McCain and Obama Health Care Proposals: Cost and Coverage Compared

The Lewin Group
October 8, 2008
In this study, The Lewin Group estimated the cost and coverage impacts (for 2010-2019) of the health reform proposals introduced by Senators McCain and Obama. Our key findings are that the McCain proposal would reduce the number of uninsured from a projected number of 48.9 million people in 2010 by 21.1 million people if fully implemented in that year. The Obama plan would reduce the number of uninsured by 26.6 million people. The McCain proposal would result in a net increase in federal spending (i.e., net of offsets) of $2.05 trillion over the 2010 through 2019 period compared with a net federal cost of $1.17 trillion under the Obama plan over this same ten-year period.
The Candidates’ Proposals
The McCain proposal would expand coverage through private insurance and decrease regulation of health insurance markets. His plan would provide a refundable tax credit of $2,500 for single filers and $5,000 for families that have private health insurance from an employer or as an individual in the non-group market. Insurers would be permitted to sell insurance across state lines, thus sidestepping state minimum benefit and insurance rating regulations.
The McCain proposal would establish federally subsidized high-risk pools called the Guaranteed Access Program (GAP) to cover those denied coverage due to health status. The Campaign indicates that half of the losses under the GAP would be paid with an assessment on private insurance with the federal government providing the remaining half.
The Obama proposal would expand coverage through public and private insurance and increase federal regulation of insurance markets. His proposal would expand Medicaid eligibility to include all very low-income adults and would provide premium subsidies for people with low to moderate incomes. Insurers would be prohibited from denying coverage or setting insurance premiums on the basis of health status. Also, the Obama plan would provide small employers with a tax credit for the purchase of insurance and would create a federally subsidized reinsurance program to cover “catastrophic health” expenses in employer plans.
Senator Obama’s plan would also create a “National Exchange” offering a selection of private health insurance options comparable to those now offered to members of Congress and federal workers. The exchange would be open to individuals, the self-employed and small employers. In addition, the Obama proposal would create a new publicly-operated insurance program called the “National Plan” that would be available as an alternative to private coverage in the National Exchange.
Unlike the McCain plan, the Obama proposal would establish a minimum standard of covered benefits.
http://www.lewin.com/dyn/healthpolicies

The release of this report from The Lewin Group has provoked a debate on whether it accurately reflects the numbers of individuals that would gain coverage under the McCain and Obama proposals respectively. Although this debate is legitimate, it misses the most important point. We don’t really care how many people nominally have health insurance; we want to know whether or not people are protected from financial hardship should they need health care.
The McCain proposal aims to make premiums for private health plans affordable by deregulating the market. Premiums can be kept low by (1) creating a market of underinsurance products (limited benefits and greater cost sharing, especially through high deductibles), and by (2) insuring only low risk individuals who can pass medical underwriting standards.
The Lewin report makes the assumption that when the McCain plan is fully implemented in 2010 the number of individuals with private employer coverage will decrease from 157 million to 148 million. That level of decrease might be true at the beginning of the program, but incentives are likely to cause a further dramatic decline in employer-sponsored coverage. If an individual can obtain a very inexpensive plan in a deregulated market, and the government is going to provide a $2500/$5000 tax credit, why would an employer want to continue to offer an expensive comprehensive plan, and why would an employee pass up a pay increase offered by the employer for those who decline coverage?
Once a large number of healthy employees move into the individual market, the employer-sponsored plans will be subject to adverse selection. The spiraling costs of premiums will cause employers to terminate their plans, especially since a President McCain’s proposal would have opened up the individual market to plans with affordable premiums, albeit underinsurance plans.
Since the deregulated market insures only healthy individuals, the individuals who actually need health will have to look elsewhere for coverage. Sen. McCain understands this, and that is why he has proposed the Guaranteed Access Program (GAP) to insure these individuals with greater needs.
This is where there is a problem with defining the success of a reform proposal by the numbers of insured individuals. The very large number of individuals purchasing underinsurance plans are healthy, but most of the spending is on the smaller group with needs that will be forced to obtain coverage under GAP. The Lewin Group estimates that of those with chronic health conditions who are currently uninsured, only 24 percent would be covered by the McCain proposal. These are people who most desperately need coverage, yet three-fourths of them would remain uninsured.
How does McCain propose to pay the high costs of those who do make it into GAP? Half would be paid by federal subsidies (taxes), but the other half would be paid by assessments on individual private insurance plans. Suddenly the cheap premiums for these underinsurance products aren’t so cheap anymore since half of the excess costs of the high-risk pools are moved back into the underinsurance pools. What will happen to the enrollment rates for these underinsurance products when the premiums are jacked back up to unaffordable levels?
When people tell you that the McCain plan is almost as good as the Obama plan in reducing the number of uninsured, you now have a response. The McCain proposal provides nominal coverage with uninsurance plans for those who are healthy, but it doesn’t pay the bills for those who actually need health care.

