Candidates’ healthcare fixes: tax credits vs. more federal spending

The US spends twice as much on healthcare per capita than other nations but still trails in access to care.

Melanie Stetson Freeman/The Christian Science Monitor
Business owner: Gary Cox and his family are home builders in Delaware, Ohio. He belongs to a group health plan through the local chamber of commerce. He backs McCain.
Rich Clabaugh

Over the past 25 years, the American healthcare system has been steadily unraveling.

More than 45 million Americans now have no health insurance at all. Another 25 million have some coverage, but not enough to pay their medical bills.

For the 6 in 10 Americans who do have healthcare plans through their employers, each year finds them paying higher premiums and higher deductibles even as their coverage shrinks.

Their employers, meanwhile, have to cope with annual premium increases of 10, 20, or 30 percent. Many have to shop around each year just to find an insurance policy they can afford. Some give up and stop offering insurance altogether.

In short, the American healthcare system is a mess. And recent polls show that, next to the economy and Iraq, healthcare is foremost on voters’ minds.

“We’re spending twice percapita what other countries are spending and we’re 19th out of 19 for conditions that are amenable to medical care,” says Karen Davis, the president of the Commonwealth Fund, a nonprofit, private foundation dedicated to improving the nation’s healthcare system. “Two-thirds of American adults have a problem either getting or paying for medical care.”

The presidential candidates’ prescriptions to fix the healthcare system are strikingly different. John McCain would offer tax credits to help people buy insurance. He’d pay for it by taxing as income the healthcare benefits that people currently receive from their employers.

Barack Obama, on the other hand, would build on the current public/private system by expanding Medicaid and the State Children’s Health Insurance Program (SCHIP). He’d create a National Health Insurance Exchange that the uninsured and small businesses could buy into. To pay for it, he would roll back the Bush tax cuts for the wealthy.

Each plan is expected to have a very different impact on individuals like Mindy Hedges, who just lost her insurance, as well as on businesses like Cox & Sons, which is struggling with high premiums.

Here’s a look at why.

A fundamental problem

The nation’s healthcare system has evolved into a huge Rube Goldberg-like contraption. Fix one part of it, and you can cause worse problems in another. At the core of that complex machine are millions of uninsured Americans.

When people don’t have insurance, they tend to put off getting care that medical doctors say is necessary. The result: those conditions can deteriorate. The uninsured often end up in the emergency room, where hospitals are required to treat them, even if the people can’t pay. That drives up healthcare costs for everyone.

“The important thing is to ensure that everybody has health insurance,” says Dr. Henry Simmons, president of the National Coalition on Health in Washington. “Every other country that today has universal coverage provides it at about one-third to one-half the cost, every bit as good coverage – in some cases better.”

Many individuals and families in the United States are uninsured because they have preexisting health conditions that insurers refuse to cover because of the anticipated cost. Mindy Hedges is one of them. She owned her own advertising company here in Delaware for 18 years, but as a result of the economic downturn it’s been forced to close. Though it was a challenge, she had always helped to provide coverage for as many as 14 employees.

Ms. Hedges has been diagnosed with what doctors call “Type 1 Diabetes,” for which they sometimes prescribe expensive treatments. That made it hard to get insurance for her small company in the first place. But she managed to find a policy.

When her business closed, she was stunned to discover that small businesses of 25 or fewer employees don’t qualify for COBRA (Consolidated Omnibus Budget Reconciliation Act), the federal rule that allows people who have lost or changed jobs to continue buying their company insurance plan for 18 months. She and her husband have been uninsured since July.

“For the first time in my life, I don’t have insurance,” says Hedges. “It makes me cry.”

Each candidate’s plan would attempt to provide Hedges with access to care.

The McCain plan relies on his tax credits of $5,000 per family and allowing people to buy health insurance across state lines, to drive down overall costs and help people find the coverage they need.

If they still can’t find a plan, McCain calls for the expansion of state-run high-risk pools that would be required to take people with preexisting conditions, but he doesn’t put any limit on how much those insurance plans could charge individuals.

The Obama plan would require health insurance companies to cover people with preexisting conditions “at fair, stable premiums.” The idea is that if every health plan had to cover everyone, those with healthcare needs as well as those without, the average cost of insurance would go down.

National insurance exchange offered

Individuals like Hedges could also buy an insurance plan from the proposed National Health Insurance Exchange. While Obama would require large businesses to provide coverage or pay into a kitty to help subsidize the uninsured, that requirement does not apply to small and medium-sized companies.

Hedges favors the Obama plan, primarily because of her experience trying to find an individual health policy she can afford on her own.

Most insurance companies she contacted didn’t return her calls for a quote when they learned she had a preexisting condition, she says.

AARP (formerly known as the American Association of Retired Persons), which she joined just so she could buy its health insurance, did return her call – but only to turn her down. She did receive a few quotes of between $2,500 a month and $5,000 a month for comprehensive health plans, but she’s currently unemployed and couldn’t afford that.

The experience has made her an adamant opponent of the McCain plan.

“What McCain is offering is not even a plan – for $5,000 I can buy two or three months’ worth of health insurance, and then what do I do?” she says.

McCain’s advisers argue that expanding the current state-run high-risk pools would allow people like Hedges to buy insurance. They admit there would be no cap on how much those plans could charge, but contend that by allowing insurance companies to sell their policies across state lines, people like Hedges could find a suitable policy in another state.

