[Ccarc] Healthcare...the future is scary!

[Tom Murray]

Why McCain has the best health-care planHis
is the only one of the candidate proposals that has a chance of getting
medical costs under control. An argument for some free-market sanity.By Shawn Tully, editor-at-large    Sen. John McCain, R-Ariz.Is '70s-style stagflation back?More Videos



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(Fortune
Magazine) -- Fellow Americans, choose your revolution. One way or
another, we're getting a new health-care system. The old one is
obviously broken. The U.S. now has 47 million uninsured, and costs are
out of control. The Department of Health and Human Services predicts
that if things continue as they are, health spending will almost double
by 2017 to $4.3 trillion, or one-fifth of GDP, vs. 16% today. The
crisis has gotten so severe that fixing the system is no longer a
partisan issue. Everyone understands that something has to change, and
fast. In this presidential race, both sides are proposing radical fixes
that would totally transform the way health care is delivered and paid
for in America. Both the Democrats and the Republicans embrace the same
goals: John McCain, Barack Obama, and Hillary Clinton are all putting
forth ways of making health care affordable for every American and
stopping a disastrous escalation in costs. Both sides also envision a
world where employers play a much smaller role in medical benefits. The
differences, of course, are in the way each candidate intends to reach
those laudable goals. In essence, McCain wants to create a kind of
national insurance market that shoves more decision-making power into
the hands of consumers; the Democrats are aiming for a Medicare-like
federal superprogram. (We'll stick with the "Democrat" label in this
story. The nominee status was still unclear at presstime, and,
intraparty sniping notwithstanding, the Clinton and Obama plans are
extremely similar.) So far, the press and public haven't paid
much attention to the implications of these dueling visions. This stuff
is complicated, and the most revolutionary provisions are buried deep
in jargon-filled position papers. But parsing the plans is worth the
work: This issue is crucial to America's economic future, and the
differences between McCain and the Democrats are profound. Who has the best plan? Both have huge flaws, but on balance McCain's is better. McCain's
main pillar is the elimination of a tax break that employees receive if
their employer provides their health care. That may not sound like a
shocker, but it is. The exclusion dates from World War II, when the
federal government imposed controls on wages, but allowed companies to
compete for workers by offering tax-free health benefits in lieu of
pay. The law is largely responsible for the nightmarish patchwork of
corporate-provided medical plans we enjoy so much today. Employees and
their unions demanded richer and richer packages, and employers
complied, since they could buy far more benefits for their employees
than workers could buy with after-tax dollars on their own. Americans
have paid a steep price, however, by sacrificing their raises as
corporate insurance bills exploded, never more so than now. McCain
suggests that we junk all that. Say you're earning $100,000 a year and
your company provides about $9,000 toward your $12,000 family premium,
which is about average. Today you're taxed only on the $100,000. Under
McCain's plan, you'd also pay on the $9,000. That could mean an extra
$3,000 or so in federal taxes alone. To compensate for the extra levy,
McCain would provide a $2,500 federal tax rebate for individuals and
$5,000 per family, meaning a family would simply subtract $5,000 from
its tax bill, the equivalent of a big cash payment. Here's
where it gets interesting. Employers would no longer be able to buy
more health care with $9,000 of their employees' money than the workers
could buy on their own. The raison d'être for corporate health benefits
would vanish. Employers have another compelling reason to pass the ball
to the employee: While wages are rising around 3% ayear, their
health-care costs are growing at three times that rate. "I predict that
most companies would stop paying for health care in three to four
years," says Robert Laszewski, a consultant who works with corporate
benefits managers. Hence, an employer that pays $9,000 for your
benefits would simply pack an extra $9,000 a year into your paycheck.
(Why? Because in a competitive labor market, companies would have to
hand over that cash to employees or risk losing them.) So you'd have
$6,000 after tax, plus the $5,000 family credit, to buy insurance.
That's $11,000 in new cash that employees can set aside for health
care. So what types of policies would they buy? Employees (and
their families) with corporate plans - about 150 million Americans -
would probably rush toward high-deductible, low-premium insurance, and
use what's left over to pay cash for routine procedures. They would
couple those high-deductible policies with Health Savings Accounts,
which allow families to put away up to $5,800 ayear, before taxes, for
medical expenses. Those plans cost about $10,000. That's not a huge
saving from the typical $12,000 corporate plan, but it's a start. More
than four million Americans already have HSAs, and the McCain plan
would make portable, high-deductible plans the product of choice for a
new generation of healthcare consumers. Besides eliminating the
employer exclusion, McCain's plan boasts another nice feature. It would
allow consumers to choose an insurance plan that suits their stage of
life. If you're young and healthy, for example, you probably want the
cheapest plan you can get. If you're 45 and have four dependents, maybe
you want something a bit more expensive and generous. Nine states,
including New York, California, and Texas already require that as many
as 50 benefits be covered, a list that ranges from in vitro
fertilization to mental health services to prescription drugs. These
requirements increase the cost of insurance; they're a major reason
young people have dropped their coverage. Under the McCain plan,
insurers in any state would be free to offer the plans with a vast
variety of deductibles, co-pays and benefits. UnitedHealthcare and Blue
Cross/Blue Shield plans already provide a menu of packages tailored to
groups as varied as Gen Xers and retirees. The problem with
McCain's approach - and it is a huge problem - is that McCain ventures
so far toward total laissez-faire liberty that he risks leaving the
poor and sick behind. Here's why. Perhaps his most drastic proposal is
allowing the same insurance products to be sold across state lines.
