Sunday, September 28, 2008

The election on healthcare

The BMJ has reviewed the respective health care plans of the two American Presidential candidates.

As summarized by the medical journal McCain's plan proposes to eliminate the tax benefits of employer sponsored insurance. Currently those who benefit from employer based insurance receive a substantial tax subsidy since the dollar value of their benefit is not counted as taxable income. They also enjoy other benefits since employers buy insurance in group markets, which are cheaper and do not subject individual employees to medical underwriting - in other words you don't get a loaded premium and exclusion clauses because you have some pre-existing medical condition or a propensity to such. These employer-based plans are often top of the market products with extras that most people would not be able to afford (though many of these benefits would come as standard in Britain's NHS). If you have to purchase your own plan you generally have fewer benefits, aggressive medical underwriting and higher premiums (sometimes five times as high). And you don't get a tax exemption for the money you spend on it.

The McCain idea is that eliminating the tax benefit for everyone would wean people off these gold-plated policies (which cost the employer an average of $12,000 a year for a family). Instead of this tax benefit, everyone would receive a a flat rate tax credit of $2,500 for an individual and $5,000 for a family. Of course, the employed would expect a pay rise from their employer since they would no longer be paying for health insurance. McCain also thinks that elimination of employer insurance will invigorate the individual health insurance market which currently only covers 6.5% of Americans. To free up this market, McCain proposes the elimination of state based regulation, and to allow companies to operate across state lines. Although medical underwriting would continue, he proposes expanded state-sponsored high risk pools to pay for their insurance.

The Obama plan proposes to maintain the tax subsidies for employer sponsored insurance and to convert the individual and small business market into a group market so as to enjoy similar privileges as the large employer market. He wants a group market under the auspices of the Federal Government which would mirror the benefits available to Federal employees. As an alternative to this Insurance Exchange, people would be free to enter a public plan similar to Medicare. Large Employers would be obligated to cover their employees, while smaller employers would receive a subsidy to do the same. Individuals would receive a sliding scale subsidy based on income. Medical underwriting would be eliminated as everyone would be in one of these large pools. All children would be required to have insurance but adults might elect to 'go bare'.

Will either of these plans solve the problem? I rather doubt it. Currently half of US bankruptcies result from medical expenses, despite the fact that America spends far more on healthcare than any other nation. What I am sure of is that whatever system is introduced, the players will find ways to game the system.

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