Friday, May 2, 2008

McCain's Health Plan - seriously flawed

Candidate John McCain has proposed a health policy reform that will not work, and would worsen the uninsured problem in the United States. Let's take a look:

Seventy-one percent of insured people are now covered (in some fashion) by their employers. McCain proposes eliminating employer sponsored health insurance and giving tax credits to people to buy their own insurance. A family would receive a $5000 tax credit but the typical family premium is $12,000. The consumer can pay the extra $7K or go without insurance. Essentially it would remove the employer from the insurance game and let Americans fend for themselves. Have you enjoyed dealing with your insurance company thus far? How responsive are they to your phone calls or concerns about coverage? McCain says the free market would inspire competition and let those insurance companies compete for your business.

There would be no restrictions on insurers charges or coverage of preexisting conditions. Anyone who self insures today knows what happens if they have a history of cancer or diabetes or asthma or even allergies. They can expect to be penalized with exclusions or premiums that even McCain might blink at. He doesn't need to worry about his own skin cancer because he is covered by his (free) Federal plan. He proposes "high risk pools" to address pre-existing conditions, but has no real plan to ensure that these pools are funded.

McCain's plan does not include universal coverage and it allows companies to sell insurance across State lines, which would eliminate State protections that are already in force. There are no cost controls on premiums. He assumes market competition would work here.

Senator McCain's plan benefits the healthy and wealthy. It is a great windfall for American business. For everyone else, it takes us down the wrong path.


Peter said...

You are attacking McCain's proposal on the grounds that it does not serve as a wealth redistribution system where the "healthy and wealthy" are forced to pay for the medical services of people who have preexisting conditions. Insurance was never meant to be a method for wealth sharing; instead, it is supposed to function as a vehicle for individuals to pay for his or her own risk (versus the risk of other people). When properly adjusted for risk, insurance premiums should be manageable for low-risk families and individuals. Unfortunately this rarely happens because there is a very significant gap in information sharing between the insurance company and the insured.

Consider this situation: I am a low-risk, healthy, young student, with no history of diabetes, cardiovascular disease, or cancer. I purchased an insurance plan and have been paying my monthly dues to this company for 2 years, totaling $20,000 in premiums paid. After two years of me being in the risk pool, there is another person who is high risk and currently being treated for cardiovascular disease, diabetes, and cancer, yet hides all of that information from my insurance company when applying for insurance. That person will be paying the same premiums that I am now paying, yet once they are accepted into the plan, they decide cash out and get benefits totaling $250,000 per year. Is this fair to me or anyone else in the risk pool? What happens as a result of situations like this is that the insurance companies will hike the premiums for everyone in the risk pool, making it economically unfeasible to purchase insurance.

To prevent premiums from skyrocketing every year, there needs to be more stringent information reporting on the part of applicants such that history of disease, preexisting conditions, and other social factors are taken into account when the insurance companies manage risk and adjust premiums. As it is now, the healthy are paying for the medical services of the sick minority instead of the healthy paying for their own future medical needs.

Price controls will not fix this; price controls will destroy the fundamental principles of insurance. Forcing employers to pay for the insurance of employees will not fix this; employers will simply pays their employees $12000 less per year. Moral hazard absolutely has to be addressed for health insurance ever to work properly. Frankly, McCain's proposal is the only plan which has a chance of bringing good unlike the proposals from Obama or Clinton for mandatory universal health insurance, which we know are doomed to failure if the Massachusetts plan is any indication.

Anonymous said...

Are you thinking of Life ins. when you refer to "cashing out" I havn't ever heard of health ins. in California that you can "cash out"
Also Europe has Universal Health Care that has been working for a long time and ranked much better health care then the US.

Peter said...


Cashing in refers to anyone who gets significantly more from the system than what they paid for. In other words, it is like winning the jackpot after only one bet with a quarter. Or, in life insurance terms, it is dying the day after signing a $500,000 life insurance policy. Pardon the tautology, but insurance is insurance. The basic principles are consistent across the board.

Comparing health insurance to car insurance:
• If I buy a car insurance policy today, will the insurance cover an accident that I had a year ago? Why not?
• If I own a $250,000 Rolls Royce, should I pay the same monthly premiums as someone who owns a $15,000 Honda Civic? Why not?
• If I drive within the speed limit and have never been involved in a car accident, should I pay the same monthly premium as someone else who has a death-wish and who intentionally crashes his car? Why not?

Why should I pay for someone else's pre-existing accident, or reckless behavior, or non-risk adjusted underlying costs?

m.scott said...

