John McCain's 'Underwear Gnome' Plan for American Health Care
By Joshua Holland, AlterNet. Posted September 17, 2008.
McCain's plan makes little sense until one grasps that it's designed
to improve Corporate America's bottom line rather than Americans'
health.
There's an episode of the animated show "South Park" in which the
young protagonists stumble upon a netherworld inhabited by gnome-like
creatures whose sole purpose in life is stealing people's dirty
underwear.
Curious, the boys investigate and uncover the underwear thieves'
master plan, which goes like this:
Step 1: Collect Underwear
Step 2: ?
Step 3: Profit!
At first glance, John McCain's health care plan makes about as much
sense. The policy -- typically light on details to avoid getting
tripped up by those pesky factual analyses health care advocates are
always waving around -- is focused on using the "miracle of the free
market" to control costs by giving individuals more choices.
Step one: Increase Americans' "freedom" and "choice." Step three:
Profit!
Missing is step two. There's a brief but vague mention of a greater
emphasis on preventing chronic illness and an equally fuzzy paragraph
on improving information technology, and McCain says he "will look" to
re-importing pharmaceuticals, but there's very little meat to the
section on controlling costs. McCain does slip in a proposal for "tort
reform" to stop "endless, frivolous lawsuits" -- a favorite
conservative myth that has been long debunked in academic literature
(when one includes jury awards, legal fees and insurance costs,
lawsuits account for less than one-half of 1 percent of U.S. health
care spending -- a drop in the proverbial bucket).
But the problem is ultimately a matter of perception. Most of us think
a health care policy should improve Americans' well-being, control
spiraling costs and provide access to care for the close to 50 million
citizens who lack coverage today. But McCain's plan is designed to
improve the health of corporate America's bottom line at the expense
of working individuals and families. The goal is to shift the burden
of an incredibly overpriced and inefficient health care system from
employers and the government onto the backs of working people
themselves -- to have them carry the load while doing very little to
lighten it.
It's a continuation of the kind of compassionate conservatism that
political scientist Jacob Hacker has dubbed "The Great Risk Shift."
Hacker defines it simply as "the growing transfer of economic risks
and responsibilities from employers and governments onto workers and
their families."
When one understands what the intent of the plan is, it's actually
pretty well designed.
McCain would start by eliminating the 60-year-old tax exemption on
health benefits provided by employers. Like most Republican "ownership
society" proposals, there's a carrot: He'd give individuals $2,500 and
families $5,000 in refundable tax credits -- basically paying them to
go it alone.
The problem with this aspect of McCain's plan is not the ideology as
much as the math. According to research by the Kaiser Foundation --
considered the premier source for data on health care costs -- the
average cost of employer-based health care plans is around $4,500 for
an individual and $12,000 for a family. Of that $12,000 to cover a
family, employers in 2007 paid an average of around $9,000.
As Don Pedro at Economists for Obama points out, middle-class families
with health insurance from their employers -- say, for example, a
married couple making between $63,000 and $128,000 -- would certainly
have more choice. They could choose to pay an extra $2,250 each year
in taxes to stay on their employer-sponsored plan (that's for couples
in a 25 percent tax bracket, so it's a quarter of $9,000), or they
could take their $5,000 tax credit and buy their own plan, at an
average cost of around $9,000 for comparable coverage (that's the cost
for comparable plans purchased on a non-group basis, according to
AHIP's Center for Policy and Research, the insurance industry's
research arm), which would effectively increase their out-of-pocket
medical expenses by around $4,000. But Pedro only looked at marginal
tax rates, ignoring the fact that those benefits would also be subject
to payroll taxes. So add another $600 to that IRS bill.
But most people won't pay an extra four grand for comparable coverage;
they'll move toward cheaper plans that offer fewer benefits and higher
deductibles. That's the point: It's health care "rationing" -- a
favorite bogeyman among conservative commentators -- by means of
economic incentives, but it's rationing nonetheless. At one point
(it's since been rewritten), McCain's Web site referred to this aspect
of his plan as "reforming" the tax code "to eliminate the bias toward
employer-sponsored health insurance."
An argument can be made that employers would add some of those savings
onto people's paychecks over the long run, but it's a radical overhaul
that would cause massive dislocation in the short term.
But it gets worse. McCain's carrot -- that tax credit of up to $5,000
-- will become smaller and smaller in real terms. It would increase at
the rate of inflation, but, as I wrote recently, the formula used to
calculate the official inflation rate has been rejiggered in recent
years specifically in order to "contain" -- cut -- those government
benefits that are indexed to the rate. As James Kvaal, the former
policy director on John Edwards' campaign, noted (PDF), "health care
premiums are expected to grow by 7 percent a year, (but) McCain's
credit will increase by only about 2 percent a year (the rate of
inflation). In contrast, current tax benefits keep up with rising
premiums."
Of course, many healthier people, and people at the lower end of the
income ladder, would choose -- or be forced -- to forego insurance
altogether and pocket the tax credit. According to an analysis by the
Kaiser Foundation (PDF), very few people who lack employer-provided
insurance buy their own plans. Only 1 in 20 of those scraping by at
the poverty level get insurance on their own, but even those taking in
much more often go uninsured, for a variety of reasons, cost being the
most obvious. Only a quarter of those earning four times the poverty
rate buy their own coverage, and at 10 times the poverty rate --
people making pretty good scratch, close to $200 grand -- only half
get covered.
