The Presidential Candidates' Health Plans
— Milton Fisk
SHORTLY AFTER THIS article goes to press, we'll know who the next U.S. president will be. Whatever the outcome, health care will remain one of our society's fundamental unresolved crises.
The Frontline TV film, "Sick around the World," showed Americans how far we are from having a sensible healthcare system. The film first appeared during the presidential primary campaign in which Hillary Clinton and Barack Obama were debating whether individuals should have to buy health insurance.
"Sick around the World" showed that in the five industrial countries featured almost everyone was insured. Health care was less expensive than in the United States, and even if private insurers were included, they were heavily regulated. Had they seen the program, the majority of Americans might have asked, "Why can't we get something as good as Japan, Germany or Taiwan?"
I say a majority since in poll after poll a majority of Americans have said they favor a national insurance system - a single payer system - which would provide the benefits enjoyed by people in the countries in the Frontline film without private insurers.
So why can't we? Explanations of things like this get complicated, so I'll stick to a few basics. The economic reason is that the health care insurance industry has grown economically powerful with the help of its weakly regulated status. With the power it now has, this industry can defeat regulation and efforts to destroy it, as single payer would.
The federal government leaves regulation of insurers to the states and the states have gone easy on them. A major exception has been employer health plans for their employees. In this case, federal rules preempt state regulation. Generally though, health insurers enjoy an unregulated life and fight to keep it that way.
The political reason why we can't get a decent system is that politicians have convinced themselves that single payer health care reform is political suicide. To them, the majority favoring single payer reform counts as nothing.
Politicians are aware that, if there were a threat of serious reform from the Congress, their big financial backers from the insurance and pharmaceutical industries would fill the media with anti-reform hysteria and would withhold contributions to pro-reform politicians. The idea that single payer healthcare reform is politically unrealistic has also infected the headquarters of some of the largest international unions and the offices of the AFL-CIO.
Why Job-Based Benefits Fail
The historical reason for the difficulty of getting a decent system is the wide acceptance of job-based health benefits, which took off in the mid-1940s. This meant that employers would pay for part or all health premiums. In the thinking of Walter Reuther and others in the industrial labor movement, if employers had to pay for collectively bargained health benefits, the burden on employers would soon be so great that they would come to labor to form an alliance for national health insurance.
That idea may have had some appeal when labor was calling the shots after World War II. But by the 1980s, foreign competition would lead U.S. capital to want to escape its commitment to health benefits, as well as other benefits. When this happened, capital did not come to labor for cooperation on national health insurance - quite the reverse, with labor weakened, capital bargained cuts in health benefits.
Strangely, what Reuther saw as a step toward single payer, many leaders in the U.S. labor movement treat now as a reason for not having single payer. They do not want to give up job-based health benefits plans, despite the cuts employers impose. This was a key factor in the AFL-CIO break with single payer in 1991, a break that hasn't yet healed entirely.
The Taft-Hartley Act of 1947 allowed unions to control the health funds that employers pay for. This has led to creating positions for labor leaders, primarily in the building trades, as heads of what are in effect insurance companies. These leaders then have a stake in blocking single payer.
The Obama Option
With economic, political, and historical problems facing a campaign for single payer, isn't it time to settle for a second best plan and isn't the plan of Barack Obama, the Democratic Party nominee, an excellent choice for second best? The first thing to look for in a reform plan is its potential to do some good. Second, will the means it adopts stand the test of time?
Obama's plan would indeed do some good by making timely health care available to more people. It would give people who cannot afford health insurance a government subsidy to use in buying health insurance, provided they are not eligible for Medicaid or State Children's Health Insurance Program (SCHIP). This would give many people the health care that they might otherwise wait too long to seek. The subsidy for the uninsured would be on a sliding scale up to the highest income for eligibility.
Except for children, however, Obama's plan does not mandate insurance for anyone. How many uninsured will buy insurance then depends on how generous the subsidy is. The plan would offer small businesses refundable tax credits up to 50% on premiums paid by them for insuring their employees. This would be an incentive for expanding the number of employees with job-based insurance. Eligibility rules for Medicaid and SCHIP would be relaxed, allowing more people into both. This measure would cover additional uninsured people but without their having to buy insurance.
These three measures alone - subsidies, tax credits, and expanded eligibility - would be beneficial since they would get health care to many who do not get it now or do not get it in a timely way.
This leaves the question about the means the plan uses to insure more people. If the plan cannot deliver on its promise, or can deliver on it for only a short time before it breaks down, then we should look for another plan.
I want to focus on the major weakness in the Obama plan, its reliance on the private insurers. The irony is that the insurers are to a great degree responsible for the crisis in U.S. health care. Yet the Obama plan is a huge subsidy by the government to the insurers.
The Obama campaign estimates it will take well over $100 billion a year to pay for the subsidies to the uninsured who buy private insurance. Add to this a cost of $9 billion for the tax credits for small businesses buying insurance for their employees. Job-based insurance for larger businesses and individual insurance for those who do not qualify for subsidies will continue as before. The overall result would be that private insurers will be doing more business and making more money than they ever were.
