John McCain's Health Plan

Everyone takes the limits of his own vision for the limits of the world. – Arthur Schopenhauer

In This Week's Sift: What McCain Wants To Do With Health Care

• The problem with American health care. We spend a lot, we don't live as long, and we live with anxiety.
• McCain vs. the Democrats. The difference between the parties dwarfs the difference between Obama and Clinton.
• Employment and pre-existing conditions. Different ways to disentangle your coverage from your job.
  
• Market magic. The conservative way to get a free lunch.
  
• Market realities. Why health insurance won't improve the ways personal computers did.
  
• Trillion with a 't'. In such a huge industry, even large sums can be just a drop in the bucket. Why malpractice reform won't help.
  
• Summing up. The insurance companies gain power. You lose it.

Short Notes. Deaths in Iraq are back up. The gas tax holiday. And the New York Times keeps recycling the same old experts.

John McCain's Health Care Proposals

Tuesday John McCain gave a speech in Tampa where he outlined his health care proposals. Barack Obama and Hillary Clinton long ago announced detailed health care plans, so we now have enough information to start comparing. Just to remind myself that there are actual issues that matter, I'm going to spend an entire Sift looking at what McCain wants to do about one of our most important problems.

The Problem: expensive care, poor results, uncertainty

In a nutshell, the problem with the American health care system is that we spend a lot and we don't get commensurate results. Wikipedia has a well-laid-out table of relevant numbers, which seem to come from 2003. Compared to the other seven countries in the table, the U.S. spends the most per capita ($5711 compared to second-most-expensive Germany at $3204) and has the lowest life expectancy (77.5 years compared to six countries in the 79.5-80.5 range and outlier Japan at 82.5). These statistics lump together public and private spending, and so are an apples-to-apples comparison, as opposed to claims that health care is "free" in countries where it is paid for by the government.

Not captured in those poor overall statistics is the uncertainty Americans face. The Census Bureau reports that 47 million residents of the United States were uninsured in 2006 -- that's the number you hear most often. Conservatives claim it is misleading because about 10 million are non-citizens and 15.7 million had annual household incomes over $50,000 -- and so, conservatives assume, could have bought insurance had they been so inclined. (You can find these numbers on page 21 [page 29 in the PDF file] of the Census Bureau report.) In addition, some large number of uninsured people are between jobs and will have insurance again in a few months. (McCain says about half; I'm not sure what his source is.) So it's hard to estimate exactly how many of those 47 million are in the most sympathetic category: American citizens who are more-or-less permanently consigned to the mercies of emergency rooms for their health-care needs. Wild guess: 10-20 million. That's less than 47 million, certainly, but should we be happy about it?

There are other problems with the attempts to lowball the numbers: If being uninsured is a revolving door, then many more than 47 million have been without insurance for some period of months; any poorly timed health problem could have thrown them into bankruptcy. (The revolving door is more like the spinning cylinder of a revolver in Russian roulette.) And consider those non-citizens: When the next epidemic strikes, we're going to wish they had access to health care just for our own selfish reasons. (I wonder how many of the janitors in my apartment building are citizens and how many have health insurance. We touch so many of the same objects.) And some of the revolving-door people will only sort of be insured again when they get their next job: their pre-existing conditions may not be covered.

And that brings us to the next problem: The rigidity of our health-care system spills over into other areas. Because their coverage is tied to their jobs and a new insurer might not cover their pre-existing conditions, some large number of Americans are locked into jobs that are unfulfilling, trap them in an unfortunate living situation, or fail to use their skills well. One of the U.S.'s economic advantages -- the mobility and flexibility of our labor force -- is being compromised.

McCain vs. the Democrats

By the time the candidates start debating health care, a lot of options have already been closed off. None of the three candidates propose a single-payer system similar to those used by the other countries in the Wikipedia table -- the ones where people live longer and spend less. All three leave most of the system in the private sector -- private health insurance companies, private hospitals, and privately employed doctors. (Kucinich was the most popular candidate who proposed a single-payer system -- and he wasn't very popular.) All three also retain some version of the major public-sector programs: Medicare, Medicaid, and the Veteran's Administration hospital system.

Compared to McCain's proposals, the difference between the Clinton and Obama plans is negligible. The two Democrats differ mostly about whether to mandate coverage, i.e., penalize people who don't buy health insurance. Clinton's plan, with mandates, is probably better from a public-health standpoint. Obama's plan, without, is probably easier to sell politically. Clinton's plan could easily turn into Obama's as it makes its way through Congress.