So you are saying that people who suddenly have some debilitating condition that requires serious hospital coverage, that they are "cashing in" on the system? Sure, I agree, that in that situation, that person is actually getting more from the insurers than they may have paid in in premium fees, but come on Peter, do you really believe that a woman who finds out that she has ovarian cancer and faces the horrors of that type of treatment is really thinking "Lucky me, I am so going to cash in on this opportunity!!!! "

As to your comparison to auto insurance, yes you should pay a higher premium for your $250,000 Rolls than my $15,000 Civic, mainly because it will cost about 15 times more to fix your Rolls than it does my Civic, and if you care enough to buy yourself a fine car like a Rolls then you should care enough to make sure that it is covered properly if suffers any damage...

As for you driving the speed limit and paying the same as someone with a death wish, your tautology falls apart here because I have never experienced an insurance application that asks "Are you a homicidal crazy person?" Sorry, that's just a risk of living in our whacked out society. However, should you pay an extra premium for an uninsured motorist who might smack into your $250,000 Rolls and then tell you "Sorry Bucko, you're SOL". My answer is yes indeed I want that coverage because that is called insurance against someone else's lack of consideration. Again, that's life.

But, car insurance is not equivalent in health insurance and you know that Peter. Affordable health care should not be a privilege for the rich alone. Neither is it a right. It is something that in our modern society should be accessible to all according to their ability to pay. I don't advocate free rides, but neither do I subscribe to the smug, self-serving tautology of "I earned it, I keep it, and the hell with you."

We are all here together, and really, the only one's cashing in on our fear of pain, sickness and disability are the executives sitting on the boards of the insurance companies, those guys raking in the $1,000,000,000 golden parachutes.

I am all for self-reliance but I cannot advocate the very real option of absolute bankruptcy for anyone stupid enough not to be born into wealth and success who just happens to suffer a serious disease or injury.

So why not share the responsibility?

Peter said...


In the case of auto insurance, there are many components that the companies use to adjust your premium, such as the color of your car, 2-door versus 4-door, married, age, sex, number of children, location of home, geographic location, past accident history, grade point average for students, number of traffic citations and tickets, et cetera. The auto insurance companies do a great job of underwriting and risk adjustment based on all of this extra information that is provided through the insurance application. Somehow it works out well consistently: high-risk customers pay high premiums, low-risk customers pay low premiums. There is no outrage for the high premium payers, and there are no calls for socialist wealth sharing to cover the high-risk. Of course, the comparison between health insurance and auto insurance breaks down because health insurance is completely broken. Instead of health insurance serving as the catastrophic-injury compensation program, it serves as the payer for everything else, from unnecessary expensive testing, primary care visits, to prescription drugs and unnecessary ER visits. When physicians and patients decide whether or not they want to go through with a $5000 MRI, they confidently say "who cares" because a 3rd party is picking up the tab. This information gap is called moral hazard.

The reality is that moral hazard is also present in the insurance application. Applicants are neither completely truthful nor required by the company to provide information regarding family history of disease, or past medical history, or genetic testing, or preexisting conditions, or social history, or history of drug and alcohol abuse, et cetera. The high-risk individuals are getting through the process but are not risk adjusted as such. Do you think it would economically be a good idea for the woman with ovarian cancer to apply for health insurance the moment she is diagnosed with cancer and deceive the insurance company on her application to get her treatment covered? It certainly happens all the time. "Cashing in" is certainly not a joyous celebration, but an economic reality we need to deal with.

Health care is expensive. The United States is paying twice as much on health care per capita than any other country, yet health statistics for our country are significantly worse than those other countries. Health insurance is no longer affordable and universally accessible because of underlying economics that you are conveniently ignoring. Costs are out of control primarily because of the moral hazard of health insurance, not because of a failure to share responsibility. Sharing the costs, i.e. "sharing the responsibility" in your words, will not only increase the costs of health insurance in the future, it will decrease access to healthcare services when they are needed the most.

Just like you don't expect your auto insurance to pay for oil changes, tune-ups, tire rotations, new car stereos, you shouldn't expect your insurance to pay for ordinary office visits or medically unnecessary tests. Health insurance should only cover catastrophic situations, just like auto insurance, life insurance, fire insurance, or hurricane insurance. For this to work, information needs to flow freely between the insured and the insurance company, and this will require transparency and truthfulness on the part of the applicant to disclose personal, private information. This will ensure that individuals who have high-risk and high likelihood of requiring millions of dollars of medical care in the near future will pay accordingly in their monthly premiums, and those who have low-risk and low likelihood of requiring a hundred dollars of medical care in the distant future will pay accordingly. When insurance is properly underwritten, the Rolls Royce's and the cancer patients will get the care they need in the amount that is required, and there will be absolutely no denial of care. As long as risk adjustment is incomplete, we will continue to have problems of inaccessibility and denial of care.

