If you’re a member of Congress, you get exceptional health care coverage. In fact, Barack Obama likes his Senate plan so much he’d like everyone to have it.
The only catch is, if we all had the generous coverage Congress enjoys, the American economy would have an instant heart attack. So before this critical presidential election, it’s high time we understand the difference between Obama’s easy-on-the-ears “universal coverage” and the pragmatic plan John McCain has brought forward.
Obama’s plan, which he predicts will cost about $65 billion, would mandate that all but the smallest employers offer government-approved health coverage or pay a tax to finance government-sponsored insurance. This is called “play or pay.” He’d also mandate that all children have health coverage. To achieve government approval, private insurers would have to accept all applicants regardless of physical condition or lifestyle and would have limited pricing flexibility. They’d also be forced to cover an extremely broad range of conditions and procedures.
Obama would bring consumers and insurers together in a new National Health Insurance Exchange, which would serve as the regulated health insurance marketplace. Consumers would have the option of purchasing approved private insurance or enrolling in a new public plan. Under such constraints, costs for private insurers and employers would skyrocket and ultimately “crowd out” private insurers.
By requiring employers to provide coverage, ObamaCare could easily add up to $12,000 to the cost of hiring a worker with a family. Facing such high costs, employers would think twice about hiring a new employee. Meanwhile, existing workers would likely see their take-home pay slashed to compensate for higher insurance premiums.
Indeed, Katherine Baicker of the Harvard School of Public Health and Helen Levy of the University of Michigan calculated that an employer health insurance mandate like the one championed by Obama would eliminate about 224,000 low-wage jobs — jobs held disproportionately by non-whites, high school drop-outs and women.
The mandate will harm low-skilled workers. Think about it. If you’re an employer who wants to hire a $300,000-a-year lawyer, then paying an extra $12,000 in health insurance isn’t such a big deal. It’s just a 4 percent premium. But if you’re thinking about hiring a $24,000-a-year receptionist, the same health insurance policy is now a 50 percent premium. You might decide it’s not worth it.
In a free market, lower-skilled workers compete with higher-skilled workers by charging less. ObamaCare dampens this competitive advantage by making it more expensive, relatively speaking, to hire low-skilled workers — which, in turn, makes them less attractive to potential employers.
Further, individuals who wish to purchase their own insurance policies would see prices go through the roof. By requiring insurers to accept all comers, Obama guarantees that prices for everyone will be higher. The young and healthy will be forced to subsidize the old and sick, and many in the former group will opt out of the insurance market altogether. Such restrictions ironically undermine Obama’s universal coverage goals.
These prohibitively high costs would cause many employers and individual consumers to rely on highly subsidized government programs for health insurance. But those government plans wouldn’t be free. They’d be paid for by tax dollars and would feature the hundreds of thousands of pages of regulations that currently govern Medicare.
As with programs like Medicare, doctors and other health care providers would be paid below-market rates for their services. Many physicians would be unenthusiastic about the forced pay cut and would refuse to treat patients insured under a government plan, leading to a shortage of doctors.
Meanwhile, many private insurers would be forced to exit the market, unable to compete with price-controlled government options. Such controls would not usher in an era of low health care costs; they’d simply bring about a newfound scarcity of health services.
Unlike Obama, McCain recognizes that true reform of the health care system requires less government interference, not more. Instead of diverting the vast river of health care premiums into a government swamp to be doled out by bureaucrats, McCain supports reforming the tax code by offering tax credits — $2,500 for individuals and $5,000 for families — that could be used to buy private health insurance. Government-administered programs would be reserved for the truly needy and those who are unable to obtain private insurance.
What impact would these tax credits have? For a middle-class family making $60,000 a year, an employer-provided insurance policy would typically cost $12,100 over the course of a year, which translates into a $3,400 tax subsidy. Under McCain’s proposal, the family’s tax subsidy would almost double, to $6,700.
Further, McCain’s tax credits would restore fairness to the provision of health insurance. Historically speaking, those with high-paying jobs received generous health benefits because such expenses were tax-deductible for employers and tax-free to the employees. McCain would extend those tax benefits to all Americans, regardless of where they are on the income scale.
By returning health dollars to consumers through tax credits, McCain’s plan would allow patients to freely choose the care or provider they desired, empowering consumers. His plan would also allow people to shop around for the best value in the health care marketplace. Such reforms are the first steps in getting away from our broken system of payment by unaccountable third parties.
McCain’s plan would also increase competition among insurance providers by allowing people to purchase health insurance across state lines. Because state regulations vary so widely, a standard insurance policy in one state can be over five times more expensive than a standard policy in another state. This state-by-state price differential is usually created by burdensome — and expensive — benefit mandates that many states have imposed.
Benefit mandates are laws that require health plans to pay for, or at least offer, specified treatments or types of providers. Some of these mandates are defensible, but most aren’t. Some states require providers to cover massage therapy, breast reduction, in-vitro fertilization and hair prostheses, which can hardly be considered critical components of a good health insurance policy.
In 1979 there were only 252 mandate laws in force — an average of five per state. By 2007, there were 1,594 such mandates, for an average of 32 mandates per state. The result is that costs are driven up for everybody. According to the Council for Affordable Health Insurance, mandated benefits can increase the cost of health insurance by up to 50 percent.
Take the case of a hypothetical 25-year old man from New Jersey. According to the Commonwealth Fund, he would have to shell out roughly $5,580 each year for a standard health insurance policy. A similar policy in Kentucky — which has far fewer mandated coverage benefits than New Jersey — would run him just $960 annually. If he could purchase a policy across state lines, our 25-year old could save over $4,600 a year.
Obama and McCain offer starkly different choices on health care reform. One puts government first, the other puts patients and consumers first. Voters would be wise to keep this in mind come November.
Sally C. Pipes is president and CEO of the Pacific Research Institute. Her next book, “The Ten Myths of American Health Care,” will be released this fall.