05 May 2008

The Flip Side

I've read a lot about Hillary and Obama's competing health care plans. With little fanfare this past week John McCain released his vision for solving America's health care crisis. I finally had a chance to sit down and really review McCain's plan for health care. The verdict? It's bad, about as bad as you would expect from this "moderate" "independent" "maverick" who somehow happens to embrace every last jot and tittle of the most extreme right-wing ideology. Really, short of an official policy of "screw it, you're all on your own," it's about as bad as you could ask for.

Now, understand, that nothing about this plan is particularly novel or innovative within conservative circles. The fundamental premises are:
  • Americans have too much insurance.
  • Because they have too much insurance, they are insulated from the true cost of health care.
  • Because American consumers do not individually bear the full cost of health care, they utilize too much health care, or health care that is overpriced.
  • By shifting the risk and cost of health care spending onto the American people, it is possible to limit wasteful health care spending.
Those ideologues who accept these premises as dogma will love McCain's health care plan. There are many features of the McCain plan which, derived from these principles, will predictably wreak havoc on the health care financing system as it currently exists in this country. While the consequences for consumers may be dire or even catastrophic, to the right wing, these are intentional and deliberate elements of their plan.

The main elements of McCainCare are:
  • Eliminate tax breaks for employer-purchased health care
  • Deregulate the insurance industry
  • Encourage Health Savings Acconuts (HSAs)
  • Create Guaranteed Access Plans (GAP) for high-risk individuals
  • Buzzwords (Quality, transparency, etc)
Now I'll cut McCain some slack on the "Buzzword" point. The longish segment of his plan which talks vaguely about increasing quality, chronic disease management, care coordination, IT development, price transparency, etc is pretty detail-free. Which is to be expected from a campaign's plan and is little different from the plans proposed on the left. Some of the proposals are bipartisan (chronic disease), some are pointless panders (drug reimportation) and some seem to be insoluble (price transparency). But it's not fair or relevant to devote a lot of attention to these relatively minor elements of the plan -- there's plenty not to like in the meat of the proposal as it is.

For example, the first substantial element of McCain's plan is to force Americans to bear the full cost of their insurance by delinking employment from insurance. Eliminating the tax break for employer-purchased health insurance would blow up the current system of health care financing. Employers, under this system, will drop their health care plans en masse, and employees will be left to purchase insurance on their own. While there will be some small tax credit given to families, the value of this credit ($5,000) is insufficient to cover the cost of traditional insurance even at today's prices ($12,000). More concerning, the rate of inflation for health care has outstripped inflation in general, and the tax credits are not indexed for inflation.

The consequence of this is that there would be strong incentive for consumers to purchase high-deductible catastrophic insurance policies and pay for low-level costs out of pocket. HSAs would help to some degree, for those wealthy enough to fund them and healthy enough not to spend more than the allowable amount you can put in an HSA. (Why am I not surprised that a conservative plan disproportionately favors the healthy and wealthy?) But for those unable to afford to fully fund a HSA, or those unlucky enough whose expenses exceed the amount funded, the out-of-pocket costs for their health care could be substantial. Remember that republicans view this as a feature, not a bug.

Now it's fair to point out that some of the plans on the left also decouple health care from employment. Wyden's plan does directly, and I believe both Obama's and Hillary's would encourage employers to stop paying directly for health care with a "play or pay" requirement for large employers. The difference is that the democratic-proposed plans reduce the role for employers while creating regulated insurance products which carefully pool risk across a large population.

McCain's plan, does the opposite by deregulating the insurance industry. That's not what they call it, of course. Rather, conservatives claim that state regulations are so onerous that they drive up the cost of insurance. Their proposal is to allow insurance products to be marketed across state lines. The consequence of this will be that large insurers will domicile themselves in whichever state has the least level of regulation and the most pliable legislature. States which have robust consumer protections in place -- guaranteed issue, prudent layperson legislation, bans on pre-existing condition exclusions, minimum benefit levels, etc -- will find that their insurance products are more expensive because they cover more benefits (and sicker people). The states which allow the most aggressive anti-consumer policies will have cheaper costs and the lowest common denominator will become the de facto national standard.

