Half-baked Alaska: Palin short on health care explanations in debate

Merrill Goozner has been writing about economics and health care for many years. The former
chief economics correspondent for the Chicago Tribune, Merrill writes the blog
Gooznews.com, where this post first appeared.

It must be disconcerting to health care economists to see one of their pet peeves about the inequities of the employer-based insurance system so poorly used by the Republicans, who would repeal it. I’m referring, of course, to the tax deductibility of health insurance premiums.

Gov. Sarah Palin repeated Sen. John McCain’s promise to give every American household a $5,000 check to buy health insurance. They would raise the money to fund the program by repealing the deductibility of employer-based coverage. I can’t recall if she gave one of her trademark winks when she said it, but she certainly gave an enthusiastic nod. Health care will become just like Alaska! The government will be sending you money every year so you can go out and buy your own insurance.

There is an argument that can be made in favor of repealing tax deductibility. Like the home mortgage deduction, the higher your tax bracket, the more valuable the tax deduction. So if your employer buys you a gold-plated health care plan that costs $15,000 and you’re in the highest tax bracket (around 30 percent), you get the equivalent of a $4,500 tax break from the government. But if your employer buys you a plan that only covers hospitalization and serious illnesses for $7,000 a year and you’re in the 10 percent income tax bracket, the tax deduction is only worth $700. Repealing all tax deductibility and distributing the revenue equally to buy individual insurance policies seems simpler and more equitable — both appealing traits.

BidenBut, as Sen. Joe Biden pointed out, the average family plan today costs about
$12,500 a year (about 80 percent of that picked up by employers, the rest coming out of workers’ paychecks). Plans sold to single people or families in the individual market usually cost far more than employer-based group plans. $5,000 won’t begin to cover that cost.

And where does that leave the 20 million families that analysts estimate would lose their employer-provided insurance under the McCain plan? They would be losing their coverage because their employers would find it more profitable to simply pay taxes on the $10,000 they used to pay for an employee’s health insurance than to continue providing coverage. Employees would face a big gap where their coverage used to be.

Wouldn’t some of that $10,000 go to the employees in the form of higher wages that they could use to defray the cost of individual plans? Some. But, given the power relationships in today’s workplaces, I think it is fair to say, not all of it, and probably not even much of it.

And what would the $5,000 do for families whose employers don’t currently provide insurance? Bare bones doesn’t begin to describe the policies available at that price. Setting up a system that encourages millions of Americans to buy these bare bones plans would be the death knell of preventive care and a further deterioration in America’s general health status, which already lags behind most other industrialized nations.

A year ago, when many people believed health care would be one of the central issues of this year’s campaign, the rival Democratic candidates clashed over the specifics of their detailed health care reform plans. Now, all Democratic nominee Barack Obama has to do on the stump, or, as his vice presidential pick did last night in the debate, is go negative on a poorly thought out Republican plan.

It is interesting to note that Sen. Ron Wyden (D-OR) has been pushing a plan that sounds vaguely similar to the McCain plan. S. 334, the Healthy Americans Act, has 17 co-sponsors in the Senate, half of them Republicans. Significantly, John McCain is not one of them.

Does it have anything to do with the fact that Wyden’s plan would lead to a lot of new regulations of the insurance industry and a mandate that would force everyone go out into the individual market and buy insurance? As this analysis by the Center for Budget and Policy Priorities points out, it’s not even clear that the Wyden plan would adequately protect against adverse selection — where insurance companies cherry pick the healthier people and force sicker people into high-risk pools where the policy premiums would be sky high.

I wish Biden would have turned to Palin (after pointing out the negative household budget consequences of the McCain plan) and asked: "Would you be willing to have national regulation of the insurance industry to make sure they didn’t discriminate against people with pre-existing health conditions or against people who are older and approaching retirement age, which are the higher health care cost years?" Alas, he didn’t. And neither did moderator Gwen Ifill, who failed to follow-up on any question of significance.

If they had, maybe she would have given the same answer John McCain recently gave to the magazine of the American Academy of Actuaries, where he called for less regulation of the insurance industry, "as we have done over the last decade in banking."

12 replies »

  1. Why do we need to spend money on insurance in the first place? Why is *insurance* the answer? My husband and I haven’t had health insurance for several years, as he works for a small company – a small, cheap company – who only offer the most costly health care plan around. The last time we had insurance, the plan treated pregnancy as an “illness” and we just recently got our second child paid for (C-section). It didn’t pay for vaccinations, pre-existing illnesses, and only half of office visits, with a ridiculous co-pay for medications. Meanwhile, we’re shelling out about $500 a month for our share of the premium coverage – plus the ridiculous co-pays. 6K a year…for what?
    We’re fortunate. We’re pretty healthy. I pointed out to my husband it would be cheaper *for us* to just get a “devastating illness” policy for cancer or whatever might come up, and take the kids to the Health Department for vaccinations…which is what we do; we go to the Health Department for yearly physicals as well. Why not?
    Why should we pay these outrageous health care premiums to insurance companies AND have the GOVERNMENT pay them health care premiums as well for something we could easily handle ourselves? I worked for hospitals and I know people with certain insurance coverage use the ER for colds. They bring their kids late at night, already dressed in pajamas, for colds they’ve had for a week. It’s ridiculous. We used to call the ER the Drive-Thru Clinic.
    And another thing. The insurance companies can already tell you what medicines you can take, what procedures you can have, what treatment may or may not be necessary. They can even tell you that they’ll pay for drugs so you can commit suicide, but won’t pay for treatment of your cancer…after you’ve shelled out big bucks for health care coverage. Unbelievable. Why just put more power into the hands of insurance companies? I see no reason to do that AT ALL.
    I say eliminate insurance coverage altogether. For the people that cannot afford health care…give them a medical debit card or something to be paid for with all that money that would have been wasted on the silly insurance companies. Eliminate the middle man. It would be a whole lot cheaper and put the power back into the hands of the consumer and their physician. Insurance – all insurance – is the biggest rip-off on the face of the planet.

