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Half a Plan Isn’t Half a Loaf

May
15
2008

Given that he’s the presumptive Republican nominee, it’s time to look at what would happen if Sen. John McCain won the election and the Republicans took Congress and they passed the plan that he’s proposed. Of course, the good news is that what I’m about to describe is purely theoretical. As we stand this fall, Democrats should win back the White House and will pick up enough Senate and House seats to prevent any GOP-backed proposals making it into law.

Nevertheless, this contemplation is spurred on by my recent visit with the Washington Policy Institute, a right wing think-tank in rainy Seattle, not cherry-blossom filled D.C. where McCain’s proposal got serious attention.

His basic idea is to phase out the tax exemption for employer-based health care and replace it with an individual tax credit of $2,500 per individual and $5,000 per family, to buy insurance. In addition, state laws governing health insurance would be overridden – so low cost plans from one state could be sold in another.

The result of this would be that many – if not most employers – would get out of the business of providing health benefits, and people would take the tax credit to the individual insurance market. Where many, if not most, would buy high deductible individual plans. The problem is that these plans don’t insure people who are sick, ever have been sick or know anyone who may ever be sick, and make very big profits by doing so. I’ve ranted about one company, Mega Life and Health which sells dodgy plans to individuals, and has what’s known as a “medical loss ratio” that’s woefully low – around 30% – so only $3 in $10 paid in premiums gets spent on actual care. Another little known segment of the insurance marketplace, plans for college students, have just been exposed in BusinessWeek as having a medical loss ratios as low as 10%! But honestly, this isn’t all that unusual: the idea of keeping costs low by excluding sick people is what makes the insurance market a profitable business.

McCain has advisors who understand this. One, Galen Institute’s Grace-Marie Turner thinks giving sick people access to a combination of subsidies and government provided health plans of last resort can solve this problem. The idea is to help plans take on risker clients – by giving the consumer more money so the plan can charge them a little more – and then having states sponsor plans for those who fall between the cracks.

That may pass the theoretical smell test but in real life we’re talking about increasing taxes on the average to pay specifically for targeted groups that are likely to be poor, sick and expensive. As Sick author Jon Cohn often says, programs for poor people get treated poorly. If rich and poor are not in programs together – Social Security is the leading example – it’s easy for them to be ignored and de-funded. That’s happened with some states’ children’s insurance plans, and existing state-based high risk health insurance pools like those Turner proposes supporting.

The real solution, she says, is a new Federal program with more Federal dollars for people in high-risk groups, channeled through the state plans. The Libertarian sitting next to me called this yet another complicated government program. But the real issue is that it wouldn’t survive long. As soon as state budgets get tight, support for insurance for those on the margins will be cut, and the sickies will be left on the shelf. And since the employer-based market will be decaying even faster – it wouldn’t be tax exempt, remember – there’ll be more sick folks with no insurance.

The problem underlying all of these plans is that the care of sick people costs money. And somehow we have to redistribute money to pay for it. Simply suggesting that it ought to happen isn’t going to make it happen, no matter whether there’s an R or D after the politician’s name. Particularly if there isn’t a real, high demand for a solution. And I don’t think we’re seeing enough of that demand for Congress to come up with a plan that’s more than just window dressing.

So we’re going to spend the next few months going through the exercise of talking about health care reform. But it’s after all the talk, nothing’s going to happen. Which in the case of the McCain program is a good thing. His halfway solution is worse than no change.

Share  Posted by Matt Holt at 3:39 AM | Permalink

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