Experts Weigh in on Health Care Plans

Experts Weigh in on Health Care Plans September 22, 2008

It’s been quite a while since I pointed out the sheer awfulness of John McCain’s health care plan. And while I’ve always regarded Clinton’sas the most through-out alternative, Obama’s (even though it relies too much on private insurance companies for my liking) is simply light years ahead. But don’t take my word for it: listen to David Cutler, Brad deLong, and Ann Marie Marciarille (David Cutler in particular is one of the leading experts in the health care debate– he knows what he is talking about).

They regard the following advantages of Obama’s plan:

“Learning. One-third of medical costs go for services at best ineffective and at worst harmful. Fifty billion dollars will jump-start the long-overdue information revolution in health care to identify the best providers, treatments and patient management strategies.

– Rewarding. Doctors and hospitals today are paid for performing procedures, not for helping patients. Insurers make money by dumping sick patients, not by keeping people healthy. Mr. Obama proposes to base Medicare and Medicaid reimbursements to hospitals and doctors on patient outcomes (lower cholesterol readings, made and kept follow-up appointments) in a coordinated effort to focus the entire payment system around better health, not just more care.

– Pooling. The Obama plan would give individuals and small firms the option of joining large insurance pools. With large patient pools, a few people incurring high medical costs will not topple the entire system, so insurers would no longer need to waste time, money and resources weeding out the healthy from the sick, and businesses and individuals would no longer have to subject themselves to that costly and stressful process.

Preventing. In today’s health-care market, less than one dollar in 25 goes for prevention, even though preventive services — regular screenings and healthy lifestyle information — are among the most cost-effective medical services around. Guaranteeing access to preventive services will improve health and in many cases save money.

– Covering. Controlling long-run health-care costs requires removing the hidden expenses of the uninsured. The reforms described above will lower premiums by $2,500 for the typical family, allowing millions previously priced out of the market to afford insurance.”

They then spell out the benefits from the recent research. The typical family will save $2,500 a year in health care costs. Annual business sector costs will fall by $140 billion a year, allowing 10 million previously-uninsured people to access employer-sponsored health insurance. Lower costs will create 90,000 low-wage jobs, and push 1.5 million currently workers from low-wage low-benefit jobs to high-wage high-benefit jobs.

And what about McCain’s plan? Well, not so good. His plan aims at raising taxes on workers who receive employer-sponsored health benefits, to encourage employers to drop coverage and thus boost the private insurance market. This could force employers to drop coverage for over 20 million Americans (according to recent research). Of course, McCain would give these people a tax credit ($5,000 for a family and $2,500 for an individual) and send them out on their own to navigate the shark-infested waters of the private insurance market. These credits are quite simply paltry: less than half the cost of policies today ($12,000 on average for a family), and far below the 75% that most employers offering coverage contribute. There is no protection for people with pre-existing conditions, so it you are sick, you are out of luck. And if you are lucky enough to get private coverage, you are still out of luck, as the “screening, marketing and individual underwriting that insurers do to separate healthy from sick boosts premiums by 17% relative to employer-provided insurance, well beyond the help offered by the McCain tax credit.”

McCain’s approach seems to be based on the purported gains from “competition”from deregulation. Haven’t we heard that before? Indeed, and Paul Krugman draws the obvious connection, when he quotes McCain’s own words: “Opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products less burdened by the worst excesses of state-based regulation.” In his own words!

Of course, in their desperate attempts to back-pedal, the McCain campaign is claiming that he was referring to a proposal that would allow cross-state purchasing of health insurance. There are a couple of responses to this. First, he is still mouthing an utterly-discredited mantra, willing to let free market take responsibility for health care (and you can be sure there will be no bailouts for those bankrupted by health care costs). Second, even the narrow proposal in question is seriously flawed. Please read this story by Jon Cohn about a woman defrauded by dishonest insurers who were not regulated by her home state. Enforcing regulations is difficult; it would become exponentially more so with McCain’s proposal, leading the individual with little protection. Moreover, cross-state purchasing would cause a race-to-the-bottom as insurers flock to the state with the lowest regulation (just like Delaware for the credit card industry), and coverage will suffer. But then again, McCain seems to believe that market solutions are always more preferable.

