For a health policy analyst, this year’s election offers a striking illustration of how deeply divided policymakers are in how they view the problems of the health system and the solutions to these problems. Senators McCain and Obama sometimes seem to be speaking about entirely different systems and their proposed health care solutions are, in many respects, diametrically different.
For Senator Obama, the most important problem confronting the US health care system is the security and cost of coverage. Providing access to health care for the 46 million uninsured and ensuring continued access for the tens of millions who fear losing coverage because their costs are rising is the critical objective of his plan. Cost containment in his plan is motivated by the need to keep health care accessible for Americans. By contrast, Senator McCain has identified the overall cost and efficiency of the health care system as the central concern that policymakers ought to address. Improving the economic efficiency of the system, he argues, would make the problems of access and coverage less pressing.
These strikingly different visions translate into equally distinct health plans. Senator Obama’s plan is, in many respects, quite modest. He does not envision a wholesale reorganization of the healthcare system. The plan takes a “building block” approach to expanding coverage through a series of incremental expansions and targeted subsidies. These expansions might be costly to the Federal treasury, but their likely effects on costs and coverage are well understood. A second feature of Senator Obama’s plan is to create a new national insurance exchange, which would offer plans, including a new public plan, to those without access to employer-sponsored coverage. The design of this exchange and the arrangements through which a public plan might be offered will require careful thought as the potential for such arrangements to become a magnet for less healthy people certainly exists.
Senator McCain’s plan envisions a much more dramatic reorientation of the health care system. The plan would eliminate the current tax exclusion for employer-sponsored health insurance, a feature of our health care system since the introduction of private insurance in the early 1930s, and would substitute instead a set of fixed dollar tax credits. This substitution would provide Americans with incentives to purchase less costly plans – plans with higher cost-sharing or fewer benefits. They would also shift coverage out of the group market into the non-group market. As we have no experience of such a shift, the likely magnitude of the change is hard to gauge.
Senator McCain’s plan would also eliminate state regulation of insurance, allowing purchasers to buy coverage across state lines. This change would, effectively, eliminate almost all regulation of the non-group market and would likely leave older, sicker purchasers much worse off. In response to this concern, Senator McCain has proposed the creation of high risk pools, subsidized arrangements to offer coverage to those at risk of high health costs.
Unfortunately, the creation of high risk pools is unlikely to be an effective solution to the problem of how to redistribute resources toward people who are known to have developed health conditions. Properly subsidizing these pools is likely to very costly. Moreover, these pools provide a poor institutional model. They are likely to exhibit all the pathologies associated with government intervention in markets – indebtedness to interest groups, poor cost control, bureaucratic inefficiency – without any of the regulatory or redistributive benefits of government intervention.
As Kenneth Arrow pointed out over 40 years ago, the inherent economic problems of the health care system make the design of institutions critical to the system’s success. Whichever candidate is elected, the design of new health care financing institutions and arrangements is likely to be a critical dimension of public policy – and of policy analysis.