  2. mike, you are right that on the surface this is about culture not substance – at least that’s how it’s being sold (again). But if Americans think that electing “brains” in Washington hasn’t worked so the solution must be electing a dummer version of Bush re-packaged as “Gidget Goes to Washington”, they will still be left wondering where the solutions are 4 years from now. It’s not that there aren’t enough smart people in congress, it’s that they have to concentrate their time dialing for dollars, entertaining the lobbyists with the most money, and doling out subsidies instead of studying issues and solutions. Mix that with failed ideologies of religion and economics and no wonder we’re in a failing system. These are complex problems, not problems that require solutions no greater than a 6th grader’s understanding of the wider world. Electing someone who has a good ability to parrot their handlers general policy approaches will also fail. There is nothing “maverick” about saying what other people tell you need to say to slide by.
    deron, you are right about the solution is controlling costs, I’ve always said that on this blog, but relying on the present system to cut costs will not work, just as relying on the good will, personal responsibility and honesty of Wall Street hasn’t worked for our financial health.

  3. We have to stop worrying so much about who is going to pay for healthcare and stay focused on why it is so expensive. Whether I pay for my health insurance, whether my employer does, or whether the government does, it doesn’t change the fact that that insurance is paying for an expensive system. We have to isolate the reasons for the high costs (there are many) and focus our solutions on driving down those costs. If we do that, then we can worry about who pays for health insurance because it will be much more affordable.
    You won’t hear politicians speak in those terms because it requires a depth of thought on a subject they know very little about.

  4. Mike, please just look at some actual data on public reactions to Obama, Palin and the rest (polls, surveys and representative focus groups). Look at reactions to the last two debates, for example (not pundits, the people). It can spare you from committing much public nonsense.
    Overall a good post, but I take some issue with the following:
    And where does that leave the 20 million families that analysts estimate would lose their employer-provided insurance under the McCain plan? They would be losing their coverage because their employers would find it more profitable to simply pay taxes on the $10,000 they used to pay for an employee’s health insurance than to continue providing coverage. Employees would face a big gap where their coverage used to be.
    The employers who will no longer sponsor coverage for their employees are mostly going to be those in low wage industries or with low profit margins who already (a) have low benefit health plans and/or (b) require a high percent of the premium to be covered by employees.
    So if 20 million lose their coverage, in far less than 20 million cases will the employer have an extra $10,000 which it can choose to keep or dispense. The average might be $8,000, $6,000….definitely not $10,000.
    That doesn’t affect your main points. We should be clear that employers with a high-demand, professional workforce are not going to stop offering health insurance. They will probably increase the employee contribution because they know their employees now have an extra $5,000/$2,500, but in some cases that may not even happen if the employer is trying to retain or attract high-skill, high-demand employees. In contrast, it’s the employer who already feels like they can’t afford to offer much in the way of insurance or feels like they don’t have to do so who will drop coverage.
    In other words, employees who have a high income in a job with good benefits are the least likely to be harmed. Employees in jobs with lower incomes and modest or poor benefits are the most likely to be harmed. In this outcome, the McCain proposal is absolutely standard for a Republican.

  5. Sarah Palin is today’s Annie Oakley. Low mainenance, high energy, the touch of naivette that will keep her out of the box. If she does not have the answer she is not going to trust or believe the fast answers of the left and/or right. Health care used to be like this….now it is like the financial markets, puffed up, overleveraged, overly complex. What we have built and allowed to grow is not working….we all know this but now we have to rebuild the system. We can’t afford anarchy…the best functioning segments of healthcare are the large integrated system, such as Mayo, Kaiser, Henry Ford, Cleveland Clinic, Boston’s Partners Group, and some University Systems. There strengths lie in their IT infrastructure, in management and clinical information systems

