San Francisco September 16, 2008
This event was generously underwritten by the California HealthCare Foundation.
Doug Sovern (Moderator): Good evening, and welcome to tonight's meeting of the Commonwealth Club of California. I'm Doug Sovern, political correspondent for KCBS Radio All-News 740 AM in San Francisco, and KCBS.com, where you'll also find my blog on the presidential race, Sovern Nation.
Today we bring you an important discussion on two potential futures of health care in the United States, futures that we as voters will decide on November 4 when we cast our ballots for our next president. America may be in an economic crisis now, but it's also generally accepted that we are in a health care crisis as well, with more than 40 million Americans lacking health insurance. Many of us who do have insurance, as I'm sure you know, are paying more and more for it, and we're getting less in return. The costs of medical care are soaring, and taking care of the uninsured adds a tremendous strain to already overburdened local and state governments. There have been repeated efforts to adopt some sort of national health insurance program for the United States or to reform and improve the system we already have, but so far those efforts have failed. The next president will inherit this problem, and many Americans say it is time for someone to actually do something about it.
So what would John McCain do about health care? How would Barack Obama solve this crisis? The candidates themselves could not be with us today, but each has sent his top health policy surrogate, so we welcome Daniel Kessler, Senior Fellow at the Hoover Institution, Professor at Stanford University's Graduate School of Business. He is a health policy surrogate for the 2008 John McCain Presidential Campaign. And E. Richard Brown, Director of the UCLA Center for Health Policy Research, Professor at the UCLA School of Public Health, and health policy advisor for the 2008 Barack Obama Presidential Campaign. Please welcome today's panel.
Perhaps we could start with a general overview of each candidate's stand on the issue. Professor Kessler, why don't we start with you? Could you begin by telling us briefly what is Senator McCain's overall philosophical approach to addressing health care if he becomes president?
Daniel Kessler: Sure. Well, thanks very much, Doug. I guess I'd like to start off by highlighting that the two sides in this debate agree on a lot of things. Although we disagree on some things we agree on a lot of things. We agree on the fundamental problem, which is the growth in health spending that doesn't provide good value for money. The average employer-sponsored health plan now costs around $12,000, and it's that that is the engine behind the problem of uninsurance and the problem of affordability of health care. David Cutler, who's one of Senator Obama's key advisors, recently wrote a paper in fact showing that two-thirds of the growth in uninsurance over the past 10, 15 years or so is due to this kind of cost growth.
We also agree on some of the solutions: more disease management, more health IT, more competition in insurance. And so when you think of the two plans I don't think you want to think so much that we disagree fundamentally on everything, but that we start from a shared perspective. But how do we get from here to there, that's where we don't agree. And the McCain Campaign's view, Senator McCain's view is that the way to get from here to there is by more reliance on markets. The Obama Campaign's view is the way to get from here to there is more reliance on government.
The center of the McCain plan, the key piece of the McCain plan, is to change a sort of obscure feature of tax law that lets everybody who has employer-sponsored insurance exclude from their taxable income the value of the insurance that they get. Well, what's the consequence of this little piece of tax law? The consequence is that when people shop for insurance, when their employers shop for insurance they weigh the benefit of a fancier insurance plan against 70, 60 or maybe even 50-cents of the cost. And the reason is because that compensation that the employer pays the employee isn't taxable they don't weigh the full benefits and cost of the insurance that they try to obtain. The consequence of that, not surprisingly, is the cost growth that we now suffer from.
The first thing that has to be done to deal with the cost growth is to change this feature of tax law, and that's what the McCain Campaign is going to do. We're going to swap out the employer exclusion and replace it with a fixed tax credit, $2500 for an individual, $5,000 for a family. With that tax credit people and their employers will now compare dollar for dollar the extra cost of the insurance that they buy to the benefit that they get from it. That's why this is a good idea.
Another reason why it's a good idea is because it's a progressive change in tax policy. When you swap out a deduction — a deduction is worth more to people with higher income. A credit is worth the same no matter what your income is. When you swap out a deduction and replace it with a credit that's a progressive change in tax policy. The people who are going to pay more from having a credit are going to be high-income people and people with fancy insurance. The people who are going to benefit from the credit are low-income people and people with restrictive insurance.