Mom B said...

I hope your info will resonate with the voters. Four more McYears?

Raymond Bouchayer said...

Most anyone is "risk poor" until things change and it usually does as one gets older .
All this nonsense about who is going to pay and how is ludicrous . Health Insurance is not a luxury , it is a necessity and we should all have the exact same Insurance our employees (Congress and Senate people ) get from us the tax payer ....All other plan is just conversation and will not solve the problem .

Gary Burke said...

Excellent analysis. McCain's plan is flawed in so many ways it is hard to know where to begin. Perhaps by pointing out that insurance companies spend 20% of every insurance dollar preventing health care for those with pre-existing conditions and by delaying or altogether ignoring legitimate claims, a process called "adverse selection" by healthcare economists. It is a measure of how ignorant McCain is of the underlying principles of healthcare that he is suggesting that the "free market" will solve our problems. How long do we have to wait for the "free market" to solve the healthcare problem?

Toni Brayer MD said...

For Peter: Comparing health insurance with car insurance has many inherent flaws. If you purchase a "lemon" you can trade it in for a new model. If you are negligent about preventive maintenance, you can get a new car.
We have our bodies for life and there are many conditions that just "happen" through no fault. Conditions like Lupus, broken bones, organ failure, aneurysms, Rheumatoid arthritis, ALS, muscular dystrophy,diabetes, blindness,schizophrenia, Crohns disease and on and on. Those people would be completely priced out of the market under McCains market based plan and under your risk pool (lucky you!).

Even now if you have cancer or an attack of allergies you cannot afford to buy insurance and those conditions are excluded. Under McCains plan, those exclusions are reinforced.

Doctors will tell you that much of good health is "luck". The right genes and the right money and the right environment to thrive. The most important predictor of health is a persons wallet.

The only way for insurance to work is for universal coverage. Anything less is just selfish and near-sighted.

m.scott said...

Obviously the issue of developing a reasonable, humane and beneficial healthcare system for all is complicated and troublesome. It seems that everyone agrees that the current system of healthcare in this country is far from ideal, failing to serve either the patients or the practitioners in any kind of satisfactory way.

The one thing that I am encouraged about is that McCain's proposal, along with Clinton's and Obama's along with Dr. Brayer's response and Peter's thoughtful economic analysis all promote the dialogue that must occur in order for this issue to be resolved.

It is unfortunate that something as intimate, personal and ultimately human as one's health care has gotten so enmeshed in economic realities. Reading Dr. Brayer's blog's regarding the serious economic hardships facing primary care physicians and the trend away from young doctors venturing into that field is genuinely disturbing, while Peter's comments (and blog) point out the economic realities of maintaining our current healthcare system, all re-emphasize the glaring reality that the old fashioned doctor-patient relationship has been strained to the point of breaking by the intervention of insurance companies, whose bloated , profit-driven bureaucracies are ultimately inconsistent with the ideals of medicine and true patient care.

Perhaps another discussion point for the healthcare debate would be to find ways of shifting the focus and priority away from the cold economic realm and shift it back to the human realm wherein medicine best thrives.

ERP said...

True Tony. I agree that universal coverage is needed. People who are healthy should be required to have insurance - if they can't afford it, then they need public assistance. If they can afford it, they have to cough up (just like car insurance - you can't elect to have it!). Thus when they eventually get sick and need care, they will not be put in the poor house trying to pay for the treatment.

Healthnut said...

I agree that McCain's Health Plan will not work, but no matter who becomes President, the health care crisis will not "heal" until someone figures out how to turn the insurance industry into nonprofit.

Most health care insurance are traded directly or indirectly on the stock exchange, which means they have shareholders to answer to. Shareholders do not have sympathy for others, just that the bottom number looks good.

A few years ago, I walked into a Hospital REIT seminar. I was flabbergasted when almost every attendee in that room demanded no ER be built in the newer hospitals. They saw ER as a major expense, not as preventive measure.

Toni Brayer MD said...

healthnut: You are correct. According to Dr. Marcia Angell “The U.S. health system is unique in treating health care as a commodity to be bought and sold in a marketplace." There is no way to contain costs in a market based system. And Medicare is also dysfunctional because it is also based on the same "more is better" system of care.

None of the Presidential candidates have a plan that is perfect. McCain's plan is the worst and it takes the worst parts of our current system and extends them. There are so many stakeholders and special interests making billions off U.S. health care, it will take a visionary leader to make incremental, but real reform.

sweepstakes said...
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jackpot said...
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