But the philosophical difference between McCain and the Democrats is sharp: Obama and Clinton believe that the federal government has to take responsibility for making health coverage available and affordable. McCain believes that the federal government should try to create conditions that encourage the market to solve the problem, with the primary responsibility for plugging gaps in the market falling to the states. So although McCain can say things that sound just like the Democrats:

We want a system of health care in which everyone can afford and acquire the treatment and preventative care they need, and the peace of mind that comes with knowing they are covered. Health care in America should be affordable by all, not just the wealthy. It should be available to all, and not limited by where you work or how much you make. It should be fair to all; providing help where the need is greatest, and protecting Americans from corporate abuses.

really he's just expressing a desire rather than taking responsibility for achieving a goal. It's like when a president promises "good jobs for everyone who wants to work" -- that doesn't mean that the government will hire all the unemployed, only that the government will pursue policies that it hopes will encourage the market to create jobs.

Insurance, employment, and pre-existing conditions

For example, consider how the candidates deal with the problem of losing your coverage when you lose or leave a job. Obama and Clinton would open up the Federal Employees Health Benefit Plan to all Americans. In other words, you'd get the same health insurance options that a federal employee has. Since your eligibility depends just on being an American rather than on working for a particular company, you stay covered (or can switch to the FEHB plan) when you leave a job. Both would use government money to make insurance cheaper for most people -- which they claim to pay for by letting the Bush tax cuts on the wealthy lapse. (I haven't checked whether those numbers work.)

McCain's proposes to change the tax policy that favors employer-based group insurance over individual insurance. He would provide an annual tax credit -- $2500 for individuals and $5000 for families -- to people who buy their own insurance. He claims this is equivalent to the tax credit an employer gets currently. So while your employer's insurance plan doesn't go with you when you leave a job, the federal tax benefit does.

Now, what does that do and not do? It doesn't put new government money into the system; it just reshuffles tax breaks that already exist. It mitigates your expense if you have to buy your own plan, but doesn't guarantee that you'll be able to find a plan. Elizabeth Edwards has pointed out that as cancer survivors, neither she nor McCain would be able to find an insurance company willing to take them on. McCain recognizes that gap in the system, and says that he will "work tirelessly to address the problem. But I won't create another entitlement program that Washington will let get out of control." His speech suggests (without making any commitments) that the federal government will assist the states in setting up subsidized pools to cover "the uninsurables."

And finally, a tax credit only does you good to the extent that you pay tax. In 2007 a family had to have taxable income of $38,550 before they owed $5000 in federal income tax. If you just lost your job, that tax credit may not help much.

Market magic

The "magic" in McCain's plan -- say that word sarcastically if you're liberal and reverently if you're conservative -- is in what he imagines all these newly empowered individual health-care consumers will do and how the market will respond to them.

The key to real reform is to restore control over our health-care system to the patients themselves. Right now, even those with access to health care often have no assurance that it is appropriate care. ... When families are informed about medical choices, they are more capable of making their own decisions, less likely to choose the most expensive and often unnecessary options, and are more satisfied with their choices. We took an important step in this direction with the creation of Health Savings Accounts, tax-preferred accounts that are used to pay insurance premiums and other health costs. These accounts put the family in charge of what they pay for. And, as president, I would seek to encourage and expand the benefits of these accounts to more American families.

The vision here is that ordinary health care would be purchased piecemeal, like groceries, with individuals bearing the cost (out of their tax-sheltered health savings accounts) and being backed up by insurance only for expensive illnesses. Savings come because families will purchase less health care. If a doctor wanted to do an expensive test to rule out some unlikely possibility, a cost-conscious family could say "No, thank you."

And McCain envisions the personal-health-care market responding the way that the personal-computer market has -- with ever-improving quality and ever-shrinking prices. This creative interplay of supply and demand is what McCain sees missing in government programs that would

replace the inefficiency, irrationality, and uncontrolled costs of the current system with the inefficiency, irrationality, and uncontrolled costs of a government monopoly. We'll have all the problems, and more, of private health care -- rigid rules, long waits and lack of choices, and risk degrading its great strengths and advantages including the innovation and life-saving technology that make American medicine the most advanced in the world.

In order to foster this competition, McCain proposes creating a single set of federal health-insurance regulations rather than the current system of state regulations.

Right now, there is a different health insurance market for every state. Each one has its own rules and restrictions, and often guarantees inadequate competition among insurance companies. Often these circumstances prevent the best companies, with the best plans and lowest prices, from making their product available to any American who wants it. We need to break down these barriers to competition, innovation and excellence, with the goal of establishing a national market to make the best practices and lowest prices available to every person in every state.

Market realities

I've tried to be objective and fair up to this point . Now I'll be opinionated: This is fantasy. The health-care market is special in ways that make McCain's magical-competition vision ridiculous.

Health insurance companies make money in two ways, one constructive and the other destructive. The constructive opportunity is through risk-pooling: Being sure that your potential losses will be covered is worth more to you that your fair share of the losses of the entire pool of people being insured, so you're willing to pay a premium large enough that the company makes an overall profit.

