Obama v. McCain on health care. Part 3: Expansion of public programs

September 15, 2008

In Part 2 of this series I analyzed the candidates’ positions on individual and employer mandates. In this post I assess the candidates on part B of the Kaiser Family Foundation’s health08.org framework: “Expansion of public programs.”

First, here is the Kaiser summary:

McCain

  • Gives veterans ability to use their VA benefits to pay for timely high quality care from providers in the best locations.

Obama

  • Expand Medicaid and SCHIP.
  • Create a new national public plan so that small businesses and individuals without access to other public programs or employer-based coverage could purchase insurance. Plan coverage would offer comprehensive benefits similar to those available through FEHBP.
  • Coverage under the new public plans would be portable.

There are big differences between the candidates on this topic. Obama’s proposal is ambitious and expansive while McCain’s proposal is modest and targeted. Obama’s focus is reducing the number of uninsured through government programs. While McCain also hopes to reduce the number of uninsured it’s not a central focus and he doesn’t plan to use government programs to do it.

I don’t know the full background on McCain’s VA proposal. Presumably the idea is to expand the choice of providers for veterans and free vets from reliance on a system that’s had its share of scandals. I’m sympathetic to that. On the other hand, the VA is the closest thing we have to a low-cost, high-quality wired system of care in this country. Taking people out of that system is going to increase costs –and the lack of interoperability between the VA’s electronic health record and the private sector’s means we’ll lose some of the gains of wired care.

Obama talks about expanding eligibility for Medicaid and SCHIP but there isn’t a lot of specificity about how much expansion we’re talking about. SCHIP (the program for low-income kids) is a popular program and expansion fits in with Obama’s approach of seeking common ground and also makes his mandated coverage for children feasible. Republicans have opposed SCHIP expansion because they see it as a backdoor approach to universal government coverage. There’s some truth to that, because it’s quite possible that most kids in the US would be SCHIP-eligible if the program were expanded.

Obama’s new public plan, modeled on the Federal Employees Health Benefit Plan (FEHBP) is clever. Essentially the idea is to increase competition in the market for individual health insurance. Health plans are worried about this proposal, and rightly so, but they have themselves to blame. The health insurance industry has created substantial wealth for its shareholders and executives over the past couple of decades, but there’s still no concrete evidence that they manage costs or quality better than public programs. Normally private sector companies wouldn’t have much to fear from a government competitor –especially if the playing field is level– but that’s because private companies are usually more efficient and provide better service. Under Obama’s plan no one would have to buy the government insurance, it would just introduce a new competitor to the market.

Portability means a subscriber could maintain their policy even if they move or change jobs. That’s obviously attractive to subscribers. It also promotes new business creation as I’ve argued before (When socialism is good for capitalism). McCain’s claim that Obama’s plan will “force families into a government-run health care system where a bureaucrat stands between you and your doctor,” is untrue.

Unfortunately, neither candidate has much to say about Medicare. Looking on the bright side, neither proposes major expansion of the program. It’s not mentioned in McCain’s health care plan, but he has proposed charging higher-income seniors more for their Medicare Part D prescription drug coverage. I favor that as a first step, but what I’d really like to see is means testing for the whole Medicare program and a rollback of Part D. Neither of these candidates (nor Congress) is ready for anything like that.

Overall, I support Obama’s position on “Expansion of public programs.” SCHIP is worth expanding in order to bring more kids into coverage. And it’s at least an even bet that the new public plan will spur competition and encourage labor market flexibility by reducing the worry that leaving a job means losing access to health insurance. I’m lukewarm at best on McCain’s VA proposal, which could easily undermine some of the VA’s accomplishments while adding costs. (I’d like to see an improvement in intergenerational equity by making Medicare relatively less generous, but since neither candidate proposes this you can safely ignore what I think about that.)

Please continue to Part 4: Premium subsidies and tax changes.

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