  6. Democrats will vote for the Democrat. Republicans will vote for the Republican. That’s how it has always been.
    John McCain and Joe Biden are politicians. They know their numbers, and they know Washington.
    What is different about this election is culture. Where is America going, culturally?
    This is where Barack Obama and Sarah Palin come in.
    Some say race is a factor against Obama, but I say it is the opposite: Obama has been propelled upwards by his skin color. The positive ‘racism’ (Black-Americans supporting him, White-Americans feeling guilty about the legacy of slavery) far outweighs the few remaining pockets of negative racism (traditional bigotry) that still exist in our country.
    Whereas Black-Americans account for 12 percent of America, women number about 51 percent.
    This is where America’s reaction to Sarah Palin gets interesting. It is not only sexism at play, but regionalism too. Keep in mind that America’s reaction could be vastly different from the media’s reaction, which tries to intervene in how America thinks and observes for itself.
    For the last decade, American women have been trying to become either the fifth ‘Manhattanite’ cast member of ‘Sex and the City’ or a ‘Desperate Housewife’ on Wisteria Lane. The White male executives who created, packaged and marketed these female stereotypes have made plenty of money as women across America spent time and money trying to become ‘Carrie Bradshaw’. But somehow, these wanna-be’s never lived it up as glamorously.
    Sarah Palin is all about God, Family, Country and Shot-Guns. She is a completely New American Woman. She was not constructed by a Public Relations agency in either New York City or Los Angeles. She is not a Hollywood creation. Sarah Palin is simply a product of American small-town wholesomeness: happy childhood, hard work, self-discipline and a bright, and almost chirpy, outlook on life.
    Sarah is not the high-maintenance, drama-seeking, bulimia-suffering fragile caricature of a working woman as peddled by TV.
    Her husband, Todd Palin, is not a neurotic metro-sexual obsessing over the price of organic arugula, or whining about his commitment phobias to his shrink. He is a man’s man, and frankly, a woman’s man: just your regular American guy—wholesome and uncomplicated.
    Sarah and Todd are American ‘retro’, but it is retro made cool all over again. They are a brand of Americana that has been tested and true—genuine, confident and mature.
    Something happened to the Obama brand on the way to the election. It is as if the fashion gods decided that “Didn’t you know? No one wears Obama after Labour Day.”
    Once exotic and different, the Obama brand has been turned into something weird and creepy. “Obama’s Witnesses,” “Obama’s Blue-Shirts,” “The Obama Youth Fraternity League”…Plus, after the initial swooning over him, most people still think that there’s something “off” about Obama; as if he’s hollow, or hiding something.
    Today, the Obama brand has become decidedly “uncool”. That’s why people tuned out from watching him debate McCain.
    On the other hand, Americans are discovering that they are intrigued by Sarah Palin. The TV pundits may want to spin things their way, but the surest measure of who won the Vice-Presidential Debate is that, at the end, the vast majority of viewers walked away from their TV sets and said to themselves, “I’d like to see more of Sarah Palin—unfiltered and uncut.”
    The Obama camp may be celebrating too early. There are still plenty of people out there that haven’t made up their mind, and Obama’s triumphalism may begin to sound like arrogance, and he’s already been accused of that.
    This is indeed a culturally interesting time to be an American.

  7. I tend to think there’s nothing intrinsic about health insurance that it should be tied to employment. As we all know, it’s very much a vestige of the wage freezes during World War II and the resulting need for alternate tools to compete for high quality labor. That said, Joe Biden is right. $5,000 doesn’t get you near a health insurance policy as the market exists. As RW points out, it’s purely an ideological ploy that could work if the market/tools to shop for individual health insurance existed. But they don’t.

  8. Good points, but both candidates are ignoring the multi-trillion dollar time-bomb that is Medicare/Medicaid. Obama’s plan, while sounding compassionate to the uninsured, basically accelerates the ticking on the time bomb, resulting in many more un- or under-insured when the whole structure implodes. McCain’s plan doesn’t address this issue, either.
    I think the idea of making consumers more aware of what they are paying for, in terms of healthcare, is good. That puts the focus on unsustainable cost increases in health care which must be addressed soon — but patients/consumers have little reason to do so today with the misaligned incentives in our health ‘system’.
    Once there is a ‘burning platform’ for patients/consumers/voters in terms of escalating HC costs, then hopefully we can have meaningful dialog on productive healthcare solutions – not just ‘bread and circuses’ initiatives for both the uninsured masses or large employers..

  9. Wouldn’t this be a step in the direction of moving health insurance out of its connection to employment? It seems like many people believe that if we don’t move to universal (or at least some type of single payer) than every other option won’t work because of “shortcomings” in the current system. Might there be other options based on forcing the market to deal with individual consumers? Such a move would be painful, but if you are a Republican it seems that the only choice you have in terms of policy is to force the market to come up with ways to deal with individual consumers.
    I guess what I really want to see is a Republican strategy that conveys that they really understand healthcare and then make the connections to how their strategies will address its core shortcomings, which are systemic and not just related to how people pay for it.

  10. What about the notion that the people who don’t already have employer-provided health care–most likely the ones in the lowest-wage jobs–would spend that $5000 check on immediate necessities like food and gas? It’s hard for someone whose kids are hungry to say, “Honey, we can’t have dinner tonight…but hey! I put up some money just in case you get an ear infection down the road!”

  11. Totally agree. It is stunning that McCain is out there with a plan that would send millions of Americans out into the wilderness of the individual insurance market without tackling its well-known shortcomings. More should be made of this.