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(Page 4 of 4)
Like the Bush plan, the Kerry plan shifts costs more than it reduces them. Wealthy taxpayers subsidize the uninsured. The federal government subsidizes the states. Pharmaceutical companies stand to lose the most from the plan, especially since Kerry intends to close loopholes in patent law that allow pharmaceuticals to keep generic drugs off the market. Pharmacy Benefit Managers (PBMs), the middlemen between pharmaceuticals and pharmacies, would also bear some cost. Kerry would force transparency on the highly secretive PBM pricing process, insuring that more savings are passed on to consumers.
Although the plan's big winners are the poor and the uninsured, almost everyone can expect to save some money under the Kerry plan. One of Kerry's more intriguing and innovative cost-saving schemes is to create a federal rebate pool to cover "catastrophic costs," which are defined as health costs exceeding a certain threshold. Allowing the federal government to assume responsibility for catastrophic costs would remove a huge burden from insurance companies, which far prefer covering healthy patients than the terminally ill.
Catastrophic costs are exactly the costs that drive insurance companies to jack-up premiums, or, in many cases, to go bankrupt. Insurance companies have a difficult time diversifying their risk between healthy patients, who are lucrative, and sick patients, who are costly. To put it one way, every time you buy health insurance (or any insurance, for that matter), you're making a bet with the insurance company. If you stay healthy your entire life, you lose the bet, since you pay premiums your entire life to cover medical expenses that never materialize. If, on the other hand, you develop leukemia at the age of thirty and live with cancer for several more decades, the insurance company loses, and must cover your massive health expenses. The trick for insurance companies is to get enough healthy patients on board so that they can subsidize the sick patients, whoever they turn out to be. In the late 1990s and early 2000s, however, insurance companies have been losing more bets than they've been winning, and to cover the high cost of seriously ill people, insurers have raised premiums. Insurance companies have also gotten more skilled at identifying risky patients in advance, either refusing to cover them, or charging them particularly high premiums. If you're a sixty-year-old smoker living in a dangerous or polluted neighborhood, you'll probably have more trouble obtaining coverage than a healthy, thirty-year old professional living in the suburbs.
Under the Kerry plan, private employers and public insurers that qualify for the federal rebate pool won't have to worry about covering their most expensive employees, and health costs will drop dramatically. In order qualify for the rebate, however, employers have to demonstrate they are sharing savings with their workers. Kerry expects the rebate pool will lead the average family to cut their premium costs by $1000 per year.
Like the Bush plan, the Kerry plan uses the enormous bargaining power of the federal government to force the entire health care industry to use universal electronic records as a precondition for doing business with Medicare. Kerry goes so far as to suggest that electronic records could cut administrative costs in half. One difference between the candidates is that Kerry actually mandates that all health records must be electronic by 2008. Kerry would also use the immense bargaining power of Medicare to pressure health care providers by assigning a "quality bonus" to health care providers that meet certain benchmarks for reducing errors and eliminating racial and ethnic disparities in health outcomes.
As for tort reform, unlike Bush, Kerry does not call for a cap on awards to victims of medical malpractice. Instead, Kerry focuses on trying to eliminate what he calls "truly frivolous" lawsuits by raising the burden of proof required to file a claim and by mandating that every state offer non-binding mediation before any claim moves to trial. Kerry would also heavily penalize lawyers who demonstrate a pattern of bringing frivolous lawsuits.
Finally, Kerry would cut costs by spending federal money on health awareness campaigns aimed at eliminating unhealthy habits like smoking and over-eating, habits that cost America billions of dollars every year.
So does the Kerry plan really reduce costs? Any plan will produce winners and losers, but will the Kerry plan reduce overall expenditures on health care? The answer is almost certainly not. Under the Kerry plan, government spending on health care, and especially on Medicaid, will rise by about $75 billion dollars a year, but that is $75 billion covered by rolling back tax cuts on the wealthiest two percent of Americans. All things being equal, this increases the total share of national income devoted to medical expenses. Under the Kerry plan, coverage will expand, quality will remain similar, and prices will go up-exactly what you would expect from government expansion financed through taxes on the wealthy.
In the end, neither plan enacts the kind of reforms necessary to save American health care from the retirement of the baby-boomers. Neither plan addresses the long-term insolvency of Medicare. Americans, however, do not like thinking about the long-term, and politicians like it even less since it pays low political dividends. Politics is the art of the possible, and this election season, for every American soldier in Iraq, there are 250 Americans without health insurance at home. Indeed, if the uninsured citizens of America formed their own country, it would be more populous than Spain-where everyone has health care.
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