Elections ‘08

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The difference between Conservatives and Liberals, we are often told, is their divergence in terms of tolerating the lack of equality in outcomes or opportunities in order to achieve the other. It’s a philosophical dichotomy that has been reduced to rhetoric in the modern American electoral politics, as one would have expected. And, if one were to look for academic vestiges of such a polity being put to popular vote, the Healthcare plans of Senators McCain and Obama offer a rare textbook case.

John McCain’s plan aims towards a fundamental change in process and hopes that will enable desired outcomes. At it core, the health plan is actually a tax plan. Currently, if you have an American job your employer typically contributes to a traditional plan[1] and that money is tax free. What McCain wants to do is eliminate this tax break and consequently generate an estimated $3.6 trillion over the next decade. This money, the plan claims, will be used to pay for refundable tax credits for Americans obtaining private insurance. That is, if you are one among the 50 million uninsured in America, you can use this credit to buy insurance for yourselves. If, on the other hand, you happen to have an American job that also provides insurance, which you are more likely to, you can use this credit to offset the cost of paying taxes on your employers’ premium or alternatively to buy coverage on your own. This is important — research has repeatedly shown that one of the reasons for the high cost of healthcare in America is the way insurance plans are designed and bundled. The McCain plan, I assume, will help individuals use their tax credits to buy CDHPs or Consumer Driven Health Plans to suit their specific needs and they  can design the plan themselves, online. Much like buying an air ticket or choosing a mutual fund. The campaign though does not harp on CDHPs or the individual design of the health plan — possibly for the fear of being labelled too close to the insurance companies.

Instead, the campaign focuses on how the current tax structure benefits the rich, since the real value is dependent on the employee’s tax bracket. Senator McCain argues, his plan will offer equal credit to all Americans. This it’s claimed is a just allocation of federal resources. Further, he argues, actually his plan does, that since the tax credit is refundable, even the poor qualify. In other words, the present tax structure benefits those who pay taxes and have a job — this plan instead works like a watered down negative tax structure where everyone receives a credit to purchase insurance regardless of where they obtain it. There is also a proposal for inter-state insurance purchases. This is put forward as a mechanism to circumvent the heavily regulated states that make the cost of premiums very high.

Barack Obama’s plan is simple. The onus is on the employer — as it has been for long time in America — the employer either provides the employee insurance cover or pays tax. That revenue, it is claimed, will finance the reminder. Senator Obama also does what most liberals instinctively desire: he will offer a new plan. A new federal health plan drawn along the lines of the existing Medicare program has been proposed in conjunction with a new national health insurance exchange that is modelled on the Massachusetts Connector. It’s a repository/counseling/grievance center that would offer a choice of private insurance. And then, there are mandates that are proposed to insurance companies — they need to change their underwriting practices such that they can’t leave those with existing conditions outside the net.

The universal adoption of electronic medical records(EHR) and improved disease management[2] practices are also touted as cost saving measures. Further, the Obama plan intends to pay providers on the basis of performance. How this is possible when the Senator wants to fundamentally change the single biggest incentive for these measures, namely better/more efficient underwriting, is something one can’t fathom. The plan also seeks to ‘negotiate’ prescription-drug prices and spend on research to study the relative merits of treatments plans. To work the numbers on this plan is impossible at this time because one does not know the tax rates for employers choosing the pay route — and the plan essentially assumes there is an optimal point which will enable the smooth rollover of funds into helping the uninsured.

It’s highly unlikely that someone decides to vote after a careful analysis of their health plan options which includes working their tax numbers and possibly answering several moral questions along the way. However, if one were to intuitively decide on a philosophical basis, this appears the most easy decision one can make.

[1] — Currently, most employers still offer traditional plans with HMO or PPO or POS. However, if research is to be believed, the next 5 years could see them being rapidly replaced with CDHPs.

[2] — Disease Management is another critical area that research has shown will reduce the cost of healthcare. About 3 out of four dollars that payers settled as claims were spent on treating patients with diabetes and heart diseases. A disease management program aims to target people with such specific illness and design incentives that will help bring down their visits to the clinic.

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