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The McCain Critique: Out Of Touch And Short Of Ideas



September 25th, 2008

Editor’s Note: Last week Health Affairs published critiques of the health plans put forward by Democratic presidential candidate Sen. Barack Obama (IL) and Republican presidential candidate Sen. John McCain (AZ). Health Affairs also published a third paper outlining a way that the best aspects of the two plans might be blended in a compromise package.

In the post below, David Cutler, a Harvard economist and senior adviser to Barack Obama’s presidential campaign, presents a rebuttal to the critique of the Obama plan. Elsewhere on the Health Affairs Blog, Tom Miller, a resident fellow at the American Enterprise Institute and volunteer adviser to the McCain campaign, presents a rebuttal to the critique of the McCain plan and authors of the three Health Affairs papers engage in a roundtable moderated by Health Affairs Deputy Editor Parmeeth Atwal.

In their Health Affairs critique of Barack Obama’s health reform proposal, Joseph Antos, Gail Wilensky, and Hanns Kuttner make two primary claims. First, they argue that the Obama health plan involves too much regulation. Second, they argue that it calls for spending that is unaffordable. Each claim is incorrect. Indeed, the logic of the arguments they make would either lead to health care disaster or demonstrate the flaws in the McCain proposal. Let me detail why.

Regulation

The primary claim that Antos et al. make is that the Obama plan involves too much regulation. The philosophy behind this is one that John McCain expressed in a recent article for the journal Contingencies:

Opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products less burdened by the worst excesses of state-based regulation.

Next to this philosophy, every health care plan looks regulatory. As the recent financial meltdown has made clear, sensible regulation is necessary for markets to work, and this is especially true of health insurance markets. Health insurance is a complicated product, difficult to understand and historically subject to abuse by companies, which have switched products and pricing in midstream, excluded sick patients, or dropped them as soon as they became ill. Total deregulation of the type McCain advocates is a recipe for the kind of meltdown of insurance markets that has occurred with financial markets or the terror with which people view credit cards — only in this case, the result will be truly a life-or-death matter.

Senator Obama is in favor of sensible regulation. Most is regulation protecting consumers who buy insurance and strengthening their ability to make informed insurance choices. Senator Obama wants to require that:

* Insurers must take everyone, not exclude the sick

* Insurers must actually cover the services they claim to cover

* Insurers must provide a basic set of services that constitute reasonable care and make those services transparent to consumers.

Following his extreme, antiregulatory strategy, Senator McCain’s plan provides no such guarantees. We know from the analysis of the McCain plan by Thomas Buchmueller and colleagues, also published in Health Affairs, that 20 million people will lose their employer-provided health insurance under the McCain plan. What happens to those people? In the nongroup market, insurers are free to cover the sick and dump the healthy. For the one-third of Americans with a chronic disease, their rates will skyrocket, they will be excluded from insurance, and they will have difficulty getting care.

Senator McCain has proposed high-risk pools for these people, but in his typical fashion has not provided the money for them. As Karen Pollitz, an expert on such pools, put it, “I do not for a minute think it will cost 7 to 10 billion dollars a year [what McCain has proposed]. It may cost 7 to 10 billion dollars a week.” The result will be a catastrophe: lost coverage, soaring rates, and sick people suffering.

Antos and colleagues raise the specter of a different kind of regulation: huge new costs for businesses. These costs are as mythical as the well-functioning individual market they count on. Most employers that provide coverage are already providing good coverage. They would be unaffected by the Obama plan — although their costs would fall. Those that cannot afford to provide good care would have new options — an insurance exchange with good choices, lower costs, and basic guarantees. Antos and colleagues made up a scenario where it would be burdensome — a scenario where benefits are more than can be reasonably expected. But the key phrase is “made up” — it’s their imagination, not Senator Obama’s plan.

Additional Health Spending

Antos and colleagues also suggest that the Obama plan costs too much — that we cannot afford to do it. Fortunately, their fear is unfounded. The Obama plan is affordable, much more so than the McCain plan.

Start with overall health spending. Note first the obvious: the path we are on now is not sustainable. If we don’t do anything, the public and private costs of health care will overwhelm us. Indeed, outside of the recent collapse of the financial system, rising health costs are the major threat to economic growth in the next decade. So, the only option is to undertake real reform. That is what Senator Obama proposes.

As my colleagues and I noted in a recent op-ed, Senator Obama has proposed a number of strategies to control medical care costs. In particular, he calls for:

* Learning. One-third of medical costs go for services at best ineffective and at worst harmful. Senator Obama proposes $50 billion to jump-start the information revolution in health care, so we can learn what works and what does not.

* Rewarding. Senator Obama proposes to reward doctors and hospitals not just for what they do, but for how well they do it.

* Pooling. The Obama plan would give individuals and small firms the option of joining large insurance pools, where administrative costs are lower and more choices are offered.

*Preventing. Currently, less than one dollar in 25 goes for prevention, even though preventive services are among the most cost-effective medical services around. Guaranteeing access to preventive services will improve health and in many cases save money.

* Covering. Controlling long-run health-care costs requires removing the cost-shift of paying for the uninsured.

Studies by Elliott Fisher and colleagues suggest that 30 percent or more of medical services are not contributing to patients’ health, and another 10 to 15 percent of medical care is spent on administrative services that do not need to be provided. Relative to this 40-45 percent waste, we estimate that the reforms Senator Obama has proposed will reduce medical spending by 8 percent, or about $2,500 for a typical family. That is hardly radical.

