John McCain’s Really Bad Health Care Plan

John McCain’s Really Bad Health Care Plan May 1, 2008

Not much new here. See here and here for good analyses. Basically, McCain takes Bush’s discredited plan and warms it up a little. The idea is to sever the link between employment and health insurance, by giving individuals a $2,500 tax credit and families a $5,000 tax credit to shop around for the best deal they can find on the private insurance market. This will do absolutely nothing to help the uninsured, the underinsured, or both rationed by cost from getting health care– for it is based on the fallacious premise that the problem is over-consumption of heath care, and that if only people felt some price pressures, they would cut back on some spending and bring costs down. And of course, making health care less affordable will increase rationing by cost, and may lower health care spending. But is that the way to go?

As Ezra Klein notes, this is health insurance for people who don’t need health care. It relies on the idea that insurance should be based on actuarial principles, tying cost to individual risk. Therefore the private market (with products like health savings accounts) can be a very good deal to the young and the healthy, but does very little to those in most need of health care. It is a classic example of where the free market simply does not work, and can be highly unethical. Instead of actuarial insurance, we should strive for social insurance, which is basically risk pooling: the young and healthy subsidize the old and sick, secure in the knowledge that they will be taken care of in a similar situation. It’s based on the principle of solidarity. And clearly, it works best when the pool is large, as when provided by the government or large companies. There are clear efficiency gains, and health care is cheaper. And John McCain wants to go in the opposite direction…

It’s interesting that John McCain is so dismissive of “government” care and touts the free market so much– for a man who has benefited from government care for most of his life. Klein:

“[A]side from his awful internment in a Vietnamese prison camp, it is hard to find a day in McCain’s life when he was not sheltered by the government-run health care he now claims to loathe. Born the son of a Navy admiral, he was cared for by Navy physicians during his childhood. After graduating from high school, he enrolled in the United States Naval Academy, and the military’s care continued until he retired from the service in 1981. In 1982, he won a seat in Congress, ushering him into the Federal Employee Health Benefits Program, and in 2001, he qualified for Medicare. When he says, “we have the highest quality of health care in the world in America,” he is speaking as a man who has enjoyed a lifetime of government-run care. “

Plus, as Jon Cohn points out, a fatal flaw in McCain’s approach is how it deals with pre-existing conditions, or the ability of insurance companies to simply deny insurance to high-risk individuals. In fact, McCain not only does not tackle the issue, but could very well make it worse by attacking state-level regulations that force insurance companies to cover certain conditions. The McCain campaign response? Well, if there is a demand for this, the market will provide! I am serious.

It turns out that Elizabeth Edwards has been giving McCain grief on this aspect on his plan, pointing out that neither she nor McCain himself– as cancer survivors– would be able to get insurance in the kind of private market McCain is touting. Clearly irked by the pressure he has been getting on this point, McCain came up with a response, a “Guaranteed Access Plan”, which is basically the same as the “high risk pool” already available in 30 states. Basically, the insurance companies agree to insure high-risk people, in return for a subsidy– but on their terms. As Cohn notes, these plans are often prohibitively expensive, with high deductibles, and force people with pre-existing conditions to wait a while (six months to a year) before they pay for expenses related to that condition.

As a thought experiment, Cohn tries to figure out what it would cost to insure Elizabeth Edwards under the South Carolina plan (North Carolina doesn’t even have one). It would cost her $14,000 a year in insurance and out-of-pocket medical expenses, and this is not even accounting for the cancer treatment which would not be covered in the first year (some drugs cost $10,000 a month). Of course, one possible solution is more generous subsidies. But I’m not sure this is what McCain is saying– his campaign is extremely vague on the issue. And anyway, isn’t his plan supposed to be all about the free market? Or are we back in Bushworld of ratcheting up health care spending that goes straight into insurance company profits?

Who has the best healh care plan? Why, it’s everybody’s least favorite candidate, Hillary Clinton!

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