McCain’s Health Plan–the shell game redux

From Bob Herbert’s recent NY Times Column

“The U.S. has a population of 300 million. Thirty-seven million, many of them children, live in poverty. Close to 60 million are just one notch above the official poverty line. These near-poor Americans live in households with annual incomes that range from $20,000 to $40,000 for a family of four.”

Since McCain has sewed up the Republican nomination there have been several articles including this one from Fortune Magazine touting his health plan as being “the best.” The question is for whom?

“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.”

The plan assumes that employers will voluntarily refund to employees all the funds previously used to support their health insurance program–you will recall of course that only about half the employers offer such programs. Assumptions are nonsense in a plan that mandates nothing. I doubt that employers feel that the $9,000 is the “employees” money as so glibly noted below.

“Employers would no longer be able to buy more health care with $9,000 of their employee’s 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% a year, 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.” (ed note: Is that so?)

The dynamics of the plan is almost all smoke and mirrors. It’s doubtful that employers will simply hand over their current insurance costs to the employee–consider also that half of employers don’t pay this anyway. For the employer this is found money.

For the insurance and health industry the benefit of McCain’s plan comes from the continuation of today’s wasteful multiple company duplications; the continuation of their costly salary incentives (check out this); the ability to stratify risk; and the continuation and expansion of the already failed free market in health concept. It’s highly conceivable, perhaps inevitable, that such a plan will result in more uninsured and adversely affect health care outcomes.

It’s an unfortunate fact that “free markets” fail in health care. As recently demonstrated in the mortgage crisis, when money is involved regulation is essential. This is especially true, in health care. In the health care industry the free market doesn’t work because of the decades long patent monopolies which result in higher costs across the board; because there is no negotiation of costs; because consumers are not fully knowledgeable about choices and outcomes; and because consumers have the idea that higher cost=higher quality. Lastly and perhaps most importantly they cannot work when there is a life or death urgency to decisions (one cannot objectively weigh options and pricing in the ambulance on the way to the hospital).

McCain advocates charging less for the young and more for the elderly and/or sick, which is a long standing tradition in the private health insurance system. However, such policies force more people to go uninsured. A similar insurance industry philosophy forced the institution of Medicare in the 60’s when the insurance was not offered to and/ or priced out of the reach of the elderly.

A better approach would be to require insurers to cover the entire population and have everyone (industry, consumers and government) share the risk and costs. This requires the maturity to understand that all of us will have illnesses and accidents at some time in our lives and that health care must, in any case, be available if we value life–which we say we do. It’s worked in virtually all other industrialized countries and they have benefited from lower costs and for the most part better outcomes.

It’s time to act on our values and have a system instead of continuing the current chaos. Let’s develop something that is efficient and assures access. The total cost will not exceed what we now pay (about 2 trillion dollars) but getting the money to the system will require innovative funding strategies. Is it time for a value-added tax dedicated to health coverage?

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