The idea that we can save this amount of money in medical care has been supported by many experts. Ken Thorpe of Emory University has estimated that the Obama plan would save even more money than we have considered likely (and also, that the McCain plan would not). The authors of an Open Message on Health Costs believe that the cost savings in the Obama plan are “not only possible, but likely.” Of course, no one knows for sure what will happen under any reform. But the Obama plan offers the best hope we have of significant cost savings in medical care.

One thing that puzzles me about the McCain plan is why it does not push more aggressively on cost-saving measures. One of the authors of the Obama critique is an advisor to McCain (Wilensky). If the concern about medical spending is so great, why not put up federal money for health information technology? Why not stress prevention more, instead of encouraging people to be in catastrophic plans, where we know prevention suffers? Why not spend more on public health interventions such as smoking cessation and obesity reduction? As it is, the McCain plan places blind faith in consumer choice of insurance when benefits are taxed — a strategy for which there is no evidence of major beneficial effects. If costs are a problem, attack the cost problem!

Budgetary Implications

A related aspect of spending is the federal cost. Antos and colleagues argue that the Obama plan is unaffordable, citing the Lewin analysis of a broadly similar plan authored by Cathy Schoen, Karen Davis, and Sara Collins. One of the authors of that study (Davis) called the critique “misleading,” noting that the actual cost would be half or less the cost that Antos and colleagues cite.

Of course, health care reform will cost money in the short run. Senator Obama has said exactly how he would pay for the tax credits he proposes — by redirecting the Bush tax cuts for the wealthiest Americans to support coverage for everyone, and by investing in system savings that can be used to provide coverage to the uninsured.

Here is where Antos and colleagues are most at issue with their own candidate. Look at what Senator McCain has said about the federal budget. Despite a large budget deficit, Senator McCain wants to continue the Bush tax cuts for the wealthiest Americans and double them again with additional tax cuts for the wealthy and corporations. On top of this, he promises to balance the budget in four years. The Brookings-Urban Institute Tax Policy Center estimates that Senator McCain would need to reduce spending by $662 billion in 2013 to make this happen. (This is the lower estimate that corresponds to what Senator McCain’s advisors told the Tax Policy Center, not the higher estimate that Senator McCain describes.)

How can he do this? Senator McCain has said he will cut earmarks. But all the earmarks that Senator McCain has identified, added together, amount to less than 5 percent of the money he needs. There’s over $600 billion left.

So, where does the money to come from? Not from defense or interest on the debt. The only logical conclusion is that Senator McCain proposes huge cuts in Medicare, Medicaid, and Social Security to pay for tax cuts to the very rich. To give the scale of the problem, if Senator McCain wants to pay for his tax cuts by cutting Medicare and Medicaid, he would need to cut them in half (using CMS projections about the likely costs of those programs). That’s bad enough. Now his health advisers come along and say, in effect, “Those savings are not realizable without draconian service cuts.” So, Senator McCain is promising to do something — dramatically reduce Medicare and Medicaid spending — that his advisers say can’t be done without gutting these two programs! Do we hear Senator McCain acknowledging this? Has he listened to his health advisers? Does he care what they think? Before complaining about Senator Obama’s health plan, Antos and colleagues ought to take a long look in the mirror.

Implications Of Cost Savings

Antos and colleagues spin out disaster scenarios when cost savings are not realized: employers will cut jobs, firms will drop insurance coverage, etc. All of that is happening today. But recognize the cost savings in the Obama plan, and the true picture emerges. With cost savings for businesses, more firms will be able to afford insurance coverage. The same studies that show that McCain’s tax hike will lead to 20 million fewer workers with employer-sponsored insurance show that the cost savings in the Obama plan will lead to 10 million additional workers with employer-sponsored insurance.

And firms that pay less for health care can afford to hire more near-minimum-wage workers. Economic studies show that employment of near-minimum-wage workers would rise by 90,000 as a consequence of the cost reductions the plan would engender.

Summary

The table below summarizes the analysis two health plans. The Obama and McCain plans differ in their regulatory approach, security of coverage, and sources and uses of money. On regulation, we have seen the impact of what Senator McCain has offered; it is not a welcome picture. The Obama plan is also far superior in its impact on costs. It takes all the steps necessary to save money broadly, and for the federal government. By doing so, it will allow for more people to be employed, more firms to offer coverage, and more people overall to have coverage.

Comparison of Obama and McCain Health Plans

  Obama McCain
Regulatory approach Consumer protection Deregulate “like banking”
Security of coverage Can’t be denied Sick denied coverage
Change in family health spending -$2,500 / family $0
Use of funds Money saved reinvested in coverage Money saved used to fund high-income tax cuts
Change in employer-sponsored insurance + 10 million - 20 million
Change in overall coverage 98-99% coverage No increase in coverage
Impact on job creation + 90,000 Not estimated
     

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3 Trackbacks for “The McCain Critique: Out Of Touch And Short Of Ideas”

  1. The McCain Health Care Plan: More Power to Families | American Platform
    October 20th, 2008 at 1:55 pm
  2. Health Care BS - 20 MILLION WILL LOSE THEIR COVERAGE?
    October 5th, 2008 at 11:20 pm
  3. Blogtica.com » The McCain Critique: Out Of Touch And Short Of Ideas
    September 25th, 2008 at 11:53 am

1 Response to “The McCain Critique: Out Of Touch And Short Of Ideas”

  1. RobertBurney Says:

    Both of these plans neglect one potent source of savings–price competition for healthcare services. If providers were forced to compete for patients on the basis of price, they would become more efficient in providing their services in order to gain market share. Examples from industry and from healthcare of Lean principles have demonstrated savings of 20 to 50%. And this is on top of or in addition to any savings from prevention, technology, etc. Furthermore, they can be rapidly instituted to produce real time cost savings.

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