Missed Target

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This week, President Bush called John Kerry's health care plan "a
massive, complicated blueprint to have our government take over the
decision- making in health care"--a theme Bush's new TV
advertisements hammer home. If the attack sounds a bit hackneyed,
that's because it is. Bush has trotted out the same criticism every
time the Democrats have proposed a health care initiative during
his presidency, no matter its size, shape, or purpose. Here is Bush
in 2001, during a speech critical of modest Democratic efforts to
police HMOs: "Government-controlled health care ... and [a]
one-size-fits-all approach stifle innovation and do not produce the
best of results." Here is Bush in 2003, describing Democratic
proposals for introducing prescription-drug coverage to Medicare as
"government-run health care ideas ... in which the ... federal
government rations care, the federal government dictates coverage."
And here is Bush this past January, during the State of the Union
address, lashing out at Democratic dogma generally: "A
government-run health care system is the wrong prescription."Bush's latest bluster has the same tenuous relationship to reality.
Kerry's proposal would affect how we pay for care but not, for the
most part, how we actually get it. More than anything else, it
seeks to salvage the existing (but faltering) system of health
insurance, in which most working-age people get coverage through
their employers. That's a far cry from, say, the British system, in
which the government puts doctors on its payroll, or the Canadian
system, in which provincial governments decide how many magnetic
resonance imaging machines to buy. Nor does Kerry's proposal have
much in common with the failed Clinton health care plan, which
would have regulated insurance prices and empowered a federal
commission to make decisions on which treatments to cover.

Still, like all caricatures, Bush's description of Kerry's plan has
a kernel of truth, one rooted in a more thoughtful conservative
critique. Kerry's plan would be expensive, whether you believe
Kerry's cost estimate ($650 billion over ten years) or Bush's ($1.5
trillion). And, while Kerry is hardly out to socialize medicine, he
would ultimately have government providing health insurance to more
people. But these two characteristics--the plan's sheer size and
the expanded government role--aren't drawbacks. They are precisely
what make the plan appealing.

The Kerry plan has three distinct elements, starting with an
expansion of Medicaid and the State Children's Health Insurance
Program, two programs that have succeeded in providing basic
medical care to some of the poorest Americans. It is precisely
because these programs have grown--even as employers have dropped
coverage for employees over the last few years--that the problem of
the uninsured isn't much worse. Kerry would make even more people
eligible and give states new incentives to enroll them. According
to estimates by Emory University health economist Kenneth Thorpe, a
former Clinton official, this would bring insurance coverage to
some 19 million more people. It would also be expensive, although
the exact price tag is in dispute. Thorpe estimated that it would
cost the federal government $500 billion over ten years; an analysis
by the American Enterprise Institute (AEI) found it would cost $880
billion, though the conservative AEI's figures are somewhat
suspect.

But conservatives' more fundamental complaint is that it's simply
wrong to keep expanding government programs, since it gives
employers less incentive to provide insurance on their own.
Research suggests that this "crowding out" effect is real: As many
as one out of four people who get coverage through Medicaid
expansions would have had private insurance otherwise. But it's a
worthwhile trade-off. Thanks to the decline of unions and the
availability of cheap foreign labor, employers no longer have much
incentive to cover the poorest members of their workforce. To the
extent Kerry would have state programs gradually replace private
insurance for these people, he's merely accelerating a process that
is already underway.

The second element of Kerry's plan is the creation of a
Congressional Health Plan, so named because it would make the same
coverage that members of Congress use available to some of the
uninsured. Right now, individuals and small- business employees
frequently cannot get insurance, because they can't spread the
burden of medical expenses. Kerry would fix this by allowing them to
join a purchasing organization based on the Federal Employees
Health Benefits Plan (fehbp), a system in which people can choose
from a menu of different private insurance options. Kerry would
also offer subsidies to small businesses and to individuals who
can't afford even the fehbp's relatively low group rates. Precisely
because fehbp is a system of competing private plans, it has long
been a favorite remedy of conservatives--i.e., hardly the stuff of
socialism.

The third element of Kerry's plan is much more controversial: his
scheme for "premium rebates." The vast majority of medical expenses
come from a relatively small number of people with dire problems
that require expensive treatment. Under Kerry's plan, the federal
government would assume responsibility for some of these costs,
enough to reduce insurance premiums for employees by 10 percent-
-or up to $1,000 a year per family--provided an employer offered
coverage to all employees and enrolled workers in "disease
management" programs under which physicians, nurses, or
administrators monitor the care of the chronically ill.
Theoretically, this should reduce the expense of caring for these
people. After all, it's presumably cheaper to give a diabetic
insulin than to have him end up in the emergency room with
hyperglycemic shock.

Once again, while the campaigns argue over how much this would cost,
the more important divide is philosophical. On principle, Kerry
believes that the expense of medical catastrophe--something largely
uncontrollable--is a burden society should bear. Conservatives, by
contrast, think the market already does this adequately. To them,
Kerry's scheme merely stuffs extra dollars in the pockets of
employers who already pay for coverage and employees who already
receive it, hardly a worthy use of federal money. And, since that
money has to come from somewhere, they argue plans like Kerry's
will inevitably lead to higher taxes, which are bad for the
economy.

Yet the tax argument doesn't hold up. Kerry would finance his plan
largely by rescinding tax cuts for the wealthiest, restoring tax
levels to what they were under Clinton, a period of robust growth.
Plus, stabilizing private health insurance has its own economic
virtues. As The New York Times recently reported, a major reason
employers aren't bringing on more full-time workers is that they
fear the expense of health insurance premiums. Large U.S.
manufacturing companies, meanwhile, are at a disadvantage because
their overseas competitors leave the cost of health care to the
taxpaying public. "We've looked at Kerry's plan, and it is very
appealing," says Dennis Fitzgibbons, director of public policy for
Daimler-Chrysler. If Bush thinks Kerry's plan amounts to a dreaded
government takeover, he should take a closer look at his own
Medicare reform law. Its architects were concerned that offering
prescription-drug coverage through Medicare might encourage
employers to stop providing drug benefits to retirees, as many now
do, so they arranged for the government to pick up some of the tab.
It's the same basic idea.

Of course, even if Kerry wins, his plan is a political nonstarter,
given GOP control of Congress. But the proposal speaks well of
Kerry's judgment. It would help significantly more people than
Bush's plan--four times as many, according to AEI's own
estimate--partly because Kerry is willing to reclaim tax cuts from
people who don't need them. And Kerry properly believes that severe
financial risk should be spread over the entire population rather
than concentrating its devastating effects on a few unlucky souls.

Not that Kerry's approach is perfect. His own cost estimates are
probably optimistic. Past efforts to pool high-risk consumers have
attracted only those with high medical bills, making coverage
prohibitively expensive. But these and other flaws are inevitable
by-products of incremental reform. The only way to remedy them is
to create a truly universal system that costs more money and
imposes more regulation. The real problem with Kerry's plan isn't
too much government. It's too little.

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