But opponents say such a system would encourage insurers to locate in states with the fewest restrictions, so they could continue to deny coverage to people who need it most, simply “cherry-picking” the profitable, healthy ones. That, they contend, would ultimately undermine remaining state regulations.

That argument doesn’t sway Gary Cox.

He and his wife own a small construction company in Delaware, Ohio, that builds custom homes. As the only employees, they are essentially self-insured. They buy their health plan through the chamber of commerce. That ensures they have access to care when they need it.

“But they are still pretty high rates and we have a high deductible to even get to the rates we’ve got,” Mr. Cox says.

He favors McCain’s $5,000 tax credit plan. He also likes the idea that he could go anywhere in the country to look for the best options available because it introduces what he believes is “much-needed competition” into the healthcare market.

But Cox is wary of McCain’s proposal to pay for the program by taxing the health benefits people currently receive.

“I’ve never been a believer that taxing people on their income is a fair and equitable way to work the tax code,” he says.

Still, Mr. Cox is even more opposed to the Obama plan, which is designed to expand the current employer-based and public sector insurance programs. He believes the way they are currently structured creates disincentives to individuals to spend their money wisely.

‘It’s morphed into a monstrosity’

“It’s morphed into a monstrosity where the insurance company is paying every time I go to the doctor, so I don’t bother to shop for the best rates because somebody else is going to pay,” Cox says. “We need to reintroduce competition into the healthcare industry, or we’re going to be faced with ever-increasing high healthcare costs.”

Cox is also opposed to Obama’s plan to subsidize some individuals or small businesses so they can afford to buy into a national insurance pool.

“My firm belief is that it never should be the government’s responsibility – and therefore us, the citizens and taxpayers – to pay for somebody’s health insurance premium anymore than I would expect the government to pay my car insurance premium or my homeowner’s insurance premium,” he says. “We’ve continually been on an ever-increasing slippery slope where we citizens think it’s everybody else’s responsibility to pay [our] bills.”

Margaret Demko of Albany, Ohio, agrees everyone should be responsible for themselves.

But she also believes the free market has failed the healthcare system miserably. That’s left too many people, like her family and every other family that lives on her rural road in Appalachia, without healthcare coverage.

“It’s a basic human need to be able to know that if you get sick or break your leg or get into a car accident that you’ll be able to have coverage,” she says. “At some level it becomes a moral issue as well, because it’s all about taking care of people and each other.”

Ensuring that everyone has access to care has become a full-time cause for Ms. Demko. She and her family have been without insurance since her daughter was born four years ago with what doctors say is Down syndrome. Her husband is a self-employed contractor so the family had relied on her job as a substance abuse counselor for their health insurance.

But Demko said she couldn’t keep working full time with an infant with special needs. When she quit, she didn’t realize that would result in her family’s being unable to get health insurance.

Ohio does not require insurance companies to cover children with disabilities considered to be preexisting conditions. Both she and her husband have also had minor health issues, but she never imagined they might also be a barrier to finding an affordable healthcare plan.

The Demkos’ income is nearly three times the poverty rate. That’s too much for their daughter to qualify for Ohio’s SCHIP plan and not enough to qualify for another state-sponsored program.

She’s gotten quotes for family health plans that start at $3,000 a month, which is almost as much as they earn.

For too long, she believes, insurance companies have been allowed to put profit before people, selling lower-priced plans to the healthy and at the same time charging exorbitant rates for people who have healthcare needs or just denying them coverage.

“The insurance agencies are like this huge unruly child who’s never had any boundaries on it,” she says. “To me the Obama plan tries to put some important boundaries on them – that’s what the government’s supposed to do, right? If people aren’t being taken care of and can’t get into the health insurance system, who else is going to take care of the situation?”

Shopping for healthcare plans

Laurie Gross now runs Gross Electric, a family-owned company in Toledo, Ohio begun in 1910. The company provides its 62 employees health insurance coverage. But the biggest problem they face every year is affordability.

“We’ve had four different plans in five years because every year the increases are so astronomical we have to shop around,” she says. “We’re coming to the point where it’s going to be very, very difficult for us and our employees to pay for insurance.”

The company now pays about $1,000 a month per family for coverage, and that goes up every year. The employees pay part of the cost. Advocates of the McCain tax credit argue it would help employees offset that cost, even though their overall health benefit would be taxed.

They also contend that Obama’s plan to expand public programs would cause many companies like Gross Electric to stop providing health coverage all together, because they knew their employees could get it through a government pool.

But Ms. Gross says she is committed to providing her employees coverage. The key, she says, is creating a risk pool of employees that is large enough so the insurance coverage for everyone is affordable.

The McCain camp believes that can be accomplished by allowing individuals to buy insurance on their own, across state lines, thus creating a national risk pool that would drive prices down. But Gross doesn’t believe that would work.

“I’ve never seen an insurer that looks at you as part of a bigger pool when you have a claim,” she says.

Critics of the Obama plan argue that forcing large businesses to pay for health insurance or pay a fine could drive some companies under.

A business the size of Gross Electric would be exempt, but Gross still supports the idea of requiring all companies, regardless of size, to provide health insurance because in the end she believes that’s the only way to create a risk pool big enough to ensure that health insurance is affordable.

“If I’m willing to buy my people insurance, why should someone who doesn’t – who can sell things at a lower price because of it – have an advantage over me?” she says. “At some point everybody is going to have some health issue, and at some point everybody is going to be paying an astronomical amount unless we do something to fix the system now.”

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