Contrasting McCain and Obama’s health care plans

An estimated 241,000 Iowans are without health insurance. Nationally, the number of uninsured totals nearly 47 million.

So it’s no surprise that health care reform is a big issue in this year’s presidential contest. Republican John McCain and Democrat Barack Obama agree that something must be done, but that’s where the similarities end.

In the latest issue of The New England Journal of Medicine, Jonathan Oberlander, an associate professor of social medicine and of health policy and administration at the University of North Carolina, Chapel Hill, takes a look at both candidates’ plans to reform health care and get more Americans insured.

McCain’s plan embraces market forces and promotes individually purchased insurance. Its centerpiece is a change in the tax treatment of health insurance. Currently, workers do not pay taxes on health insurance premiums paid by their employers. The McCain plan would eliminate this tax exclusion and use the revenue generated — projected to be $3.6 trillion over 10 years — to pay for refundable tax credits for Americans obtaining private insurance ($2,500 for individuals, $5,000 for families). Uninsured Americans could use their credits to help buy insurance coverage on the individual market, and workers with employer-sponsored insurance could use theirs to offset the cost of paying taxes on their employers’ premium contributions or to purchase coverage on their own.

McCain’s plan emphasizes things like spurring competition by deregulating the insurance market to allow insurers to sell policies across state lines; residents of states that extensively regulate insurance would be able to shop nationwide for less comprehensive, less costly health insurance policies than those available in their home states.

However, Oberlander writes that “prevention, better care for chronic conditions, and enhanced competition represent aspirations rather than concrete policies for controlling costs,” and thus, how the plan would affect costs and coverage is uncertain.

In addition, most uninsured Americans would probably remain uninsured under the McCain plan. Given the high price of health insurance, even with the new tax credits, many lower-income people would still not be able to afford coverage. And if the credits are not indexed to the rate of growth in health care spending, that affordability gap would grow over time (as would the number of Americans who would pay higher taxes for employer-sponsored health insurance). Indeed, with the proposed credits, many Americans could afford only high-deductible insurance policies. The McCain plan could consequently trigger a move from comprehensive insurance toward thinner coverage policies that shift costs onto sicker patients. Moreover, some employers, particularly smaller businesses, might stop offering insurance if the tax benefits of employer-sponsored insurance were eliminated. As a result, some currently insured workers could lose coverage.

Perhaps the most serious problem with McCain’s plan is its reliance on the individual insurance market. Individual insurance policies are administratively expensive, typically involve medical underwriting so that sick persons and those with preexisting conditions are charged higher premiums (premiums also increase with age) or are denied coverage altogether, and generally offer less comprehensive benefits than employer-sponsored insurance.

In contrast to McCain’s emphasis on markets and deregulation, Obama’s reform plan relies on an employer mandate, new public and private insurance programs, and insurance-market regulation.

The core of the Obama plan is a requirement that employers either offer their workers insurance or pay a tax to help finance coverage for the uninsured (some small businesses would be exempt, and others would be subsidized). The Obama plan would also create two new options for obtaining health insurance: a new government health plan (similar to Medicare) and a national health insurance exchange (a purchasing pool analogous to the Massachusetts Connector) that would offer a choice of private insurance options. Both would be open to persons without access to group health insurance or other public insurance, as well as to small businesses that wanted to purchase coverage for their workers. Income-related subsidies would be provided to help lower-income persons afford coverage. And private insurers could not deny coverage because of preexisting conditions or charge substantially higher premiums to sick enrollees: the Obama plan would end medical underwriting according to health status.

But the impact of Obama’s plan is difficult to gauge, Oberlander said.

Since the plan lacks an individual mandate for adults (coverage is mandated for children), it would not cover all the uninsured and therefore would provide universal access to insurance rather than universal coverage. However, most Americans without insurance would gain coverage through the new public and private insurance options, and Obama has not ruled out adopting an individual mandate in the future if the plan does not produce universal coverage…

Although the Obama plan would substantially expand access to insurance, it lacks reliable cost-control mechanisms and a viable financing source. Reinsurance would shift private-sector costs for catastrophic cases to the government but would not reduce total health care expenditures. The plan also assumes that substantial savings will be achieved by increasing the use of electronic medical records, improving the management of chronic conditions, and strengthening prevention, but none of these worthwhile measures is likely to control costs in the short run. The new national health plan could control costs, but its effectiveness in slowing spending would depend on its enrollment and the political willingness to restrain provider payments.