Health and the US presidential campaignsBMJ 2008; 337 doi: https://doi.org/10.1136/bmj.a1672 (Published 23 September 2008) Cite this as: BMJ 2008;337:a1672
John McCain and Barack Obama offer two very different visions of the healthcare future.1 2 While neither moves to a single payer system that provides automatic universal coverage, there is a substantial spectrum between single payer and the current predicament in America.
Tale of two markets
Americans who have employment based insurance receive a substantial tax subsidy since the dollar value of their insurance benefits is not counted as taxable income. There are also other benefits. Employers buy their insurance in group markets, which are not only cheaper but do not subject individual employees to medical underwriting—discrimination through higher prices and exclusions from coverage based on actual or predicted medical needs. Therefore, people with employer based insurance have better access to insurance. In addition, the group policies generally offer more substantial benefits than individual policies. Often, employer plans have lower initial out of pocket costs, more preventive benefits, and better protection against catastrophic costs.
Americans whose employers do not offer health insurance do not receive the automatic tax subsidies to purchase insurance that come with employer plans and thus bear the full cost. Buying their insurance as individuals, they generally have access to fewer benefits, pay the highest administrative costs as a percentage of premiums, and face the most aggressive medical underwriting.3 Premiums in the individual market can be as high as five times the average premium of roughly $12 000 a year in the employer market.4 5
Mr McCain proposes to eliminate the tax benefits of employer sponsored insurance. This means that the dollar value of the insurance will be taxed as income. The better the benefits, the higher the tax will be, thereby encouraging people to seek less generous benefits and removing the incentives to maintain employer sponsored insurance. For middle income employees in larger companies with comprehensive insurance benefits, adding $12 000 to $15 000 to their taxable income could result in a large tax increase. For workers on more modest incomes, the effect would be even greater.
Mr McCain proposes to substitute the tax exemption with a universal flat tax credit of $2500 for individuals and $5000 for families.1 People can apply the tax credit to the purchase of insurance in the individual market. Since the average family premium in employer plans is $12 000, the average family will experience a shortfall of about $7000 if employers discontinue coverage, assuming they can get the advantageous premium rate afforded to employer plans. This will create strong financial incentives to buy policies with fewer benefits. If the price of the benefits is below the amount of the tax credit, people could end up with extra cash from the tax credit to be deposited in a health savings account to help offset future out of pocket expenditures.
To replace the loss of the incentives supporting employer based insurance, Mr McCain is relying on an invigorated individual market, which currently insures only 6.5% of Americans.3 Consistent with his free market approach, Mr McCain requires no contribution by employers or mandates to individuals to have insurance. To expand the individual market, Mr McCain proposes to free the insurance industry from state based regulation that currently requires minimum benefit levels. He would then allow insurance companies and associations to offer varied insurance products across state lines or nationally. Mr McCain expects that this unfettered market opportunity will entice insurance companies to start offering low benefit, low cost options.
Medical underwriting would continue in these regional or national markets for individual insurance. To cover people with serious pre-existing medical conditions, Mr McCain proposes to use federal revenues to expand state sponsored subsidised high risk pools and develop other private consortiums to offer insurance to the “traditionally uninsurable,” who will get income based subsidies to help pay for high risk insurance.1 6
While Mr McCain seeks to convert existing group insurance into an individual market, Mr Obama proposes to convert the individual and small business market to a group market similar to that of large employers and public plans. His proposal maintains the tax subsidies for employer sponsored insurance.
The engine of this large group market is the organisation of a national private insurance marketplace under the auspices of the federal government. The Insurance Exchange would mirror the federal employee health benefit plan, which provides health insurance to all federal employees including members of Congress, the president, and the Supreme Court. As an alternative to the Insurance Exchange, people can choose to enter a public plan similar to Medicare.
The stated goal is to give all Americans access to the same benefits that members of Congress have and assure comprehensive coverage. Large employers must contribute to coverage while small employers receive subsidies to provide employer sponsored insurance. Individuals receive subsidies on a sliding scale based on income rather than the flat tax credit proposed by Mr McCain. Mr Obama’s proposal rests on the assumption that the substantial purchasing power of these large pools, both public and private, will further constrain costs as the large public pools have in Medicare and Europe.
Medical underwriting is eliminated. Accordingly, high risk pools are unnecessary as risk is spread broadly to dilute the effect of people with large medical expenses. Mr Obama’s plan requires all children to have insurance, thus achieving universal coverage for children that Medicare has achieved for elderly people. He does not, however, require adults to have health insurance, as is the case in many European Union countries.
Effects of reform
Mr McCain’s approach seems unlikely to reduce total health system costs, expand the number of Americans with insurance, enhance continuity of care, or reduce individual financial exposure. Currently, half of bankruptcies in the US result from medical expenses, three quarters of which concern people who were insured at the onset of illness.7 The McCain plan seems likely to inflate those numbers. Individual purchasers simply do not have enough power to negotiate prices with insurance companies. Rather, it seems likely that more spending will be shifted away from the insurance product and directly to individuals. People will respond to the incentives to buy lower value policies, exposing themselves to more financial risk and interruptions in care.
With the continuation of medical underwriting, people will continue to be excluded from insurance. The state high risk pools proposed by Mr McCain historically have been plagued by low consumer participation because of inadequate subsidies and weak revenue sources.3 High risk pools also fail to protect people with less serious conditions who are not technically uninsurable but must pay extremely high prices for insurance.
Adding dollars to the individual market subsidises the least efficient, administratively top heavy, most exclusionary part of the system. Put another way, this approach could eliminate existing employer coverage for many families while providing no robust alternative source of insurance. It is estimated that roughly 20 million employers would stop offering health insurance benefits.8 This shift from a group based employer market to an overwhelmingly individual market would represent the largest shift in the burden and organisation of insurance in 70 years. A joint study by the Urban Institute and the Brookings Institution of President Bush’s proposal— which Mr McCain’s plan closely tracks—indicates that such strategies could increase the number of uninsured among lower income people with existing health conditions.9
Mr Obama’s proposal to give all Americans access to large group pools and comprehensive benefits combined with guaranteed affordability and an option to have public insurance represents a sea change in the availability of insurance in the US. With universal coverage for children, guaranteed access to comprehensive benefits, subsidies based on ability to pay, maintenance of employer sponsored insurance, and consolidated purchasing power to bring down costs, Mr Obama’s plan will insure a large percentage of those who are currently uninsured. By offering comprehensive benefits, it should largely eliminate the bankruptcy patterns associated with American health care. How broad the expansion of coverage is will depend on the adequacy of the income based subsidies and the success of outreach to enroll people in newly available insurance mechanisms.
At the heart of the differences between the plans are different views of what drives health system costs. The McCain plan reflects the belief that aggregate individual choices drive health spending. Thus, Mr McCain focuses on shifting costs to individuals as a hammer to drive down demand for health services and limit benefits. Mr Obama’s plan reflects a view that individuals have little control over total health system costs and that large market forces must be harnessed to bring down costs and improve access.
The likelihood of reform will depend heavily on the engagement of the American public to provide the political energy to bring about change. The challenge for political leadership is to make sure the public fully understands the implications of their choices.
Cite this as: BMJ 2008;337:a1672
Competing interests: BMS was senior health policy adviser (unpaid) to the presidential campaign of Senator Christopher Dodd in 2007-8.