McCain’s health care non-solution

The Thinker by Rodin

Presumptive Republican presidential nominee John McCain is in the news today. He unveiled his comprehensive health care proposal: a $2500 tax credit for individuals and a $5000 tax credit for families to allow them to buy the health insurance plan of their choice. He believes that with such an approach that competition and the free market will make health care affordable so we can all be insured.

If men are from Mars and women are from Venus, Republicans like McCain must be from Pluto. It is amazing that reporters do not laugh him off the podium. McCain is not the first Republican to advance such a free market non-solution to our health care crisis. His proposal though is truly worthy of derision.

First, his plan is hazy on what to do with people with pre-existing conditions. He wants states to form insurance pools for these people, but his plan does not require any insurance company to be non-discriminatory. He also allows people to continue with their employer-based health insurance if they want. However, his plan would give employers incentive to ditch their health insurance plans altogether. Why should they pay for health care costs when the government will instead?

So assuming you do not have health insurance and an insurer will agree to sell you a health care plan then after your tax credit you will have to pay all the excess premiums, deductibles and co-pays. Naturally, your premiums will tend to be higher if you are older, have unhealthy habits or have a history of chronic health problems. I did price individual health plans on this web site. I checked plans in my zip code for a hypothetical couple age 40. The only plan I could find without any deductible was a plan with the HMO Kaiser Permanente. It costs $542 a month, limits you to their physicians and comes with a $20 co-pay any time you want to see a doctor. Generic drugs come with a $10 co-pay. Brand name drugs come with a $30 co-pay. So assuming you never see a doctor or take any medicines then after your tax credit you and your spouse will still have to pay $1504 a year. You can expect that as you age your premiums will go up. How much? If the same couple were 50 years old, they would have to cough up $872 a month, or $5464 after their tax credit.

Most likely, you have other bills to pay. You would want to reduce premiums and pay a yearly deductible instead. What is out there? Blue Cross/Blue Shield would be preferred. A 40-year-old couple would pay $259 a month for a plan with a $1000 a year deductible with an Anthem BC/BS plan. Unless you see the same doctor more than three times, co-pays are $30 a visit. If you see someone out of the network, the insurance company will pay 70% of what it considers a reasonable and customary fee. If your out of network doctor charges you $125, you file for reimbursement and your insurer considers $75 reasonable and customary, your costs come to $22.50 plus the amount over $75, or $72.50 a visit. This is of course after you have satisfied your annual deductible. If you see one of their preferred doctors then you just pay the co-pay. However, you may find, as I have, that a family member needs faster or better care than what you can get through a preferred provider. This plan costs $3108 a year if you never get sick or never need a prescription drug. In theory, you and your wife could pocket close to $2000 a year. If you are like most of us and get more than the sniffles once a year, you can probably add on that $1000 deductible, plus other co-pays for prescriptions. It’s hard to imagine that a tax credit will cover your health costs. If you and your spouse are age 50, the price rises to $333 a month.

Who is not paying? If you take the tax credit, your employer is not paying anything. Perhaps the money they might have spent to subsidize your health insurance will go to giving you a higher salary, but I would not hold your breath. Anyhow, I suspect the optimal cases I outlined are not close to your situation and you will need more health care. If I had to guess, I would guess that a typical family would be out $5000 to $10,000 a year on health care costs after their tax credit. I bet this is where most of us are at right now. In short, it will not necessarily improve your bottom line at all. Nor does it do anything to address the problem of rising health insurance. All this free market ideology sounds great but if it is so great why has it not worked so far? The same health insurance companies we have today are going to be offering roughly the same insurance they do now under McCain’s plan. By that time, of course it will be pricier.

Moreover, the older you get the more expensive insurance will become. You can try buying a less expensive health care plan, if you can find one, but health insurance is like sitting on a beanbag chair. If you pay a smaller premium, you get astronomical deductibles or unacceptable conditions and exclusions instead. It could mean, for example, that you cannot get the kind of health care you need when you need it, such as an organ transplant.

McCain’s health care plan also begs the question of how the tax credit will be paid for. He has already ruled out raising any new taxes. In fact, he wants to keep the tax cuts for the wealthy that he once denounced. It would probably help if we got out of Iraq but he has been quoted as saying he would be fine if we stayed there a hundred years. Even if we did get out of Iraq, the government would still be spending hundreds of billions of dollars a year more than it receives in revenues. Consequently, the cost of this health care tax credit would likely come from borrowed money. In some of my earlier blog posts, I pointed out that when the government borrows money from foreigners the effect is inflationary. It explains part of the high cost of commodities like gasoline. McCain talks about finding savings by cutting the size of government. However, every president these days says he will do it and none of them has yet succeeded. In any event, the real cost of government is not in running agencies like HHS or even the Pentagon. That’s pocket change. It is in programs considered largely untouchable, like Medicare, Medicaid and agricultural subsidies. The closest modern president to constrain the size of government was a Democrat: William Jefferson Clinton.

Clearly, this proposal is just more smoke and mirrors, providing the illusion that health care can be made affordable with doing nothing to address the underlying problems causing costs to spiral.

What will work? Many first world countries have nationalized health insurance. They offer universal quality health insurance and are doing it for a fraction of what we pay. If you have the time, you should watch Frontline’s Sick Around the World. You can watch the entire show on your computer. Washington Post Reporter T.R. Reid goes for Frontline to the United Kingdom, Japan, Switzerland, Germany and Taiwan to see how these countries provide universal health insurance. The mechanics of course vary by country, but it is clear that not all solutions require turning all health care professionals into civil servants or under-compensating physicians and health care professionals. I found Japan’s approach the most interesting. We could pick any of these models, have high quality and universal health insurance and pay considerably less per capita than we are currently paying, all without ever worrying about whether we could afford it.

Or we could put yet another Band-Aid on the problem, keep letting costs spiral out of control and believe that we can really cover everyone with tax credits, which is John McCain’s “solution” to our health care problem.

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