But fear not: McCain would resuscitate George Bush's plan to greatly
expand the use of "Health Savings Accounts" -- tax-free accounts that
people could use to save for major health care costs down the road.
HSAs are very good for younger, healthier workers who have modest
medical needs. The problem is that they encourage those with the
lowest health care costs to leave the insurance pool. That results --
can only result -- in higher premiums for everyone who remains. The
whole concept of insurance is to spread risk around to a large group
of people; HSAs do the opposite.
Another element of McCain's underwear gnome approach to health care is
deregulation. He'd effectively do away with what's known as (modified)
"community rating." That's a wonky term that means that insurers can
charge people different premiums based on their age and sex, but are
limited in how much they can charge based on pre-existing conditions.
Losing those regulations would create a massive shock to an already
creaky health care system, effectively pricing people who are ill out
of the market. Of course, McCain's conservatism is deeply
compassionate and, according to his campaign's Web site, his "plan
cares for the traditionally uninsurable." That means some sort of
social safety net for the ill, elderly and otherwise costly to insure.
But, according to the New York Times, "Mr. McCain was vague ... about
just how his safety net would be structured, and did not specify how
much it might cost."
McCain's chief domestic policy adviser, Douglas Holtz-Eakin, told the
Times that "the federal share could cost between $7 billion and $10
billion." But, as Pedro pointed out, those numbers don't add up:
These figures are nonsense on their face. If the federal government is
going to subsidize a high-risk pool of 5-7 million people with $7-10
billion a year, the proposed subsidy is $1,400 per year. There is no
way to this is going to be anywhere close to covering the extra
insurance costs for a group that consists of old and sick people.
Additionally, the 5-7 million is surely a vast underestimate of the
number of people who would not be able to obtain health insurance in
McCain-land. Anyone old, sick, or with a prior condition -- a number
that would easily be in the several tens of millions -- would not be
able to obtain insurance at anything other than obscene rates. Faced
with no restrictions, insurers would cherry pick only the low-risk
customers.
Ideology First, Country a Distant Second
John McCain's plan to revamp America's health care system is a triumph
of ideology over common sense. On the stump, McCain speaks constantly
about "choice" and "competition" as the drivers of cost savings. In
the context of health care, though, these are little more than
slogans.
The idea is that people will shop around for the best deals and decide
to forgo unnecessary treatment. Then, when we become a nation of
choosy health care consumers, costs will decrease. But go back to
economic theory. A consumer has to have a high degree of information
to make those kinds of decisions, but in the real world, far from the
orbits of conservative think tanks, most people don't have enough
medical knowledge to be "rational actors," selecting the least costly
treatment from a long menu of options. Few of us read the New England
Journal of Medicine; few of us have a grasp of what risk factors
dictate which kinds of testing we should get and which are
unnecessary. We trust our doctors to help inform our medical
decisions, and the only "choice" most people would end up making is
whether to seek care or not. Again, that's rationing by other means --
forcing people to skip health care that they can't afford.
It's also a solution in search of a problem. Jeanne Lambrew, a
professor of public health at George Washington University, arguing
that "choice" is "a powerful ideological tool," dug deeper into what
kinds of choices Americans really want in terms of their health care.
She found that "a large majority of Americans who have had experience
with employer-based health insurance believe that employers do a good
job of selecting quality plans," and "two of three preferred an
employer-selected set of plans over an employer-funded account that
they would use to find coverage on their own" -- a central tenet of
the McCain plan in a nutshell.
More importantly, she found that people who bought insurance on the
individual market felt they had less choice than those whose employers
provided coverage for them.
The perceived extent of choice varied by type of health insurance: 81
percent of those with employer coverage said they had at least a fair
amount of choice, compared with 70 percent of those with individual
insurance. In fact, the proportion of individually insured people
reporting "not too much" or "no choice" in where to go for care (27%%)
was considerably higher than among those with employer coverage (17%%).
And while McCain decries Democratic proposals to insure everyone,
Lambrew states what should be quite obvious: "Lacking insurance
altogether, however, appears to be what matters most. The uninsured
were the least likely to report they had choices about where to go for
care."
In essence, McCain has been hemmed in by the ideology that's governed
Republican policy makers for decades. Consider the intellectual
contortions the campaign goes through to avoid acknowledging that
McCain's plan would effectively raise taxes for most people with
employer-sponsored health insurance -- a majority of Americans.
Holtz-Eakin denied it was a tax increase, calling it instead "a
transformation of the tradition of a tax subsidy to private insurance
to make sure that subsidy is fair." That prompted Matthew Yglesias to
write: "Clearly what's proposed here is a tax increase. Which in a
sane world, conservatives would be prepared to admit. But since
they've spent the past 30 years trying to convince people that any
hint of tax increase for any purpose is the purest evil, they're now
stuck in a rhetorical trap of their own devising."
Better still is one of McCain's proposals for dealing with those
patients with pre-existing conditions. According to the campaign's Web
site, McCain would consider "establish(ing) a nonprofit corporation
that would contract with insurers to cover patients who have been
denied insurance and could join with other state plans to enlarge
pools and lower overhead costs. There would be reasonable limits on
premiums, and assistance would be available for Americans below a
certain income level."
Hmmm ... a nonprofit entity that would "contract with insurers to
cover patients and join with other state plans to enlarge pools and
lower overhead costs." Throw in limits on premiums and some assistance
for the poor. What does that sound like?
In the land of Republican underwear gnomes, none dared call it
"government."