So when millions of individuals are forced into purchasing individual insurance policies in this deregulated market, those who are young and healthy will not have difficulty finding affordable policies which cover their minimal health maintenance needs. But those who are older or have pre-existing conditions will find themselves uninsurable in this new "free" market, and will have to seek out some alternative funding for their health care. McCain envisions GAP plans as insurers of last resort for these people. However, due to a phenomenon known as "adverse selection," these plans will cover all of the sickest consumers and the cost of coverage must as a result be exorbitantly high. McCain's plan states that premiums will be "reasonable," but does not specify how: whether the GAP plans will be subsidized by tax dollars or whether "reasonable" might in actuality mean "exorbitantly expensive." Unless the GAP plans are very heavily subsidized, the actual cost of insuring these consumers must be very high, and absent subsidies GAP plans would need to pass along the full cost of the health care to the insured, resulting in ruinous and unaffordable premium costs. Large subsidies would be difficult to reconcile with McCain's pledge to further cut taxes.

Although McCain offers assistance to Americans "below a certain income level," it is not clear what, if anything, his plan would do to cover the uninsured. I suppose there are some young and healthy people out there who do not currently purchase insurance who might buy a cheap catastrophic policy -- but those policies already exist, and if not so motivated to buy them now, McCain's plan does nothing to change that. The working people who make too much to qualify for medicaid but too little to afford insurance still fall through the cracks, unless McCain's assistance is more generous than would be characteristic of republican policies in general. Call me cynical, but I've seen nothing to suggest such a thing.

The other ostensible features of McCain's plan are illusory, all smoke and mirrors. They claim that consumer-directed health care will create competition and lower costs, but the fact remains that consumers are more likely to defer needed care when they are forced to pay the cost, and skipping preventative care is likely to increase future costs. Neither are consumers in an information-based position to accurately assess the price/value ratio of many medical procedures, nor are they entirely rational players when it comes to health care (witness the growing popularity of full-body CT scans if you need proof).

The "competition" canard is particularly deceptive -- that insurers in a national market would compete the cost of premiums down. There already is relentless competition in every state, and almost all major insurers -- Aetna, UnitedHealth, Cigna, BC/BS, all currently have a presence in every state. Opening the markets would simply strip essential consumer protections from the majority of plans. While there would be competition for desirable patients -- the young and healthy -- experience has shown that insurers are not to be trusted, and will seize on the most minimal pre-existing condition to jack up premiums beyond any justifiable measure, and drop patients whose coverage turns out to be unprofitable.

Ultimately, this is an irrelevant, dead-letter proposal, which explains the lack of detail and effort put into its development, because even if McCain were to be elected in November (shudder), there is almost certainly going to be a Democratic Congress, and it is Congress that would be writing the legislation to reform health care. It is, however, a useful insight into McCain's governing philosophy and priorities: rigid orthodoxy along ultra-conservative lines; ideology placed above pragmatism; rampant deregulation; giveaways to industry, in this case the insurance industry; favoritism of the wealthy over the middle class; and continuation of the shift of risk and cost onto the shoulders of consumers.

Sounds just like Bush. We just can't afford more of the same.

3 comments:

  1. The Republican point of view is correct in at least one point: Americans do not expect to pay for their own health care. The reality is that doctors can't count on getting paid by "self-pay" patients, and that includes those with high deductible insurance. However, this is just one of the perverse incentives that operate in this arena, from big pharma (more interested in blockbuster drugs than inexpensive preventative medicine) to insurers (who find the easiest way to cut costs is to deny care), etc.

    ReplyDelete
  2. If someone thinks that they are getting something for nothing when their employer offers "free" or subsidized health insurance benefits, then of course this plan would disappoint them. But of course, nothing is free. They are paying for those benefits out of their salary, even if indirectly.

    I could purchase significantly cheaper (and better) health insurance for my family with an individual policy of my choice instead of being tied down to my employer's lame group policy, but I'm unable to use pretax income to buy it, so it would ultimately be more expensive.

    Freeing up the market, even if it's just in baby steps, is a good thing.

    I suggest we raise the Medicare age to 70 (or higher) and use some of the savings to help fund the high risk plans. It's like Medicare but with the ability to balance bill. Win-win.

    ReplyDelete
  3. What if health insurance companies were not permitted to discriminate based on health or gender? Seems like that would eliminate the adverse selection issues.

    ReplyDelete