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  • Dan

    You’re kidding right? Cutler is a professor? And he is an Obama adviser? Oh, what a surprise that he thinks Obama’s plan is better!
    How on earth is this guy an “expert”? Has he ever actually implemented a health care plan that worked? Is he an expert because he writes a lot or talks a lot?
    Wow, I must be an expert then.

  • David Cutler is a professor of economics at Harvard and one of the leading health economists in the country. Are you such an anti-intellectual that you dismiss his expertise?

  • S.B.

    I’m not sure it’s very useful to defend the dishonesty by Krugman and Obama as to what McCain meant. In the very piece that McCain wrote, he introduced the subject of “regulation” with this sentence:

    I would also allow individuals to choose to purchase health insurance across state lines, when they can find more affordable and attractive products elsewhere that they prefer.

    It’s not a “desperate attempts to back-pedal” to point out what McCain was talking about in that very paragraph: the ability to purchase products from other states.

    In any event, are you saying that a single anecdote (out of the entire United States) proves that cross-state selling of insurance would be a bad idea?

    cross-state purchasing would cause a race-to-the-bottom as insurers flock to the state with the lowest regulation (just like Delaware for the credit card industry), and coverage will suffer.

    That would be the whole point . . . insurers could move to states where operation isn’t made drastically more expensive by state regulation, and then they could offer cheaper insurance that people could afford. Since you like argument from personal anecdote, I’ll pass along one of my own: When I went to law school in Massachusetts, I had a devil of a time getting my wife re-insured after we accidentally missed a premium. Turns out that hardly any national insurance companies would even offer policies in Massachusetts, because the state regulation there was just too onerous (requiring that they cover a zillion things like Christian Science “treatment,” whatever that is). The only way my wife could get health insurance was to write down her parents’ address in Georgia and buy a policy offered there. In any event, I have a very low opinion of any law or regulation that would prevent people from buying something that they need and want just because it is being offered by a company in another state.

  • First, that point you address is a peripheral point to the general argument pertaining to McCain’s plan.

    Second, you still seem to have a rather benevolent view of insurance companies, who spend $50 billion a year doing their absolute best to minimize what they term “medical losses”. There needs to be strict regulation on matters such as community rating, pre-existing conditions, coverage etc. I guess you would call that making operations “drastically more expensive”.

  • S.B.

    There needs to be strict regulation on matters such as community rating, pre-existing conditions, coverage etc.

    I’d generally agree.

    I forgot to mention, though, why it was that my wife had to call national insurance companies. When we called any companies that were listed in Massachusetts, we always got the same answer: “Sorry, it’s against state law for us to sign up new customers until one specified week in July.” (Or it could have been August, I forget.) I was so frustrated that I called up the Massachusetts state regulatory agency and got someone on the phone, and asked, “Is it really against the law for health insurance companies to sign up my wife now?” The answer: “Yes.” The next question: “So you’re telling me that it’s the law that my wife has to have health insurance, but it’s also against the law for health insurance companies to sell her insurance.” Answer: “Yes.” My reaction: “That’s insane.” And that’s what led to us having to call a bunch of national companies, all of whom said, “Oh no, we don’t operate in Massachusetts, it’s just too much trouble.”

    And that’s why I disagree with people who want insurance to be localized to one state. That’s a ridiculous thing to do in a national economy.

  • S.B.

    Mr. Obama proposes to base Medicare and Medicaid reimbursements to hospitals and doctors on patient outcomes (lower cholesterol readings, made and kept follow-up appointments) in a coordinated effort to focus the entire payment system around better health, not just more care.

