More Problems with the McCain Health Plan

I went to a wonky, inside-the-Beltway briefing yesterday at which a surrogate from the Obama and McCain campaigns spoke on their respective health care plans.

If you don’t want to read the rest of this post, I can sum up: The Obama handout a serious, 7.5 page document with 45 footnotes. The McCain handout is 5 pages with large graphics that attack “Obama fiction.” And footnotes? Nary a one.

I want to address just two facets of the McCain health plan: the refundable tax credit ($2500 for an individual and $5000 for a family) and deregulation – allowing individuals to buy insurance across state lines.

(1) Tax Credit: How will this credit be indexed? If you’re scratching your head and asking, “Can you restate the question?” you’re not alone. To put it more simply: The cost of health insurance will rise – the Kaiser Family Foundation noted a 5% increase in premiums in 2008, to $12,680 for a family policy and $4,704 for individual coverage. As health care costs continue to rise, how does McCain plan to adjust his tax credit? If it isn’t indexed, or tied, to something, then the credit will quickly loose value.

At the moment, the much-maligned alternative minimum tax (AMT) is a good example of what happens to a non-indexed tax. The AMT was supposed to hit high income payers who took lots of deductions. But it wasn’t indexed to inflation. Every year, the AMT affects more and more middle-to-upper-middle income filers. And because many of those folks are vocally unhappy about the prospect of paying more taxes and registered voters, Congress passes a yearly “patch.” The patch is precisely that – a temporary, this-year-only solution to an ongoing problem.

If McCain doesn’t index his tax credit to something, then it’ll end up just like the AMT: an annual kafuffle as the House Ways and Means Committee attempts to abide by PAYGO and offset the cost of the patch and the Senate doesn’t.

So what is he going to index the credit to? The Consumer Price Index? Health care expenditures generally? Biomedical inflation?

How will indexing affect the long-term cost of his plan? I don't know. Neither McCain's website nor the man himself have talked about indexing the tax credit.

(2) Deregulation. I was talking this over with my husband after the briefing. I was thinking aloud and wondered if deregulation wouldn’t mean a race to the bottom.

What do I mean by that? Well, I live in Maryland where insurance companies have several mandates. They have to provide some coverage for some infertility treatments, contraceptives (first state in the nation!), hearing aids, inpatient stay after mastectomy, etc.

This makes coverage more expensive. But it is difficult to tease out exactly how much more since some of the mandates are for prevention/screening. A mammogram is expensive, sure, but much less so than a mastectomy, radiation, chemotherapy, lost work productivity, etc.

I was wondering if younger, healthier folks would choose to buy plans from states with few insurance mandates. This would save individuals money but not encourage the kind of preventive care just about every health expert or agency acknowledges is so important to controlling costs. Simultaneously, it would raise costs on folks with preexisting conditions, older adults, and maternity costs (although some of the latter is tied up with tort costs; another post for another day).

But my husband, brilliant guy he is, raised another quite scary point. What if there aren’t any insurers in Maryland anymore?

What if insurance companies look at the regulatory environment in their state, decide it is too costly? What if they decide that the insurance commissioner is a little too active or the legislature a little too burdensome? What stops all, or even many, of those insurance companies from picking up and moving to a state with few mandates and consumer protections?

Think about it: Why are so many credit card companies headquartered in Delaware? Well, the state has very relaxed laws with regard to interest rate charges and better protection from hostile takeover. What if health insurance companies did likewise and relocated to say, Colorado or Idaho or Kansas? What would become of the protections I and other Marylanders worked hard to convince our legislature to adopt?

With thanks to D.L. for listening to me yammer on about these topics.

Comments

[Janis]

As a human resources professional who has had corporate responsibility for purchasing company-sponsored health insurance for our employees, I have serious concerns about the McCain health plan. Up to now, my major concern has been with the prospect of the impact of adverse selection as healthy employees with no pre-existing conditions opt to purchase less expensive coverage on their own, leaving employers who offer coverage with a smaller, yet higher risk pool, to cover. To paraphrase analysis from the Health Affairs journal, McCain's plan is for those who are in perfect health and who intend to remain that way. (Good luck to anyone who thinks they fit that model!)

But now you've added a new twist with the prospect of health insurance companies relocating to states with more favorable regulatory climates. I'll be having nightmares about this until... well, hopefully for only the next four days.

Vote Obama!

[liz]

I've been singing this song since I first heard about McCain's "plan".

VOTE OBAMA!!!

[Lawyer Mama]

Great points, Melissa! The insurance companies will all end up in Texas where Julie tells us there's almost NO state regulation and no state mandates.