Obama hopes the insurance industry will decide to act in the common interest. To ensure that it does, his legislation on health care would contain some regulation of the industry. He would not allow an insurance company to turn away people for pre-existing conditions. He would require that the health plans offered by insurers provide the same benefits as those in the Federal Employee Benefits Program (FEHBP), which members of Congress use.
But beyond that, he leaves regulation to an entity his legislation would create, the National Health Insurance Exchange. The NHIE would act as a watchdog, create rules for insurers, and make it easier for individuals to buy insurance. Insurers would report to the NHIE on the share of premiums going to health care, but Obama does not suggest that there would be regulation limiting overhead for marketing, mergers, bloated salaries, or profits.
As a shrewd politician, Obama does not want to introduce a full set of regulations with his legislative proposal, but wants to assign making rules and standards to the NHIE. The likely private insurers' response to a full set of regulations in proposed legislation would be to dust off "Harry and Louise" ads and other devices that eliminated significant regulation from early drafts of President Clinton's health insurance plan in 1993.
The Importance of Regulation
What happens if some regulation actually makes it far enough to get the approval of Congress and in addition NIEH starts issuing further regulation? Many insurers are already adept at finding ways around regulation. By multiplying acts that show a resistance to cooperation, they would hope to get burdensome regulations dropped.
For example, a regulation requiring that all comers, no matter how sick, are to get insurance would be easy enough to game with unanswered calls and endless delays when an insurer has the slightest suspicion about an applicant's health.
Concerning regulations, it is important that a plan like Obama's include a government-run insurer. For-profit insurers will try to avoid regulations, thereby acting against the interests of the insured. Having a government-run insurer to fall back on can then appeal to people unwilling to chance being victims of a rogue private insurer. A government plan would give private insurers a market incentive to obey regulations.
Both the John Edwards and the Hillary Clinton plans gave people who bought insurance a choice of either a private or a government plan. Commentators commonly interpret the Obama plan to include a government-run insurer option, but the wording is loose enough to allow Obama plausible denial. However, the current Democratic platform states clearly that people will have a choice from a wide array of insurance plans including many private insurers and a single government insurer.
The reason effective regulation of insurers is so important is that without it, the case for holding the line on costs collapses. The private insurers in the United States now are notoriously inefficient, using only around 75% of the premiums for health care. By contrast, Medicare, which is mostly a single payer system, uses around 96% of its operating budget for health care.
The financial power and risk avoidance of American for-profit insurers drove not-for-profit insurers, like the old style Blue Cross/Blue Shield companies, out of existence. By 1950, for-profit-insurance had grown to cover as many people as the Blues did. At that time, the for-profits used only 79% of premiums for health care while the Blues used between 90-94%. With the not-for-profit private insurers gone, strict regulation would be necessary now to keep private insurers from charging the insured in excess of what it takes to run a more efficient insurance outfit.
The American private insurance system, unlike insurance systems elsewhere, is unaccustomed to serious regulation. The French system of National Health Insurance is nominally private but not-for-profit, and highly regulated by the state. It came to dominance without having to prove itself against large for-profit insurers. Rather, for-profit insurance has emerged as supplementary insurance, covering the little that NHI does not.
In Germany, regulation is also strong. There the sickness funds cannot make a profit, cannot deny coverage, and must offer a comprehensive health package. They compete for members by price and quality of coverage. A for-profit system appealing to richer clients has grown up alongside the sickness funds, but it covers only 10% of the population.
So the issue facing Americans is: Can we expect the captains of the corporatized insurance industry, accustomed as they are to gaming regulation or trying to get it repealed, to submit to regulation now? Perhaps we are wasting our time by doing anything short of abolishing the health insurance industry root and branch.
McCain Plan: Even Worse
Barack Obama hopes that by giving the insurers more business through his plan for covering low-income people, he will appease them enough to have them accept regulation. I have suggested that this hope is unfounded.
John McCain, the Republican Party nominee, wants to expand the reach of the insurers even farther than Obama, without proposing any new regulation of them. McCain's innovation amounts to a voucher system whereby anyone buying insurance would get a tax credit - $2,500 for an individual, $5,000 for a family. As with Obama, there is no mandate to buy insurance but only a lowering of the barrier to buying it thanks to the tax credit.
Since McCain does not require that insurance plans be comprehensive, the tax credits would encourage insurers to sell inadequate plans that people could buy with little or nothing more than those tax credits. McCain only partially counters this objection by saying that funds, in addition to the tax credits, would be available for those facing "particularly expensive care."
What about job-based insurance? The tax credit for individuals and families would also give employers an incentive to reduce their contribution to employee health benefits by at least the amount of the tax credit. McCain goes still further with an incentive for ending job-based insurance altogether. He does this by wanting to end tax deductibility for employer contributions to employees' health insurance.
The effect would be that cheaper insurance for employees would no longer be available based on the size of an employer's employee pool. Purchasing insurance would become a matter of isolated individuals and families surfing the net for the cheapest insurance offered. This is McCain's vision of a free market in insurance that he thinks will lower its cost.
