Missed Target

by Jonathan Cohn | September 27, 2004

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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