Sen McCain has modestly noted economics is not his strong suit. Examining his health reform plan provides additional insight into that assessment.
“Achieving Senator McCain’s vision (for health reform) would radically transform the US health insurance system…The decline in job-based coverage would force millions of Americans into the weakest segment of the private insurance system [emphasis added] – the nongroup market – where cost sharing is high and covered services are limited. Senator McCain’s proposal to deregulate this market would mean that people in it would lose protections they now have. These changes would diminish the security of coverage for most Americans, especially those who are not – or someday will not be – in perfect health.”
That’s how Health Affairs summarized the impact of GOP Presidential candidate John McCain’s health reform platform.
I’m at a loss to understand how McCain and his supporters could think that a free market in health insurance would actually help resolve the health care crisis, cover more of today’s uninsured, and provide insurance for those who need it – the folks with chronic conditions.
There are two very simple reasons the free market will not solve the health care crisis. First, private industry is in business to make money. And insuring high cost people is not how insurers make money. Auto insurers refuse to cover drivers with bad records; home insurers won’t insure houses on flood plains, liability insurers won’t provide coverage for companies run by convicted felons, marine insurers won’t write ships operating in a war zone. Ask homeowners on the Gulf Coast about their ability to buy wind and flood insurance – if the various states don’t force insurers to provide the coverage, it is incredibly difficult to find any insurer willing to take the risk.
Second, most health care dollars are spent on/by relatively few people.
One-tenth of Americans incur two-thirds of all costs. One-twentieth drive half of all costs, and a mere one percent drives over twenty percent.
In a free market, insurance companies would absolutely refuse to cover anyone on the left side of the graph, and they’d work very hard to tweak their underwriting so they only insured folks in the far right column (where half the population incurs less than four percent of costs). That’s not an indictment of insurance companies, it is a statement of fact. Even in today’s regulated markets, fully one-third of individuals seeking coverage in the individual market (the only market that would exist in McCain’s world) were “denied coverage or charged more because of a pre-existing condition…nearly half found it difficult or impossible to find affordable coverage” (Health Affairs).
McCain proposes an expansion of state-run high risk pools to help deal with these folks, but his plan only provides funding for three million potentially high risk people – less than one percent of the population. That leaves (at the very least) fourteen percent of the population without coverage, yet needing care. Who’s going to pay for their health care? Sure some of it would be paid by each person, but few individuals can afford to write a check for a couple days in the hospital. The result? A huge rise in the number of charity cases seeking care at emergency rooms, a rise that would quickly bankrupt many providers.
There’s a further problem with McCain’s plan; the deregulation of insurance would mean that any insurance company would be able to cancel anyone’s policy as soon as they were diagnosed with a potentially costly condition. That is not the case today, where in most states once you’re insured, the insurance company can’t single you out for a premium increase or cancel your policy; the practice, known as post-issue medical underwriting, is illegal in most jurisdictions.
So just as some auto insurance companies cancel policies after an accident or ticket, under the McCain plan health insurers could – and would – do the same.
Then there’s the cost. McCain wants to cancel the tax exemption for employer-based health insurance plans, replacing it with a refundable tax credit of $2500/individual or $5000 per family to help them buy insurance (note – the average individual policy now costs over $4000 and the average family policy cost exceeds $12,000). The Senate Joint Committee on Taxation’s report on the McCain health plan estimates the cost of the tax credits would be $206 billion in FY 2009 and $3.6 trillion over 10 years.
The McCain plan works just fine – in a world inhabited only by free-market economists where no one gets sick or hurt. Except when it comes time to pay for it, or when any of our economists does get ill and finds him/herself seeking care at the doors of a bankrupt hospital.
As Bob Laszewski points out, if McCain is elected, there is absolutely zero chance his plan will be passed. That being the case, why waste my time writing about it and yours reading? Because it shows McCain’s complete lack of understanding, his total ignorance of the workings of one-sixth of our economy. Then again, he’s been covered his whole life by a government plan, so he has had zero exposure to health care in the real world. Come to think of it, he hasn’t had any exposure to the real world in recent memory, as he has been in Washington for the last thirty years.
McCain said it himself – economics is not one of his strong suits. His health plan proves it.
Next week I’ll examine Obama’s plan to see how he deals with the real world. For starters, what about cost inflation, Senator?
Sep
19
