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  • BIOETHICS FORUM ESSAY

Too Hot for Politics to Handle? Hard Questions about Health Insurance

This article appears in the September-October issue of Hastings Center Report.

Presidential candidates often fall back on language and images from their respective parties. McCain and Republicans tout the virtues of private insurance and competitive markets in making health care more accessible and priceworthy. Obama and Democrats emphasize the urgency of widening access and the critical role of government in restraining the insurance company behavior that impedes it. But McCain is no hard-line conservative, and Obama, though generally liberal, is not terribly enamored of the heavy hand of central government. Given the moderate nature of their views and the fact that both layer their proposals for health care reform on a base of market competition, one might expect some genuine dialogue to emerge from them about actual solutions to the country’s horrendous problems of access and cost.

But don’t hold your breath. The hard questions these candidates should face are so disturbing for each of them that neither may rise to the challenge.

The Plans in Brief

The proposals are not difficult to summarize. Here are the central points of McCain’s plan:

1) The centerpiece is to break the strong current connection between private insurance and employment by replacing the taxable income exclusion for employer-sponsored insurance with a universal tax credit of $2,500 for individuals and $5,000 for families. The current taxable income exclusion dampens market forces that could discipline costs, for it constitutes a subsidy of more than 40 percent of every additional dollar that employers and employees spend on private health insurance.1 Part of the problem is that the subsidy is uncapped: as plans become more expansive and expensive, all premium dollars still carry this discount, so why should subscribers be all that concerned about rising costs? Also, the tax subsidy is regressive: those with higher incomes benefit much more than low-wage earners, who owe little income tax to start with. McCain’s tax credit, by contrast, is notably progressive, and its benefits are not contingent on employment.

2) Still, a private insurance market, even when assisted by a sizeable tax credit, will not by itself provide affordable insurance to high-risk subscribers who are not already members of a larger, more diverse pool. To address this deficiency, McCain proposes giving states seven to ten billion dollars of federal assistance for forming special high-risk insurance pools.

3) Also, McCain would allow pools to form across state lines to increase portability with jobs and residence.

4) Cost pressures would allegedly be dampened by compensating health providers based on the quality of their work, not merely the volume of procedures they perform.

5) To help control costs, McCain has broken with Bush to advocate federal negotiation of drug prices for Medicare Plan D—just as the Department of Veterans Affairs does for drugs, McCain is quick to note. Importation (“reimportation”) of lower-priced drugs from other countries would also be allowed.

6) Like Bush and many other Republicans, however, McCain supports higher government expenditure for private Medicare Advantage plans than for Medicare’s standard public insurance.

Like McCain, Obama does not advocate a mandate that all individuals be insured. He does propose five measures to expand access:

1) Not only would the State Children’s Health Insurance Program be expanded to cover more children from low- and middle-income families, but insurance would be mandatory for all children. For them—as distinct from the general population—Obama believes it possible to achieve the true affordability needed to make a mandate feasible and fair.

2) Obama would bar insurers from excluding the existing medical conditions of new subscribers and charging high-risk subscribers higher rates. Premiums would thus be rated largely by the insured person’s “community,” rather than “experience,” greatly increasing affordability for the chronically ill.

3) A national health insurance exchange, with government providing comparative information on standard coverage, would increase portability and provide access to many individual subscribers.

4) Subsidies would be provided to close the remaining affordability gap for all relatively low-income subscribers.

5) By employing a modest “play or pay” requirement on all but very small businesses, Obama would build up, not tear down, the connection of insurance with employment.

Questions for McCain

Access for the likely ill. Admittedly, your tax credit to individuals is much less regressive and more competition-generating than the current tax break. Yet if insurers are still allowed to rate premiums by experience and to exclude preexisting conditions, how will you make insurance affordable to the chronically ill? A mere seven to ten billion dollars of support for state high-risk pools is woefully inadequate—less than half of 1 percent of the 2.2 trillion dollar annual health care expenditure, even though estimates of the share of health care dollars devoted to chronic illness run as high as 70 percent. Providing for the minimally estimated three million high-risk persons among the forty-seven million uninsured would cost at least fifty billion dollars. Why aren’t you, as a defender of private insurance markets, prepared to support either a much larger public subsidy for risk-adjusted premiums or a ban on experience rating? If you refuse both, shouldn’t you admit that your plan has no prayer of creating access for many of the people who most need insurance?

The cost of forty-seven million uninsured. Apparently you and most Republicans agree with typical Democrats that hospitals should be legally required to provide acute care, even for the uninsured (as stipulated in the Emergency Medical Treatment and Active Labor Act of 1989). But the uninsured will then be able to obtain quite a lot of care that will have to be cost-shifted to people who pay premiums. Why don’t you acknowledge that this roughly one hundred billion dollar cost-shifting would be available to insure the uninsured in a more direct system of universal access? Moreover, some of the uninsured choose to remain so even when they might be able to afford insurance, realizing that they will be bailed out in emergencies anyhow. Will you acknowledge that they—and many of the employers who similarly fail to provide any insurance—are free-riding on others who pay premiums, and why don’t you address this deficiency by supporting some sort of mandate?

Fair private-public competition. If competition is the name of the efficiency and quality game, why do you and fellow conservatives oppose making private plans compete with public insurance? What are you afraid of? That the most costly (inefficient?) private plans will lose out in the long run? Similarly, why do you support higher government expenditure (13 percent) for private Medicare Advantage plans than for publicly administered Medicare? Yes, Medicare Advantage plans do cost that much more. Why do you think a government’s willingness to pay more for private plans is either efficient or fair?

