This election is different than any other on the issue of health care because both candidates are giving us serious blueprints to reorganize America’s health care system and those blueprints are very very different.
As voters, you have a huge and critically important choice on health care.
But to understand their big idea differences, I would point you to our pension system to better understand where McCain and Obama are going on health care. Back in the 1960s and 1970s, it was common for workers to have what is called a defined benefit pension plan.The worker got a promise from the employer that when retirement came he’d get a certain monthly benefit — often about 60 percent of his final average earnings. That might be $2,000 a month — every month for the rest of his life. Therefore, a defined benefit.
But starting in the 1980s, employers came to find that they couldn’t
afford these very expensive defined benefit pension plans. Employers
started backing away from these plans often by no longer making new
employees eligible for them or simply terminating them and freezing the
benefits for those who had been participants.
Instead, employers more often offered a defined contribution plan–usually in the form of a 401(k) plan. A 401(k) pension plan is generally dependent on employee
contributions that are made pre-tax. Often, the employer matches the
employee’s contribution at some percentage of what the employee
contributes–a defined contribution plan.
401(k) plans are popular with employers because they have no big
funding requirement — defined benefit plans required them to contribute
whatever it costs to keep the expensive benefit promise. Now, the risk
of having enough money to retire on was shifted from the employer to
With workers changing jobs more often than in the 1960s and 70s,
employees also had a portable plan. Defined benefit pension plans have
vesting schedules so a worker that stayed less than 10 years perhaps
left with no pension benefit. With a 401(k), the employee leaves with
all of his contributions and investment earnings as well as most or all
of the employer’s contributions. The departing employee can roll his
account over to his own IRA or his new employer’s plan and continues to
accumulate toward retirement.
401(k) plans are popular with workers because they own them, control them, and make investment decisions for them.
The pension plan story is what the big idea difference between McCain and Obama’s health plan is really about.
Obama: Do we continue down the same incremental line with health care
reform–building on the employer-based system where the employer
provides so many of us with generous defined benefit health insurance
plans that the employer continues to pay most of the cost of no matter
how expensive they are?
McCain: Or, do we change the health insurance focus from relying on the
employer to relying on individual responsibility and a structure that
enables the individual to build their own health care security, often
with an increase in wages to replace the health insurance benefit, and
not having to rely upon the generosity of one employer or another to
provide a fixed and comprehensive plan?
Just as we have learned from our pension experience, one approach is
not necessarily good or bad. Both have some very important advantages
and some very important disadvantages.
Liberals often believe that the best way to provide health care is via
a large group. Lots of people coming together to spread the risk and
cost of insurance has worked well for consumers. The great health
benefits most of us get from our employers may be the best thing going
in our problematic health care system. The worry is that if we push
people out of these plans and into the individual health insurance
market to fend for themselves consumers will be subject to the vagaries
of the market that include underwriting limitations and health
insurance premiums in the thousands of dollars.
But conservatives often worry that the employer-based system is at the
heart of why our costs are out of control. A third-party, the employer,
pays for care the doctor and the patient demand. There is little in the
way of incentives for the buyers to care much about costs. American
employers are also saddled with by far the most expensive health care
system in the world as they try to shoulder those costs and still be
competitive in a global market–the cost of health care that goes into
the cost of making an American car is much more than the cost of steel
in that car. Conservatives also argue is is unrealistic to think the
employer-based system is anymore sustainable than the old pension
Conservatives also worry that Obama’s endorsement of the defined
benefit approach also applies to government making even more
unsustainable entitlement promises than it does now by guaranteeing
more access to government plans and promising expensive subsidies so
everyone can get into a health insurance plan. That is a legitimate
concern particularly in the light of Massachusetts enacting an
Obama-like plan last year that is proving to be giving us an incomplete
result toward getting everyone covered for an unsustainable cost.
But liberals counter that McCain would "shred" the traditional
employer-based system of health care and push consumers into a very
expensive and even less regulated health insurance marketplace with a
reputation for wanting to cover only healthy people.
Liberals believe we have a moral imperative to get everyone covered
sooner rather than later–in Obama’s case by spending many billions
upfront. Conservatives believe we have a moral imperative to avoid
making promises we can’t keep if the system isn’t made to be affordable
In my mind, both sides have legitimate points.
I also believe either system can work–how well is a matter of what the
details look like. The most important of these details is how costs
would be controlled. When the day is done, controlling costs is what it
is about so we can get everyone insured, sustain that, and make America
competitive in the global economy.
So it all comes down to the security afforded by employer-provided
defined benefit group plans (Obama) versus the potential for cost
savings and the advantages of portability that come with a defined
contribution approach (McCain).
In many ways, Senator McCain makes the more radical proposal–not what
you would expect from the Republican on health care. But with our
system as unaffordable and globally uncompetitive as it is that is by
no means a criticism on my part.
As a voter, you have a big decision to make in November when it comes to health care.
Obama has a defined benefit health care plan that asks us to give up
less–but will it get the job done in making health care more
affordable and will the program be sustainable for us? Under Obama’s
health care plan that continues to rely upon the employer, will
America’s products and services be more competitive in the world?
McCain asks us to make the biggest health care leap with him and give
up the security we have had under employer-based health care–but a
security that may not be sustainable anyway.
Boy! Do you have a big decision to make.