Presidential Politics 2008: Health Care Proposals

With the election drawing near, I have decided to attempt to discuss the current Presidential election,restricting myself to the two candidates' healthcare proposals. Besides, as a working physician (16 hour days and the like), I don't have time to go into much else.

I had initially contemplated doing an objective detailed analysis of each of the proposals by Senator Obama and Senator McCain, and then providing my opinions and analysis of each one. However, while doing my research, I realized that I could not do objective justice to one of these proposals, as it violates the fundamental idea that healthcare is not a right. So I will not provide detailed analyses. I will present a brief summary of each plan.

Both candidates include in their plans the expected and now-standard political boilerplate of trying to save money through preventive healthcare and through the use of "health information technology". Preventive healthcare, with the notable exception of vaccinations, actually costs more in the long run, something that flies in the face of logic but which can be easily shown through economic modeling, something that exists in the medical literature as far back as at least 1991, when I first encountered it. Healthcare information technology, meaning for the most part what most laypeople would call electronic medical record systems, is another of those thought experiments in cost reduction which theoretically ought to work, but which has yet to be proved true in the real world, and then the theoretical savings accrue only to the payers (i.e., the insurance companies and the government), with all the costs devolving onto the providers (the doctors and hospitals). It is remarkable how much of the peripheral fluffy stuff around the centerpieces of these two men's plans are similar. But the centerpieces are where the real meat is.

The main part of the McCain plan centers on the idea of transferring the tax benefits of providing health insurance to workers from the employer to the employee. This would take the form of a refundable tax credit of $2500 for an individual and $5000 for a family. The employer costs of the health insurance would be passed on to the employee as a taxable benefit. Since the national average for a family plan in the USA is $12,000, this at first glance seems to not be in the employee's favor. But let's do the math. Assuming the employee is in the 25% marginal tax bracket, his added income tax for this $12,000 is $3000. The employee thus spends "$12,000" on his family plan, pays his $3000 extra income tax, but then he gets back a $5000 tax credit, thus netting him $2000 (extra take home pay) which he must save in a tax deferred Health Savings Account to be used to pay for healthcare expenses not covered by insurance. All the usual benefits of using the HSA system continue to apply -- tax deferred, interest accumulates, can be used later in life, and can be passed on to his heirs upon his death. If one does further math work, one will see that as employee income goes down into lower marginal tax rates, the amount of tax paid decreases and the amount left over for the HSA actually increases. The converse is also true; as salary increases, the amount left over for the HSA decreases. Thus lower paid employees actually benefit more under this plan.

The McCain plan also includes proposals to allow people to buy health insurance from companies not located in their home states (something not currently permitted) and to thus be able to shop for better rates, and to allow small businesses to form associations or cooperatives so that they can get better group rates for their employees. There are some other somewhat important proposals, but this is the most important part of his plan.

The Obama plan centers upon a mandate for all "large" (not defined on the candidate's website; how large is large?) employers to provide health insurance meeting specific government-determined benefit levels. Any employer not wishing to provide employees with insurance will be required to pay into (i.e., they get fined) what is called "the new public plan". The "new public plan" is never specifically described in the proposal on the website, but it is implied (very important to remember that this is implied) that this plan will in some way entail allowing such non-covered employees the ability to buy insurance from plans offered through the Federal Employee Benefits system, using the money from the pool of collected fines. "Small" employers (again not defined; how small is small?) would be provided specific tax incentives in the form of business tax credits equalling the cost of the insurance premiums to encourage them to provide their employees with coverage.

Have you ever wondered why there is a Medicare Part A (hospitalization) and a Medicare Part B (outpatient services) and a Medicare Part D (the accursed drug benefit), but there isn't a Medicare Part C? Wonder no more. There actually is a Medicare Part C, but it hasn't been activated yet. The government, at the instruction of legislation which I'll bet was passed by Democrats (and I'd even be willing to name the specific Democrat, but I won't until I can verify it), has assigned the name of Medicare Part C to that future system that will provide government healthcare to those people who are not eligible for coverage under Medicare Parts A, B, and D or Medicaid. It is the name assigned (well over ten or fifteen years ago) to that system they intend to create to plaster the gap between Medicaid and current Medicare, thus establishing a defacto single-payer government controlled system.

How much do you want to bet that Obama's "new public plan" is not a smorgasbord of insurance plan options but is actually the now-activated Medicare Part C?

Independent analysis by the Cato Institute, the Heritage Foundation, and others have concluded that the telling feature of the Obama plan is the fine that is to be levied. If it's set at a level such that the fine costs the same as the health insurance, there is no impetus for "change". If it's set too high, employers are encouraged to provide private insurance to their employees. And if it's set too low, employers are enticed to dump their employees into the "new public plan". If the "new public plan" is Medicare Part C, then this simply is a huge, poorly disguised back door into a single-payer government controlled healthcare system, something that has been the goal of the liberal left for many, many years. We know Senator Obama is the most liberal member of the Senate. Thus one can logically conclude that his healthcare reform proposal is nothing more than a way of achieving that goal.

In my opinion, this would then be the beginning of the long, inevitable, and irrevocable decline of the greatest healthcare system on Earth.

Now, the McCain plan isn't perfect. It has its fair share of defects and holes. For example, the system in the plan allowing states to work together, either in cooperatives or by copying the state system that seems to work best, in order to provide a back up system for people who can't get or can't afford insurance (e.g., the unemployed or unemployable) lacks guaranteed funding and seems not-well-thought out. Some critics complain that by taking the tax benefits away from the employers, they will lack incentive to provide the insurance and the number of uninsured will increase. But in my opinion, this criticism fails to consider that the employees are not going to take the loss of this benefit without something in return, likely higher wages, with which they can still buy insurance on the open market and still get the tax credit.

I believe that the most important thing that can be done to help reform the current healthcare financing problem we have in this country is to dissociate health insurance from employment. Right now, employees don't own their health insurance; their employers do. So who do you think the insurance companies are responsive to? The employers, who want reduced costs even at the price of fewer benefits, higher copays, or both. Dissociating insurance from employment, thus giving ownership of the insurance to the employees, will make the employees the proper client of the insurance companies, who will then have to be responsive to the needs and demands of the employees, not the employers. Not to mention the fact that if employees own their own policies, their insurance is ultimately portable from job to job with no gaps in coverage and no fear of the dreaded pre-existing conditions exclusions clause.

The McCain plan is the first small step toward separating health insurance from employment. for that reason alone, it gets my vote. The Obama plan is nothing more than a slide downward into mediocrity and rationing, and will lead to the end of any further innovation in the healthcare industry.