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Hillarycare, Take Ii
Examining Kerry's health plan.


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Michael F. Cannon

Prominent columnist Paul Krugman recently wrote that “[c]onsidering its scope, Mr. Kerry’s health plan has received remarkably little attention.” Krugman may not enjoy watching the Kerry health plan receive the attention it deserves: It would undermine health coverage and reform more than any proposal since President Clinton’s Health Security Act, and deserves as much scrutiny.

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Kerry’s first proposal would expand government health programs; spend hundreds of billions of dollars to provide health coverage to millions who already have it; increase the cost of private health insurance; and cause many to lose their current coverage involuntarily, leaving them with worse coverage or none at all.

According to Rand, a nonpartisan think tank, up to half of those who enroll in Medicaid under such eligibility expansions already have private insurance but drop it–or are dropped by their employer–when they become eligible. Combined with estimates from former Clinton health official Ken Thorpe, this suggests that under the Kerry plan, taxpayers would spend $300 billion over 10 years to provide Medicaid coverage to as many as 18 million people who already have private coverage today. Draining 18 million paying, risk-spreading customers from private pools would make coverage even more expensive, causing even more workers to lose the coverage they now have. Those who end up on Medicaid may find it a poor substitute: the Kaiser Family Foundation reports women on Medicaid have twice as much difficulty finding a doctor who will see them as women with private insurance.

Next, Kerry proposes a “health alliance” where all employers and individuals could purchase taxpayer-subsidized coverage from a menu of options, much like federal employees do. The proposal is unlikely to expand coverage, could eliminate federal workers’ choices, and would serve as a platform for a government take-over of private health insurance. Rand Health found that when states tried similar reforms, “alliances did not have their intended effects. They did not increase the percentage of small businesses that offered health insurance, nor did they reduce small-group market health insurance premiums.”

Under the Kerry proposal, insurers would have to offer the same plans to both federal workers and those in the Kerry health alliance. Any plan that proves unprofitable in one would be taken away from the other, which could take away from federal workers the coverage they now enjoy. Finally, the proposal’s lavish subsidies seem designed to draw all insurers and insured into the Kerry health alliance, where they would meet Kerry’s final proposal.

For health plans in the alliance, Kerry proposes having the federal government pay three-fourths of all claims over $50,000, i.e. instantly nationalizing a large share of the health insurance industry. Over time, this would lead to nationalization of the entire industry. With the deficit growing and health-care costs climbing, the federal government would need to limit its exposure (for claims below $50,000 as well, to ensure patients do not “unnecessarily” reach that threshold). The most likely tools would be those used in Medicare: coverage standards, price controls, administrative bureaucracy, and fraud prosecutions. As a preview of things to come, Kerry already proposes allowing the federal government to approve premiums within the health alliance. By starting small, over time Kerry could achieve what Clinton could not: an effective government takeover of the health-care sector.

Like the Kerry proposal itself, Thorpe’s widely cited cost estimate–$653 billion over ten years–does not withstand scrutiny. First, Thorpe’s projections cover nine years, not ten. Second, they implausibly erase much of the cost by assuming the Kerry plan would so increase efficiency that taxpayers would get back 30 cents of every dollar spent. Ignoring savings projections and adding a tenth year, Thorpe’s projections suggest the Kerry plan would cost $1.1 trillion over ten years, which most agree would require a broad-based tax increase.

Despite all this, Kerry’s most alarming policy is his long-standing opposition to health-savings accounts, a new coverage option made available this year. Since January, tens of thousands of uninsured Americans have gained coverage with health-savings accounts, and millions more could do so soon. Kerry has voted against health-savings accounts in the past and today likens them to the tax relief he seeks to eliminate. His allies in the Senate have introduced legislation to repeal them, even though that would cut off the surest way to make health insurance affordable.

America is not without her health-care problems, and serious changes are needed. Certainly no presidential candidate has perfect answers. But a status quo that includes health-savings accounts is far better than the vision put forth by Sen. Kerry.

Michael F. Cannon is director of health-policy studies at the Cato Institute and author of the report, “Mrs. Clinton Has Entered the Race: the 2004 Democratic Presidential Candidates’ Proposals to Reform Health Insurance.”



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