This idea of having a credit instead of a deduction has been around for a long time. It's not a new idea. And, in fact, again, one of Senator Obama's advisors, Jason Furman, his Chief Economic Advisor, just in February wrote a paper talking about all the virtues of tax credits. And so I think that it's that that we sort of differ on. The first thing we've got to do, get costs under control, and with that we will be able to get the uninsurance problem under control. Without it there is really no hope.
Sovern: That raises all sorts of questions, which we'll get into in a moment, but I want to give Professor Brown an opportunity now. Maybe you could summarize for us to start, what is Barack Obama's general approach to health care?
E. Richard Brown: Barack Obama's approach is, first of all, making a very strong commitment to covering all Americans. This is his number one objective in reforming the health care system. He would provide coverage that is affordable and accessible. And Obama's analysis is that the reason people are uninsured is not because they don't want coverage or they reject it. The reason they're uninsured is because they cannot afford the coverage that might be available to them, if it's available at all. And so he would take a number of steps to make coverage affordable and accessible.
One of the ways he would do that is to create what is called a National Health Insurance Exchange. Basically like the federal government's Federal Employee Health Benefits Program, or what California does for its public employees through CalPERS, a very large agency that purchases health insurance from private plans for millions upon millions of people, thereby getting the best deals possible for those people, providing them with good information and many choices. So under Obama's plan we would have actually more choices of health insurance, and we would be able to compare one plan with another effectively much more so than is possible today in the private insurance market, or even from many employers. One of those plans would be a public plan, modeled after Medicare, but the rest would all be private health insurance plans.
But Senator Obama would not just allow any plan to come in and offer whatever it wants. He says that any plan that is offered to anybody in the United States ought to have a minimum set of benefits that are comprehensive, addressing the problem that we see increasingly today with 25 million Americans who are not uninsured but underinsured, and that's in addition to the 45 million who are uninusured.
Why are people underinsured? Because they're forced into buying health insurance that doesn't meet the expected costs of getting sick or getting injured. And one trip to the hospital can easily generate an enormous amount of medical debt for many people. That will disappear when Senator Obama becomes president.
The third thing that Senator Obama would do is to provide income-based tax credits for individuals who enroll in these health plans. Quite the contrary of what Professor Kessler said about Senator Obama, that he doesn't like tax credits, he indeed is using tax credits, but he makes them very progressive by making them income-based and enabling people to be able to afford health insurance through these kinds of tax credits. He would also expand Medicaid, which we call Medi-Cal in California, and the State Children's Health Insurance Plan program, which we call Healthy Families in California, to make sure that all children in the United States have easy access to an affordable health plan. And he would require that parents enroll their kids, either in a private plan that's available to them, or through one of these public programs.
So Senator Obama does not intrude government into our health insurance or our health care, getting between us an our doctor as some of the Republican ads might have us believe, but rather sets up a regulated market so that the market functions effectively and we cannot be taken advantage of by unscrupulous insurers, or insurers who are just responding to the incentives that they have in doing business.
The second thing that Senator Obama would do would be to develop mechanisms to ensure that we get more value for the dollars we spend on health care. One of the ways that we waste a lot of money in our system is because doctors and patients don't have much information about what works well for them, what's an effective treatment, what's an effective and important test and what's not. So Senator Obama would create an independent research agency that would study the effectiveness of different kinds of treatments and provide that information to doctors, hospitals and patients so they can make informed decisions.
He would also adopt what's called Pay for Performance, where physicians and hospitals are paid more for better health outcomes, and where they're not rewarded when somebody goes into the hospital, develops a hospital-acquired infection and has to stay longer in the hospital. That hospital should not be rewarded with increased payments. So under Senator Obama's plan that hospital would get no more money, despite the fact that its patients may be staying longer because of its own carelessness.
