidies to help low-income people afford coverage.

The Democrat wants to strictly regulate insurance companies to end policies that allow firms to charge higher premiums or deny insurance for certain problems.

“My plan begins by covering every American,” Obama said in a speech in May. “ . . . If you are one of 45 million Americans who don’t have health insurance, you will have it after this plan becomes law. No one will be turned away because of preexisting illness or condition.”

Obama proposes to establish a federal reinsurance program that would subsidize businesses for the cost of care for certain people facing catastrophic conditions, keeping premiums low for the rest of the healthier workers. And, like McCain, he hopes to save money by cutting administrative costs for private insurance, implementing technological improvements and promoting prevention and management of chronic diseases.

The campaign estimates the cost of the expanded programs at between $50 billion and $65 billion, paid for primarily through expiration of tax cuts enacted in 2001 and 2003 for families that make more than $250,000 a year and in cost savings from improvements in prevention and treatment of chronic disease and medical records technology.

The Urban-Brookings Tax Policy Center at the Brookings Institution, a Washington, D.C., nonprofit, nonpartisan policy center, notes that Obama has proposed raising the payroll tax for those earning more than $250,000. The center assumes that would include a 2 percent income tax surcharge on adjusted gross income above $250,000 for couples and $200,000 for others, and an additonal 2 percent payroll tax for employers on workers above those levels. That could increase taxes on high-paid workers by nearly $400 billion over a decade.

What the analysts say
First, analysts emphasize that the health reform plans offer citizens a general guide to the candidates’ views, but may be lacking in crucial details.

“Campaign documents should be thought of more like the watercolors of impressionists instead of photographs or blueprints,” said Len Nichols, director of the health policy program at the New America Foundation, a nonprofit, nonpartisan public policy institute.

In McCain’s case, one key detail missing from the plan is whether the tax credits created by eliminating employer-based tax benefits would keep up with the cost of medical care, analysts said.

At first, many Americans would benefit from the shift, said Jennifer Tolbert, a principal policy analyst with the Kaiser Family Foundation. The $2,500 individual credit and the $5,000 family credit likely would offset the higher taxes from employee benefits — with money left over to deposit in a Health Savings Account to pay other expenses.

For example, $12,000 is the average benefit for health care for a family and employers pay taxes on about 75 percent of that, she said. People in the 35 percent income tax bracket would see an additional tax of about $3,150, but they’d receive $5,000 for family care.

“In that case, the family would come out ahead,” she said.

But the costs of health care are rising much faster than inflation, noted Oberlander and others. It’s not clear whether the McCain plan would accommodate that rise, or how. If it doesn’t, costs could soon eclipse the credit.

“The value of it seriously erodes over time,” Oberlander said. “All those people who were doing well in year one and two, in year nine and 10 they’re not doing so well.”

McCain plan helps the young and healthy
The McCain proposal primarily benefits the young and the healthy, who almost certainly would be able to use the tax credit to obtain cheaper coverage in the private insurance market, Nichols noted. Older people and those with medical problems would face much higher premiums.

“Me, I’m 54, slightly overweight, with a terrible family history of disasters, I’d have to pay a lot more,” he added.

Even people with mild existing problems such as asthma or allergies could have trouble obtaining affordable insurance, noted Tolbert.

More concerning, analysts said, is the likelihood that many young, healthy people would choose the cheaper private options, leaving older, sicker people to be covered by the employee plans, said Paul Fronstin, director of health research programs for the nonprofit, non-partisan Employee Benefit Research Institute, or EBRI.

“At some point, employers will reevaluate why they’re still offering benefits,” he said. “We could see the end of employer-sponsored health care.”

That could shift more people into the ranks of the uninsured, though the numbers aren’t clear.

At the same time, the plan to allow cross-state insurance sales essentially would deregulate the private insurance market, Oberlander said. While the McCain camp emphasizes the virtues of competition, the move likely would prompt healthy people to buy cheaper, accessible policies in states with less regulation, leaving states with coverage mandates and other restrictions to serve sicker people.

