McCain's Health Care Plan for Americans: Don’t Get Sick

Center for American Progress Action Fund. Posted June 10, 2008.

While Sen. John McCain, R-Ariz., has revealed little about his health care plan, the broad outlines of his proposal represent a "radical" departure from the current employer-based system, providing less coverage and imposing higher costs. McCain envisions a system under which most Americans shop for health insurance on their own in a highly deregulated market, which would charge higher deductibles and co-payments and provide less coverage. Ultimately, McCain's vision places the 158 million Americans who receive their health care through their jobs in danger of losing coverage. McCain replaces the current tax breaks for employer-sponsored health insurance with a one-size-fits-all tax credit of $2,500 for individuals and $5,000 for families, equalizing the tax treatment of employer and individual plans and enticing healthy workers to buy cheaper but less substantive insurance in the individual marketplace. But the departure of healthy workers from employer insurance pools would drive up average health costs, forcing more workers to opt out entirely. The entire employer health insurance system could unravel, "ending this as an option for Americans who prefer it," as the Center for American Progress Action Fund has noted. Among those who would lose their health care are 56 million Americans with pre-existing chronic health conditions. Thus, McCain, a cancer survivor, would be unlikely to get coverage under his own plan if he did not have government-provided insurance. The McCain plan offers a simple prescription for Americans: Don't get sick.

Less Coverage

Plans in the individual insurance market cost less but also cover less, and furthermore, provide inadequate safeguards against insurers who refuse to cover patients with pre-existing illnesses, deny coverage outright, or engage in other discriminatory practices. As Elizabeth Edwards points out, "Nine out of every ten people seeking individual coverage on the private insurance market never got it. Insurers will disqualify you for just taking certain medicines because of the possibility of future costs ... and insurers make it a practice to deny coverage to individuals in high-risk occupations, such as firefighting, lumber work, telecom installation and pretty much anything more risky than working in an office." Georgetown University professor Karen Pollitz noted, "It's true that the advertised prices for many individual policies in many states are eye-poppingly low. The policies often cover very little: $5,000 deductibles, four doctor visits a year, no drugs." In addition, individual plans have lower premium costs because state laws offer much weaker protections in the individual market than they do in the group market and therefore can avoid covering sick people. Moreover, as healthy patients develop medical conditions over time, their costs increase dramatically. In what is known as the death spiral, insurance companies in the individual market "stop accepting new customers in a plan" and increase costs for customers. "Healthier members find cheaper plans, but sicker ones are effectively forced out because they can't afford coverage," according to Consumer Reports.

Increased Costs

While McCain's individual tax credit may assist a limited number of families who currently lack any kind of health insurance, workers who receive a higher tax subsidy through employer-based plans would experience a tax increase. The individual consumer would also have to stretch McCain's tax credit to cover the ever-growing costs of medical premiums. McCain indexes the growth of his initial tax credit to inflation, not premiums. Since premiums grow at a higher rate than inflation, McCain's proposal could impose an estimated $3.6 trillion tax increase on workers. At the same time, administrative costs would increase dramatically. Individual plans would require greater "marketing and processing" and waste premium dollars on the medical review and legal costs of underwriting. According to a new study released by the Center for American Progress Action Fund, McCain's plan could generate as much as $20 billion in new administrative costs -- representing an increase of more than 20 percent in 2007 dollars. Since McCain's plan would allow insurance companies to ignore in-state consumer protections, companies would offer cheaper plans to healthier Americans, charging higher premiums -- or not offering any coverage -- to the sickest Americans.

Millions Left Uninsured

In April, Edwards astutely noted that McCain's plan offered nothing for the sickest Americans. In response to her criticism, McCain offered to subsidize state-sponsored high-risk pools to the tune of $7 billion to $10 billion. But experts suggest that McCain's proposed funding boost is "nowhere near enough (to cover the uninsured), particularly given the large number of people with pre-existing conditions who would need this help if employers send their workers out to the open market." In fact, historically, high-risk pools have led to inadequate coverage or high costs. "Only 200,000 Americans are covered by state high-risk pools, with health expenditures of $1.6 billion. This means that a similar national program funded at $7 billion per year would cover only 875,000 people -- a fraction of the 56 million Americans with employer coverage who have chronic illnesses. Even if participants had to pay half of their own premiums, as is generally the case today in state high-risk pools, less than 2 million Americans would be covered," noted reporters Laura Meckler and Anna Wilde Mathews. Most high-risk pools impose pre-existing condition exclusions on potential enrollees and have higher premiums, deductibles and co-payments -- preventing chronically sick patients from receiving the health care they need.

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