For McCain, the tax credits simply grease the floor for what he sees as a vigorous market in health insurance. In reality, the major effect of this market will be to drive down the amount and quality of health care people can get.
People will try to get the best plans possible with little more than their tax credits, since many of them will have to use the rest of their income for food, transportation, and housing. Many employees who had job-based plans will no longer be able to afford plans with the benefits those plans offered. After all, McCain's tax credits make up less than half the full price of the average job-based plan today.
How would McCain respond? Like other healthcare voucher advocates, he would appeal to the law of supply and demand. The demand for health insurance will be less because of the effective end of job-based insurance. This will in turn reduce the supply of health insurance at its former price and increase its supply at a new, lower price.
The flaw in this response is that it overlooks the fact that there are lower-income and higher-income buyers in the insurance market. Those with higher income would still be able to create significant demand for comprehensive insurance. The cost of insurance would remain high for them.
Those with lower income would not generate significant demand for such high-priced insurance. Instead, a less comprehensive and indeed inadequate insurance would be available to them. Thus, McCain's unregulated health insurance market would not realize his promise to "wring out excess costs, overhead, and bloated executive compensation."
To round out his vision of a free market health industry, McCain thinks state Medicaid and SCHIP funds should go to individuals to buy private insurance. Since states currently regulate health insurers, McCain tells them not to tamper with the free market, as five states now do, by requiring insurers to take all comers. Instead, he would have the government establish high-risk pools to subsidize more expensive insurance for the chronically ill.
A "Realistic" Answer?
Obama's plan has a decisive advantage over McCain's since Obama's will increase the number of people getting Medicaid and SCHIP benefits as well as the number of people who can buy comprehensive health insurance. McCain's plan offers tax credits that are insufficient to cover the cost of comprehensive insurance.
Although the Obama plan will do more good, neither plan uses means that promote its viability. Both rely on the commercial insurers, who are accustomed to little regulation and now have the power to avoid further regulation. Attempts like those of McCain to eliminate all restrictions on insurers would only encourage worse behavior on their part. For these reasons it should be clear that the best choice for the United States is single payer. But isn't single payer politically unrealistic?
Members of the relatively new Health Care for America Now (HCAN) argue that something close to the Obama plan is feasible, whereas national health insurance can't win. McCain's plan differs from Obama's by including a government insurer alongside the private ones.
HCAN boasts that it has $41 million to buy ads to promote a plan, a plan that will give the insurers more business. It calls its plan "an American solution," which is ironic since reliance on private insurers is the source of the great American failure in health care. It has backing from the leadership of major unions, social service organizations, and political action groups. Its message is that those with a serious interest in major reform should make a push for having the government subsidize the purchase of private insurance by the uninsured.
Organizations signing on to HCAN include SEIU, AFSCME, Jobs with Justice, CWA, ACORN, NEA, MoveOn, the AFL-CIO, and 70-some others.
Single Payer Gaining Support
It is difficult to accept HCAN's case against the feasibility of single payer once we look at the massive support for it. Single payer in the form of Rep. John Conyers' HR676 has 90 cosponsors in the House of Representatives.
As of August 2008, HR676 has the backing of 442 labor organizations, including 36 state federations of labor.
The Executive Council of the AFL-CIO endorsed single payer in 2007, and the 2008 convention of SEIU endorsed HR676. Ironically, the top leaders of AFL-CIO and of SEIU now support the HCAN position of retaining, not abandoning, the private insurers.
Moreover, a 2007 poll showed that 59% of all physicians support single payer health care, an increase from 49% only five years earlier. Legislatures in several states have passed single payer legislation only to have their bills vetoed by Republican governors. The National Conference of Mayors gave unanimous approval in 2008 to a motion favoring national health insurance. Most importantly, polls show that two-thirds of Americans favor national health insurance even if it means paying more taxes.
Bills have made it through the U.S. Congress with much less popular support. How much support was there for privatizing Medicare through its Advantage and Drug programs? Public awareness of the issue of single payer versus the insurers is considerable, dating back to President Truman's effort to get single payer in the late 1940s.
Sadly, the decisive factor now is not the public's thinking but the power the insurers have over certain officials and politicians. Union officials know that job-based health insurance is a factor in corporate decisions to outsource and is an obstacle to bargaining on wages and conditions of work. Nonetheless, they do not want to undercut the perquisites some of them have from running the insurance outfits they set up with employers' money.
This pettiness is not the main issue, which is the unwillingness of union officials generally to take on the politicians they inevitably endorse on the issue of ending corporate health insurance. Appealing to the good the plans of Obama and HCAN would do for the currently uninsured gives union officials a cover for dodging the necessary confrontation with corporate insurers.
Supporters of single payer need to take advantage of their majority position. They should not accept the argument that the only realistic course is to give the private insurers more business. Doing so will sacrifice the savings that the more efficient single payer system will generate.
Keeping the insurers will continue to let them put the value of their stock before people's health. Politicians and union officials who want to deal with the crisis of unaffordable health insurance by enriching the insurers need to be held accountable by the majority, who now support single payer.
ATC 137, November-December 2008