The McCain and Obama Health Care Plans

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The McCain and Obama Health Care Plans

• Linda Blumberg and John Holahan
• The Urban Institute

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Outline of Presentation

• Overview of 2 plans
• Coverage and Affordability
• Sharing of Risk
• Cost Containment
• Financing

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Overview - Obama

• Medicaid expansion, income related subsidies
• National Health Insurance Exchange (NHIE)
• Guaranteed source of coverage, with pooling of
  risk
• Public plan
• Mandate for children, not for adults
• Employer mandate for medium and large firms
  through play or pay approach employer subsidies
  for small firms reinsurance
• Broad based approach to cost containment
• Electronic health records, chronic care
  management, prevention
• Competition in NHIE
• Public plan
• Financing increased rates on top two tax
  brackets

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Overview - McCain

• End employer tax exclusion, replace with
  2,500/5,000 credit credit could be used in
  employer or individual market credit grows with
  CPI
• Allow insurers to sell across state lines, will
  reduce effectiveness of regulation in spreading
  of risk
• Support high risk pools (710b per year)
• Cost containment
• Tax credits grow with CPI, individuals pay more
  each year, will choose lower cost plans, reduce
  demand for services
• Malpractice reform, prevention, chronic care
  management
• Financing intended to be budget neutral over 10
  years Medicare and Medicaid cuts

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Coverage - Obama

• Expand public coverage income-related subsidies
  in NHIE
• Exchange open to small employers and individuals
• Benefits similar to ESI
• Prohibit denials health status rating
• Mandate for kids, not adults
• Subsidy schedule and public eligibility not yet
  announced
• Estimate 94 coverage with assumed subsidy and
  eligibility levels
• Neither plan includes undocumented population.

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Coverage - McCain

• Fixed, refundable tax credits for group or
  non-group market
• Low/moderate income subsidy larger in near term,
  changes over time
• Encourages coverage in non-group market
• Subsidies not income-related, so affordability
  still major problem
• Declines in ESI problems in NG low subsidies
  relative to premium little change in net
  coverage, possibly negative.

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Risk Sharing - General

• More sharing of risk across diverse groups,
  closer costs are to population-wide average
• Broad risk spreading benefits those with higher
  needs at cost to the healthy
• Narrow risk sharing increases costs to the sick,
  benefits the healthy
• Insurance regulation, largely province of states,
  sets desired level of risk sharing. Lots of
  variation across states.

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Risk Sharing - Obama

• Increases regulation, broadening the spreading of
  risk
• Prohibits denials, health status rating,
  reinsurance
• Guaranteed issues, source for purchasing ESI-like
  policies
• Focusing subsidies on low-income leads to
  affordability
• Broad-based financing means costs are shared by
  all regardless of insurance status
• Mandate keeps all kids in the pool, regardless of
  health status
• No mandate for adults, means some additional risk
  spreading likely to be necessary.

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Risk Sharing - McCain

• Advocates substantially less risk sharing than
  Obama and today. Accomplished in 2 ways
• Decreased employer-sponsored insurance
• Allowing insurance to be sold across state lines.
• Tax credit for group or non-group decreases ESI
• Pull greatest for small/medium sized firms and
  the young and healthy.

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More risk sharing in group than non-group, even
today

• Same premiums in a group, regardless of health
  status
• Coverage generally comprehensive
• Some cross subsidy from high- income to
  low-income
• Non-group issues
• High admin costs, doesnt well serve those with
  higher health care needs
• Complexity, narrower benefits, denials, benefit
  riders, underwriting.
• Places greater financing burden on users of care.

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Sales across state lines

• Allows those in states with some risk sharing to
  buy coverage from states without it.
• Saves money for healthy at cost to those who
  remain.
• Leads to race to the regulatory bottom
• Leads to less accessible, less affordable
  coverage for those with health problems
• High admin costs offset some of the savings for
  the healthy.
• Risk pool investment (7-10b) cannot rectify the
  problem.
• Top 10 of spenders account for 65 of costs
• Without averaging with the healthy, subsidization
  would have to be tremendous.

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Cost Containment - Obama

• Electronic Health Records
• Chronic Care Management
• Prevention
• Comparative Effectiveness
• Negotiate Drug Prices, Lower Medicare Advantage
  Rates
• Competition in NHIE
• Public Plan

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Cost Containment - McCain

• Relies on change in tax incentives to reduce
  demand for services
• should reduce use but some uncertainty
• skewness of health spending will limit savings
• Electronic health records, chronic care
  management, prevention

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Financing - Obama

• Estimates (TPC) are 86b in 2009, 160b in 2013
  (no cost containment assumed) 1.6t over 10
  years
• Uncertainty because not clear about subsidies,
  benefits, reinsurance
• Cost containment should meet goals if commitment
  2,500 premium not accurate, but 8 of health
  spending is plausible
• Financed by increasing tax rates on top two
  brackets

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Financing - McCain

• Estimates (TPC) are 185b in 2009, 141b in 2013
  1.3t over 10 years
• 20 less than Obama over 10 years
• But doesnt include cost of high risk pool
• Tax credit gt value of exclusion for most
  families, increasingly less true over time
• Two issues
• credit may have to be more generous at low income
  levels
• credit may have to grow faster than CPI
• Potentially very costly with little impact

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