The Lewin Group
October 8, 2008

In this study, The Lewin Group estimated the cost and coverage impacts (for 2010-2019) of the health reform proposals introduced by Senators McCain and Obama. Our key findings are that the McCain proposal would reduce the number of uninsured from a projected number of 48.9 million people in 2010 by 21.1 million people if fully implemented in that year. The Obama plan would reduce the number of uninsured by 26.6 million people. The McCain proposal would result in a net increase in federal spending (i.e., net of offsets) of $2.05 trillion over the 2010 through 2019 period compared with a net federal cost of $1.17 trillion under the Obama plan over this same ten-year period.

The Candidates’ Proposals

The McCain proposal would expand coverage through private insurance and decrease regulation of health insurance markets. His plan would provide a refundable tax credit of $2,500 for single filers and $5,000 for families that have private health insurance from an employer or as an individual in the non-group market. Insurers would be permitted to sell insurance across state lines, thus sidestepping state minimum benefit and insurance rating regulations.

The McCain proposal would establish federally subsidized high-risk pools called the Guaranteed Access Program (GAP) to cover those denied coverage due to health status. The Campaign indicates that half of the losses under the GAP would be paid with an assessment on private insurance with the federal government providing the remaining half.

The Obama proposal would expand coverage through public and private insurance and increase federal regulation of insurance markets. His proposal would expand Medicaid eligibility to include all very low-income adults and would provide premium subsidies for people with low to moderate incomes. Insurers would be prohibited from denying coverage or setting insurance premiums on the basis of health status. Also, the Obama plan would provide small employers with a tax credit for the purchase of insurance and would create a federally subsidized reinsurance program to cover “catastrophic health” expenses in employer plans.

Senator Obama’s plan would also create a “National Exchange” offering a selection of private health insurance options comparable to those now offered to members of Congress and federal workers. The exchange would be open to individuals, the self-employed and small employers. In addition, the Obama proposal would create a new publicly-operated insurance program called the “National Plan” that would be available as an alternative to private coverage in the National Exchange.

Unlike the McCain plan, the Obama proposal would establish a minimum standard of covered benefits.

http://www.lewin.com/dyn/healthpolicies

Comment:

By Don McCanne, MD

The release of this report from The Lewin Group has provoked a debate on whether it accurately reflects the numbers of individuals that would gain coverage under the McCain and Obama proposals respectively. Although this debate is legitimate, it misses the most important point. We don’t really care how many people nominally have health insurance; we want to know whether or not people are protected from financial hardship should they need health care.

The McCain proposal aims to make premiums for private health plans affordable by deregulating the market. Premiums can be kept low by (1) creating a market of underinsurance products (limited benefits and greater cost sharing, especially through high deductibles), and by (2) insuring only low risk individuals who can pass medical underwriting standards.

The Lewin report makes the assumption that when the McCain plan is fully implemented in 2010 the number of individuals with private employer coverage will decrease from 157 million to 148 million. That level of decrease might be true at the beginning of the program, but incentives are likely to cause a further dramatic decline in employer-sponsored coverage. If an individual can obtain a very inexpensive plan in a deregulated market, and the government is going to provide a $2500/$5000 tax credit, why would an employer want to continue to offer an expensive comprehensive plan, and why would an employee pass up a pay increase offered by the employer for those who decline coverage?

Once a large number of healthy employees move into the individual market, the employer-sponsored plans will be subject to adverse selection. The spiraling costs of premiums will cause employers to terminate their plans, especially since a President McCain’s proposal would have opened up the individual market to plans with affordable premiums, albeit underinsurance plans.

Since the deregulated market insures only healthy individuals, the individuals who actually need health will have to look elsewhere for coverage. Sen. McCain understands this, and that is why he has proposed the Guaranteed Access Program (GAP) to insure these individuals with greater needs.

This is where there is a problem with defining the success of a reform proposal by the numbers of insured individuals. The very large number of individuals purchasing underinsurance plans are healthy, but most of the spending is on the smaller group with needs that will be forced to obtain coverage under GAP. The Lewin Group estimates that of those with chronic health conditions who are currently uninsured, only 24 percent would be covered by the McCain proposal. These are people who most desperately need coverage, yet three-fourths of them would remain uninsured.

How does McCain propose to pay the high costs of those who do make it into GAP? Half would be paid by federal subsidies (taxes), but the other half would be paid by assessments on individual private insurance plans. Suddenly the cheap premiums for these underinsurance products aren’t so cheap anymore since half of the excess costs of the high-risk pools are moved back into the underinsurance pools. What will happen to the enrollment rates for these underinsurance products when the premiums are jacked back up to unaffordable levels?

When people tell you that the McCain plan is almost as good as the Obama plan in reducing the number of uninsured, you now have a response. The McCain proposal provides nominal coverage with uninsurance plans for those who are healthy, but it doesn’t pay the bills for those who actually need health care.