But the big money in private health insurance isn't in risk-pooling, but in risk-shifting. If you're an insurance company, you want to insure the people who don't get sick and not wind up paying for the people who do get sick. Every time you insure somebody who doesn't get sick, that's 100% profit. But every time you insure an Elizabeth Edwards (or my wife, another cancer survivor), you blow the premiums paid by dozens (or even hundreds) of healthy people. There's nothing like this in other markets. If you sell computers or cars, the more you sell the more money you make. You don't need to worry about selling to the wrong customers.

Left to their own devices, health-insurance companies will compete by risk-shifting, not risk-pooling, because that's where the real money is. They'll love to have your business until you get sick, and then they'll do their best to get rid of you. The more freedom the market allows the insurance companies, the more nakedly they will pursue this strategy.

The second unusual feature of the health-care market is that consumers are not the well-informed decision-makers that McCain imagines. When the doctor tells you that your daughter needs this operation right away or she's going to die, are you going to spend a week in the library researching the question? Even if you had the week to spend, would you trust your rationality under that kind of stress?

My wife, who could never get insurance on her own, gets us insurance through her employer. We have a choice of several plans, which we can change annually if we want. Are we making the best choice? I have no idea. Nobody does. We trust that the employer has vetted the plans, and we've had mostly good experiences so far, so we stay with what we have. People who haven't been sick don't even get that much information. Now shift into that health-insurance-account vision: I'm going to negotiate individually to get the best deal out of the surgeons, the hospitals, the labs that do our blood tests, and everybody else in the supply chain. And I'm especially going to do it when either I or my wife have major illnesses. Not likely.

In competitive markets full of customers as ignorant as I would be without an employer cutting down my choices, competition happens mostly through image advertising. St. Marie Antoinette's Hospital "really cares." The Beneficent Insurance Company hires attractive young women with chipper voices to answer your calls. The "best" doctors are with the Upscale Medical Group. The more competition we put into the system, the more money will be spent on TV commercials with messages like that rather than on providing care that helps people get well.

Trillion with a 't'

Finally, it's very hard for voters to wrap their minds around the sheer scale of the health-care market. Americans spend about $2 trillion of public and private money each year on health care. In a system that big, it's easy to come up with ideas that seem like they ought to save big money, but actually make no visible dent. Take malpractice expenses. As McCain says:

Another source of needless cost and trouble in the health care system comes from the trial bar. Every patient in America must have access to legal remedies in cases of bad medical practice. But this vital principle of law and medicine is not an invitation to endless, frivolous lawsuits from trial lawyers who exploit both patients and physicians alike.

Tort reform is a standard conservative cost-saving proposal in all fields. But the total malpractice payments in America run about $5-6 billion annually. That sounds like real money, but it's less than $3 out of every $1000 of our total health-care spending. Eliminate all malpractice cases -- including the ones where deserving patients get money they need -- and you will have made not the slightest dent in our medical budget. All such savings in McCain's plan, I predict, would be swamped by the increased advertising.

Summing up

McCain doesn't propose putting any new federal money into health care, so you won't get a break that way. If he succeeds in pushing the insurance market towards individual policies rather than employer-centered groups, you'll lose any bargaining power that your employer might have. If the health-savings-account model takes hold, you'll have to make a huge number of decisions without having the proper information or expertise. Creating a national rather than state-by-state market will prevent your state government from giving you any more leverage than the federal government wants to give you. Cost savings are illusory.

In short: In McCain's plan, your power goes down relative to the insurance companies. What you'll get in exchange for that is not clear.

Short Notes

Chris Bowers, who wasn't supporting Hillary anyway, reports:

The gas tax holiday episode collects all of my worst fears about a possible second Clinton presidency in a single, dark, place that I haven't entered since the 1990's. Are we to suffer through another Democratic President who will make impromptu, right-ward shifts toward bad policy, justified in nonsensical, Orwellian language, all the while claiming such a move must be done because it will score huge political points even though it is ultimately a bad political calculation, and then threaten the entire Democratic Party to fall in line behind such a move or else? This is basically all of my worst fears about Hillary Clinton becoming President rolled up into one giant ball of tin-foil and dropped on my front porch.

U.S. troop deaths in Iraq had leveled off at about 40 a month before shooting up to 54 in April. Funny how you don't hear people say "the Surge is working" so much any more. Back in November, when deaths had dropped into the 20s after being over 100 every month last summer, you could almost share John McCain's fantasy that our casualties were on their way to zero, and that an Iraq occupation might become no different than having troops in Germany or Korea. But the downward trend stopped well short of zero, and we have to think about how long we're willing to keep losing those 40+ every month.

Foreign policy experts seem to have some weird form of tenure -- no mistakes can possibly get them thrown out of the fraternity. For the fifth anniversary of Mission Accomplished, the New York Times pulled together articles by Richard Perle, Paul Bremer, and a bunch of other people who helped get us into this mess. What do the people who were right in 2003 think? The NYT isn't interested in that question.