Uninsured may stay the same
“If New York loses the healthy people to Pennsylvania, that can’t work,” he said.

The move to create guaranteed access plans to cover uninsurable people likely would face the hurdles already experienced by more than 30 states that have high-risk pools. And it almost certainly would cost more than the estimated $7 billion to $10 billion, Nichols said.

“When you get down to it, it probably would cost 10 times that,” he said.

Overall, the McCain plan offers a more flexible, portable insurance system that makes consumers more mindful of skyrocketing costs and provides a realistic funding source by repealing the tax exclusion. But it likely would do little to solve the crisis of the uninsured.

“Most people who are uninsured would remain uninsured,” Oberlander said.

The Brookings Institution estimates that the McCain plan would trim the uninsured by 1 million in 2009 and nearly 5 million by 2013. After that, the numbers would rise as the tax credit failed to keep pace with premiums. Obama would reduce the uninsured by 18 million in 2009 and 34 million by 2018, the center notes. Even under the Obama plan, however, 34 million Americans would still lack insurance in 2018.

McCain likely would face an uphill battle convincing Congress to accept his plan, analysts said.

"Is a Democratically-controlled Congress going to vote to tax people's health care benefits?" Oberlander said. "I don't think so."

Obama offers more coverage, but at what cost?
Cost is the key detail missing from the Obama health reform plan, critics say.

The campaign has not said how large the tax would be for businesses that opt not to offer insurance, or how small a business would have to be to be excluded from the requirement. If the payroll tax is too low, say 6 percent, many businesses will opt to pay it instead of offering insurance, sending their employees into the public program and boosting federal costs, he noted.

And although Obama repeatedly has said that he’ll offer Americans health benefits similar to those provided to members of Congress, the kind of comprehensive coverage provided by the most popular federal program has a price tag of more than $1,000 a month, according to an article in a just-released issue of the journal Health Affairs.

“I think the potential downside of the plan is the cost and the affordability,” said Tolbert.

The Obama plan would provide access to insurance to all, which would be “a revolution,” Oberlander said.

But the cost of covering the uninsured is likely $120 billion, far higher than the estimated $50 billion to $65 billion the campaign expects to spend, he noted. The taxes Obama hopes to gain by raising rates for people who make more than $250,000 a year were set to be absorbed into the nation's budget after 2010, anyway, Oberlander said.

Obama's proposal also could face fierce opposition from industries he hopes to regulate. There is some concern, for instance, that insurance companies facing stricter regulations would simply opt out of certain lines of business, just as property insurers are fleeing Florida and Mississippi after repeated hurricanes, Fronstin said.

However, Obama's plan to shift the some of the costs of catastrophic care to the government would help ease that issue, he added.

In addition, mandated employer coverage has faced fierce opposition in the past and likely will again, Nichols said.

Another issue that the campaign hasn't addressed is whether the nation's costly Medicare program, now topping $450 billion a year, could help pay for covering the poor. Critics contend that if Obama were to accept some degree of means testing for wealthier people enrolled in Medicare, he'd have the money he needs to pay for his new proposals. But cutting benefits for the vocal wealthy could be tough politically.

Overall, analysts said Obama’s plan would provide nearly universal access to health care and necessary regulation of quality, but at a far greater cost than anticipated.

“It depends on political will, my friend,” Nichols said.

Surprises for a new president
Whoever winds up in the Oval Office will not be able to dodge health care as a central issue, Nichols added.

If McCain wins, he will not be able to escape the realities of a confrontational Congress loaded with Democrats. If Obama wins, he'll have to grapple with many of the same issues and the inertia that has confounded health reform for decades.

But Nichols said growing desperation for reform may trump all of those hurdles.

“I just think we’ve waited so long that the middle class angst about cost is so great they can’t ignore it anymore,” Nichols said. “The next president, I believe, has to take it on because the forces that got to this point in the debate are not going away.”

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