He would also invest real dollars in electronic health records and health information technology. Senator McCain says he's for that, but he offers no details, no plan of investing in it, no way to actually accomplish it. Senator Obama has a specific plan. He will invest $50 billion dollars over the first five years of his administration to bring health insurance technology into reality in the United States. And through this National Health Insurance Exchange he would lower the administrative costs of health insurance that we spend today. Right now the United States, as you probably know, spends more on health care per person in this country than any other nation in the world. Far more. And we also spend a larger chunk of those big dollars on administering out health insurance system: paper pushing, marketing, high profits for insurance companies, enormous salaries for insurance company CEOs, medical underwriting, where an insurance plan assesses your health and spends a lot of money doing that in order to decide if they're going to cover you at all, and if they are how much they're going to charge you. A lot of those things can disappear in a more rationalized and regulated health insurance system that Senator Obama would create through this National Health Exchange, so he would reduce costs in that way.
Finally, the third area of major change, I think, is his emphasis on prevention, paying for clinical preventive services that are effective in all health plans, including in Medicare, but also in private health insurance, and strengthening our public health system, the system that protects our food and our water and our air, to make sure that we are healthy and to encourage people to adopt healthful lifestyles, through policy change and through public education to reduce the rate of growth in obesity in this country, which will bankrupt our health care system if we don't gain control of it.
Sovern: Professor Kessler, a couple of questions that arise from your opening remarks: the $2500 tax credit, you said yourself that the average cost of a private health insurance plan is $12,000, so how does $2500 help enough for someone to afford that?
Kessler: Well, the average cost of a family health insurance plan is $12,000, and for a family plan the McCain tax credit would be $5,000. Well, as it is now people pay for their employer-sponsored health insurance through lower wages. The idea that employers are the ones who pay for your employer-sponsored health insurance is a myth. What happens is your employer pays you in total compensation the amount that you produce for them. That's divided up however you like. It could be divided up some wages, some health insurance, all wages, all health insurance. It's of no interest to the employer. So individuals, not employers, are the ones who pay for the current system. The McCain plan of giving a $5,000 tax credit would be more generous than the current deduction for people who have low incomes. If you have a low income — for example, if you pay no federal income tax at all, right now you get nothing from the current law, you get nothing from the exclusion. And under the McCain plan you would get $5,000.
So, to say that this is less generous than current law is a myth. In fact, the only people for whom it's less generous are high-income people. It's them who are going to be paying more on net for their health insurance, not everybody.
Sovern: And if the employer contribution is not taxable now, as I understand it, and now it will be, isn't that a tax increase?
Kessler: It's a tax increase offset by the credit, which is a tax decrease. So on net some people will benefit and some people [LAUGHTER] — excuse me? On net some people will benefit and some people will pay.
Professor Brown, do you want to respond to that?
Brown: I would like to respond to that. First of all, Professor Kessler is right that many of the benefits right now of that tax exemption of employer-provided health insurance goes to more affluent employees. However, low wageworkers who work in firms, large firms with some high wageworkers also gain a benefit from that, because they work for an employer that offers them health insurance, with an employer contribution that they wouldn't otherwise get, and they probably would not see that as an increased wage.
Secondly, under Senator McCain's proposal the taxes that you would pay on your earnings of course are increasing. So, yes, while in theory at least employers might switch from providing you with a contribution for your health benefit to putting that money into wages, if they do that you're going to be paying taxes on that income, and you will not be getting a tax credit that's adequate to pay for a health insurance plan.
What it might help you pay for, if you're middle class or moderate income, what it might help you pay for is a high deductible catastrophic health insurance plan. And that's in fact the intent. The intent is to move people into plans in which they bear more of the cost, where you pay higher deductibles before your plan ever starts paying anything for your care, and when your plan starts paying for care you're paying a higher share of that cost. And high deductible health plans make people feel the consequences of their buying medical care. That's the whole philosophy behind this approach to reducing health spending. But the consequence of that is that people get less preventive health care. You may think that, well, somebody would spend money on a mammogram annually, because it's in her interest, but the empirical reality is that that doesn't happen, that people forgo preventive care. They even cut back on necessary primary care, and on specialty care that they need, and if they have chronic health problems their really in deep doo-doo. [LAUGHTER] Forgive the vernacular. And their problems are compounded by the fact that they now have to bear a high proportion of their costs, they have mounting debt as a result of that in many cases, and these are the kinds of consequences that Senator Obama's proposal would help us avoid, by preventing the problems of underinsurance, which Senator McCain's proposal would actually engender.