    More details please. In theory this sounds good, but in practice I can’t see how you would base reimbursement on outcomes rather than procedures performed. Even in careful studies about outcomes of medical care, there are often huge issues of selection bias and endogeneity bias here. How could you meaningfully measure outcomes for every individual doctor in the country?

    Besides, given the fact that conventional wisdom is often wrong — see Gary Taubes, “Good Calories, Bad Calories” — I’d hate to see the massive weight of the government providing an incentive to produce “outcomes” that aren’t really beneficial at all. If the government said, “You get paid only when blood cholesterol goes down,” that would provide a mis-incentive to overuse statins, which do lower cholesterol but have little proven benefit as to longevity or mortality.

    Paying by procedure isn’t ideal by any means, but I’d be very wary of the suggestion that paying for “outcomes” is an improvement.

  • Blackadder

    The McCain Health Plan is largely academic. It’s not going to pass, even if he becomes President. And if Mr. Paulson succeeds in getting Congress to give him $700 billion, the Obama Health Plan may become largely academic as well.

  • Sounds to me like McCain’s plan is for everybody to do what my rancher/farmer brother and his family have been doing for about 30 years; which is to navigate the “shark-infested waters of the private insurance market.” It hasn’t been pretty. In a high-overhead business, their highest single expense has been their health insurance. They are basically healthy, but every time one of them has a health issue, the insurance companies play games to move them into more expensive policies, that exclude problems they have had in the past. Thank goodness for Medicare, at least my dad gets a break from that rat-race now.

  • Bemused

    Paying medicare and medicaid based on outcome is completely crazy to me. So because I don’t take my Vytorin and I blow-off appointments, then my doctor shouldn’t get paid? Or am I misunderstanding?

  • How do you base a medical system on “rewarding?” If a treatment doesn’t work, the hospital eats the cost? I’m not a health care expert, but that sounds like a fantastic way to get a lot of people not treated because doctors and hospitals are worried about a stingy government not paying them.

  • SB: in a proper system of universal health care, your wife would not have faced this problem to start with. That is the crux of the issue.

  • Here’s a health care plan for Americans:

    Put down the Big Mac. Especially the oft-cited
    Poor (TM). It’s scary at Walmart.

    I see that Minion’s favorite term is ‘anti-intellectual’ now.
    I guess ‘Calvinist’ finally got old.

    Health tip for Europe: stop smoking, idiots.

  • newenglander

    How about the health care system in Switzerland? I have friends who live there and here’s how it operates (according to them and according to research I’ve done on the internet.):

    Virtually everyone in Switzerland must have health insurance. Not an option!

    It’s through private insurance companies.

    Costs about what it does here in the US for, say, a group plan (single, family) maybe a little bit less.

    Private insurance companies cannot make a profit on basic plan coverage. Where they do make a profit is on “upgrades”, say, you want a private room rather than a semi-private, etc.

    It is not socialized medicine. Health care professionals do not work for the state, with perhaps some minor exceptions.

    Generally speaking, healthcare insurance is not provided by one’s employer.

    Subsidies are provided to those who have lower incomes and cannot pay the full premiums by themselves.

  • S.B.

    Agreed, but given the system that we have now, it doesn’t make sense (not that I can see) to deny people the right to buy an out-of-state product.

  • Gerald, you crack me up!

  • Ankle bracelets keeping obese people out of Home Town Buffet, now there’s change I can believe in.

    Actually, some EU governments are pondering measures for weight loss and the like. With few children, it gets very expensive to pay for unhealthy lifestyles. I read about government ordained exercise plans in Germany. I could not help thinking “Kraft Durch Freude” (strength through joy, a Nazi government program)

  • Kurt

    “It is not socialized medicine. Health care professionals do not work for the state, with perhaps some minor exceptions.”

    And, accepting that definition, neither is Senator Obama’s plan ‘socialized medicine.”