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1
Health Reform Plans:McCain vs. Obama
William H. Dow
University of California - Berkeley
October 20, 2008
2
Many Variants of Republican Ideology:McCain has embraced extremes
MINIMIZE
Govt InterventionTax/Transfers
Libertarians X X
Fiscal conservatives X
Pro-Market X
Conservatives are not monolithic, but different flavors of conservatives tend to have similar policy views favoring smaller government in sectors such as health care.
3
Heterogeneous Views of Government (Blendon, NEJM Jan 24 2008)
Government vs. private insurance providing medical coverage
Repub. Dem.
Govt better 21% 41%
Govt worse 60% 36%
4
McCain and Obama Focus on Different Health Care Problems
• Obama’s goal: universal health insurance. • McCain:
– Reducing uninsurance is desirable, but not paramount.
– Main priority is to reduce health care cost growth. Why?
• Current cost trends are unsustainable. • Addressing cost growth necessary for sustainable
decreases in uninsurance.• Huge inefficiences in health care hurt government
budget, employers, and private individuals.
5
Heterogeneous Views of Uninsured (Blendon, NEJM Jan 24 2008)
Problem that many Americans do not have health insurance
Repub. Dem.
Very serious 55% 94%
6
National Health Expenditures
5%
10%
15%
20%
25%
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
National Health Expenditures as a Percentage of GDPNational health expenditures have risen dramatically and are projected to continue rising.
Percentage of GDP
Source: Department of Health and Human Services (Centers for Medicare & Medicaid Services) and Council of Economic Advisers.
7
Public BudgetsRelative stability of past spending masks underlying shift towards entitlement
spending and unsustainable growth in Medicare spending
Source: Budget, 2007 [CEA]
8
Social Security and Medicare Costs% GDP
0%
2%
4%
6%
8%
10%
12%
14%
2000 2010 2020 2030 2040 2050 2060 2070 2080
Social Security
Medicare
Source: CEA
9
Private Budgets
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Employee Share
Employer Share
Employer-Provided Health Insurance Premiums for Family Plans (1988-2005, adjusted for inflation)
Source: Kaiser Family Foundation/Health Research and Eductaion Trust [CEA] Note: The following years were interpolated: 1989-1992; 1994-1995; 1997-1998.
10
How Can We Slow Spending and Reduce Inefficiences?
• No magic bullet.– One-time fixes only of limited help (liability reform).– Health IT, primary care, comparative effectiveness: both
campaigns embrace. Can reduce inefficiencies, but very hard to assess if will reduce spending.
• New technologies are main cost drivers.– Government has been unwilling to ration care, and
insurers have been unable.– Republicans have embraced the potential role of
consumers: with more cost-sharing, they could make better choices, demand lower prices, and induce cost-reducing technologies.
11
RAND Health Insurance Experiment
• Large 1970s experiment randomizing people to insurance plans with cost-sharing ranging from none (“free care”) to 95% (high deductible). Results:
• Free care enrollees spent 45% more than high deductible enrollees.– Both “unnecessary” and preventive care was reduced
• Average health levels no worse after 5 years. – But cost-sharing harmed health of those poor and sick at baseline. Long-
term health effects unknown.
• New estimates: if switched insureds from current plans to those with higher cost-sharing, we could reduce spending 5% in short-run. Big unknown is how much long-run costs would drop.
12
Tool to remove bias against cost-sharing: reform tax law
• Employer-sponsored insurance (ESI) premiums are exempt from income+payroll taxation – Anomaly from World War II price control policy
• This is a “tax subsidy” for buying expensive insurance, and biases away from cost-sharing.
• McCain: proposes to eliminate this tax distortion. Could raise $200 billion/year, AND improve efficiency AND improve equity.
13
Estimated Average Federal Health Tax Expenditure
292
725
1231
1448
2134
2640
2780
102
0
500
1,000
1,500
2,000
2,500
3,000
Less than$10,000
$10,000-19,999 $20,000-$29,999
$30,000-$39,999
$40,000-$49,999
$50,000-$74,999
$75,000-$99,999
$100,000 ormore
Data Source: Lew in Group, 2004; Mean Benefit CEA calculation using CPS, Aug 04 Family Income
Mean Benefit: $1,511 / family
14
McCain plan• Similar cost containment ideas as Obama (health IT, primary care, P4P,
etc.) but less budgetary commitment.– [No “Connector” to reduce admin costs… but savings are unclear, and could
easily add a Connector]
• Eliminate current tax exclusion: to encourage consumerism, reduce costs– [Less radical step possible: only partially remove exclusion]
• Replace tax exclusion with flat $2500/person or $5000/family credit for qualified insurance.
– [Too small for many low-income, sick. Could instead be larger for low-income.]
• Guaranteed Access Plan: insurance for high risks. Partly paid through insurer assessments.
• Allow insurance to be sold across state lines…which would reduce rating regulation.
– [Could use risk adjustment to instead reduce premiums for high risks]
15
Final Thoughts
• Differing underlying values and beliefs
• Many spurious arguments on all sides– Both out of ignorance and disingenuous– Be sophisticated in evaluating arguments!
• Scope for compromise?– Major federal reform may require 60 Democrats in Senate.– But common ground on many minor reforms.
• But: More important long-run policies are upstream anyway. – E.g., education: Can improve health more, thus lower long-run
costs; can reduce inefficiencies; can reduce inequities.