Administrative costs. How will you reduce the administrative costs involved in private insurance to something close to their low level in Medicare and the other relatively simple forms of public insurance? If you acknowledge that administrative costs are a problem, why do you support the dominant paradigm of private insurance? On many estimates, the administrative costs in private insurance are 20 percent to 25 percent of total expenditure, compared to less than 5 percent for Medicare. Shouldn’t we view that cost as waste? If not, what sufficiently valuable benefits does it bring?

Questions for Obama

Community rating but no mandate. Prohibiting insurers from excluding existing conditions and from charging highly variable rates based on projected subscriber expense will make insurance much more affordable to many of those who need insurance the most. But if you require what effectively becomes the “community rating” of premiums, then insurance costs for the young and healthy will greatly increase. And then even more of them will choose not to insure. You may end up not achieving much of a net reduction in the ranks of the uninsured at all! Thus, won’t your proposed restrictions on insurance companies eventually lead you to a general insurance mandate after all?

If you go down that road, though, you may not be alone. Insurance companies may become your greatest allies for a general mandate if they become convinced that they will be barred from preexisting condition exclusions and individually risk-rated premiums. Again, we see that community rating points toward a general insurance mandate.

Reforming the tax break. Why, given your liberal principles, will you not support what McCain urges: replacing the current regressive employment-based tax subsidy with a hefty tax credit for individuals or families? And if you won’t replace it, why won’t you at least propose capping it at a level sufficient to purchase a reasonably comprehensive, cost-conscious plan?

Medicare costs. Medicare in 2006 spent four hundred billion dollars on forty-three million enrollees. Medicare and Medicaid are projected to consume an additional one percent of all federal government spending each year—23 percent now, rising to nearly 33 percent in 2017! As a defender of the largely fee-for-service structure of standard Medicare, how will you reduce this rate of increase? You recently voted to delay a 10 percent cut in physician and hospital reimbursement rates triggered by Medicare’s internal cost-limit formula. But in a fee-for-service system that encourages a high volume of procedures with little “managed” care, how else can you restrain costs except by reducing reimbursement rates?

Ineffective and barely effective care. Currently, the expenditure on marginally effective care—or care that is not effective at all—is relatively unnoticed and undisciplined. Liberals are as hesitant to speak of “rationing” or “prioritizing” (leaving out care that is perceived to have some benefit) as conservatives, lest they be cut off at the knees politically for advocating that someone other than physicians say no to care in which patients find their hope and providers their profit. Will you push for an aggressive national institute for outcomes assessment to provide the truly useful information needed to discipline questionably effective treatments such as spinal fusion surgery?

Why Are These Questions So Disturbing?

It is not hard to see why the two candidates do not welcome having the opportunity to respond to these questions. Some of them point to blatant ideological inconsistency: Obama will not support replacing a regressive subsidy with a progressive one, and McCain opposes creating public plan options that would increase competition. Other questions risk leading into political no-no land: McCain will not dare propose what would be perceived as heartless elimination of the requirement that hospitals still treat the uninsured, even if the requirement spurs objectionable free-riding and cost-shifting, and Obama will not acknowledge that continuing fee-for-service Medicare without strong priority-setting based on cost and outcomes data will run the federal budget into the ground within a few decades. Other questions push a candidate to reverse a position previously taken (flip-flopping!) or to acknowledge the likelihood of something down the road that they currently oppose—Obama on mandates beyond children, and McCain on the need for massive federal assistance (much more than ten billion dollars) for high-risk pools.

The disturbing force of the questions may lie deeper than internal tension within a candidacy. Many point to inconsistencies and repressions pervasive in the society. We want justice between the ill and well, for example, but we recoil at “mandates” that would remove some freedom of choice. We know that as a system, health care in the United States is “broken.” Among other things, it is almost twice as expensive as other well-received systems, such as those of Germany, France, or the Netherlands, yet it delivers worse health outcomes. Nonetheless, most of us love our own providers. We fear that change in the system will ultimately disrupt these advantages.

Perhaps it is therefore excusable, especially in an election campaign, that politicians fear to go where cogent responses to these questions lead. The country, however, badly needs some blunt, educating leadership on these matters.

Do the Proposals Provide a Base?

Perhaps the best we can hope for from this campaign is that McCain’s and Obama’s at best incomplete and at worst incoherent proposals will provide a promising base from which more coherent reform could eventually emerge.

McCain’s push to replace the current tax subsidy with a tax credit could conceivably create movement toward a more comprehensive voucher plan that would achieve truly universal access (as in Ezekiel Emanuel’s recent proposal, for example2). To be sure, political difficulties abound, not the least of which would be the political viability of the tax base needed to fund a full voucher system and the need for aggressive central management structures to realize its potential to restrain costs.

For Obama, the prospect may be that after several years of good experience with the child mandate, public and business sentiment would move toward accepting a more general mandate. Alternatively, inserting a competitive public insurance option at every level of the insurance exchange pools could lead to the public plans’ eventual dominance, achieving something similar to “Medicare for all.”

Perhaps, in fact, the incoherence of much of what each candidate proposes is precisely what will lead to the sort of questioning that would significantly advance public understanding of how to achieve a more coherent public-private system. If so, let the hard questions roll.
1. Roughly, this 40 percent is constituted by the more than 8 percent FICA and Medicare payroll tax paid by employers, a similar additional amount from the employee, and the employee’s 20–25 percent marginal tax bracket.

2. E. Emanuel, Healthcare Guaranteed: A Simple, Secure Solution for America (New York: Public Affairs Books, 2008).

Published on: October 28, 2008
Published in: Bioethics

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