That seems to make sense, and maybe it does: Look what interstate
banking has done for pricing and choice in financial services. But in
health care, the upheaval would be so brutal that it scares even the
most ardent free-marketer. Many states have some form of what policy
wonks call "community rating." Under pure community rating, insurers
must charge all customers the same premium no matter whether they're 20
or 55, or whether they have cancer or are models of good health. McCain
is targeting community rating for good reason. It forces the young and
healthy to pay far more than their actual cost by making them subsidize
the elderly and sick. Like the mandated benefits, it's pushed millions
of Americans in their 20s to drop their health insurance. But
under the McCain plan, states with no restrictions - Pennsylvania, for
example - could sell policies for 25-year-olds that cost around $1,200
a year, one-third the price in New York. Young New Yorkers would drop
their plans in favor of Pennsylvania providers, forcing New York
insurers to jack up premiums for people in their 50s or early 60s, who
need those rich, community-rated plans that cover as many procedures as
possible - but who no longer benefit from the excessive premiums paid
by the youngsters. It gets worse. Anyone with cancer, diabetes, or
other pre-existing conditions will see their premiums multiply too. To
his credit, McCain does have a plan for relatively young, low-income
Americans who can't afford insurance. "We would increase the tax credit
according to income so that poor families could buy insurance," says
Douglas Holtz-Eakin, McCain's policy director. But McCain sorely lacks
a plan for people in their 50s without corporate benefits, and
Americans with pre-existing conditions, who would be brutally stripped
of coverage if insurance crosses state lines. "For his plan to work,
McCain has to tell us how he would deal with the old and sick," says
Jon Gruber, an MIT economist. "If McCain doesn't tax the healthy to pay
for pre-existing conditions, as happens under community rating, he has
to tax the taxpayer. That means his plan will require huge subsidies
he's not talking about." NOW FOR THE DEMOCRATS. The core
of their plan is a "pay or play" option for employers. Large companies
would have the choice of either providing benefits for workers or
dropping their coverage. If they chose the latter, they would pay a
mandatory payroll tax to support a new government-administered system.
That system would have two parts: a Medicare-like public program, and a
menu of private options similar to the generous plans available to U.S.
government employees today. Workers who are self-employed or lack
insurance would go straight into one of these two options. Low-income
Americans would receive federal subsidies to purchase the premiums. In
practice, the system would quickly swell the ranks of Americans with
government-paid health care. Remember, health-care costs are rising far
faster than wages, so companies have a strong incentive to pay the tax
and erase that rapidly growing burden from the books. It's also likely
that the government plan will offer better benefits than many, or
perhaps most, corporate plans. In fact, the Democrats call for rich
standard benefits packages based on the plan offered to federal
employees. Those packages would have deductibles of just $300 and offer
prescription drugs, mental health benefits, and "spinal manipulations"
(i.e., chiropractic services), among a cornucopia of other benefits. As
a result, the federal plan, potentially packed with new benefits pushed
for by lobbyists for various medical specialties, will quickly cause an
exodus from employer plans. The standard benefits package isn't
just a bad idea because it will substantially raise the cost to
taxpayers. It will also make it virtually impossible for Americans to
buy insurance tailored to their needs. Suppose you're one of those
25-year-olds. You probably don't want to spring for a full-blown plan
that covers old-age diseases like Alzheimer's and would rather save
some money and go with a low-premium, high-deductible plan. But the
Democrat approach requires that any competing plans be "actuarily
equivalent" (Clinton's term) to the federal employee plan - which
translates as a generous minimum standard for health insurance. "With
that mandate, you rule out high-deductible plans," says Gruber. "It
would make it very difficult to design one that would qualify." The
Democrat proposals have some additional drawbacks. First, the Dems want
to heavily regulate the insurance industry by limiting everything from
profits to marketing expenses. If the earning power of insurers is
determined by federal regulators, their pricing will be too, and thus
they will evolve into the equivalent of public utilities. Would you
rather have medical prices set by fiat or by nationwide market
competition? Second, the Democrat plan exacerbates the
fundamental problem in the American health-care system, which is that
no one has any incentive to care about price. (How much is that MRI
center charging for your ankle scan? Who cares? Just hand over the $50
co-pay and never you mind.) Creating a huge new medical superstructure
would shift far more spending to third-party providers, chiefly the
federal government, giving consumers even less incentive to concern
themselves with the price of an MRI - or any other service, from an
elective wart-removal procedure to a life-saving heart bypass. "The
Clinton and Obama plans would enormously increase total health-care
spending, but disguise the extra costs by shifting them to taxpayers,"
says John Sheils of the Lewin Group, a research firm that does
statistical modeling for health-care plans. Despite all that,
the Democrats' plan probably beats McCain's if you're scoring on
political viability. Their program doesn't involve anything that smacks
of a cut in benefits, and it's just easier to win with largesse. But
on economic merits, McCain wins. For all its problems, at least it puts
the consumer in charge. Would that create a world where we're forced to
dicker with heart surgeons? No. It will create a world where health
care is treated as the precious resource that it is, rather than a
costless entitlement; where nationwide competition pushes down the
price of catastrophic care and consumers focus their attention and
budgets on what's really crucial to their health. That's an important
first step. The price of health care is never going to get under
control until patients get what they deserve: the right to be customers
too. REPORTER ASSOCIATE Christopher Tkaczyk contributed to this article. First Published: March 11, 2008: 5:40 AM EDT	
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