Health proposals could spur big change

Analysts say plans from McCain and Obama might speed the demise of employer-sponsored insurance

McClatchy NewspapersOctober 26, 2008 

  • OBAMA WOULD:

    * Require large and midsize companies to provide health-care coverage or pay a fee into a special fund that would help create a public health plan patterned after what federal employees enjoy. Workers could continue to get their coverage through their employers or choose the new federal plan.

    * Subsidize the purchase of health insurance by the uninsured, buying coverage through the new federal health plan or the private sector.

    * Require parents or caretakers to purchase health insurance for all children, stopping short of a mandate for universal coverage but seeking universal access to health care.

    McCAIN WOULD:

    * Treat employer-sponsored health insurance as income and tax it to level the playing field for people who must purchase their own coverage.

    * Offset this new taxation by giving working-age citizens a refundable tax credit of $2,500 for individuals and $5,000 for families, encouraging the uninsured to buy insurance.

    * Allow insurance companies to sell policies across state lines to promote competition.

    * Create insurance pools for high-risk workers who have pre-existing health problems such as asthma, diabetes and cancer.

    * Provide subsidies for workers who are forced, because of health problems, to seek coverage in the high-risk insurance pool.

  • Q: How many Americans get their health insurance through an employer?

    A: Since World War II, employer-sponsored health insurance has been the norm. In a September report, the Employee Benefit Research Institute said 62.2 percent of nonelderly Americans had employment-based insurance in 2007, or about 162 million people under 65.

    Q: Is this number rising or falling?

    A: The percentage has fallen from a high of 68.4 percent in 2000, but last year's numbers are about where they were in 1994. In other words, the percentage of people with employer-based coverage is mostly unchanged over the past 14 years.

    Q: How about those without insurance?

    A: The latest estimate of the uninsured U.S. population by health-care experts is about 45.7 million. That's up sharply from 39.6 million in 2000, according to the Kaiser Family Foundation. The number is down from 47 million in 2006. This is thought to be because of increased enrollment in government programs.

    Q: There are about 300 million Americans -- what about the rest of them?

    A: Most Americans over 65, about 41 million of them, get their health insurance through Medicare. Another 40 million or so Americans, mostly poor or ill, get coverage through the state-based Medicaid system. Roughly 12 million fall into overlapping coverage of one sort or another and fall off the official count.

    McClatchy NEWSPAPERS

— Whether the next president is Barack Obama or John McCain, this much is assured: Each man is offering a health-care overhaul that, if successfully implemented, might hasten the end of Americans getting health insurance through their employers.

Neither candidate overtly proposes to end employer-provided health care. Yet each candidate is promising a significant move away from it.

"I think both plans propose a radical change," said Paul Fronstin, director of health care research for the Employee Benefit Research Institute, a nonpartisan group.

McCain seeks to use the tax code to promote fairness and greater access, while Obama seeks to cover the growing number of uninsured Americans with a government-run program that would compete with the private sector. Both proposals aim to address the problem of uninsured Americans -- 45.7 million last year -- a number that has increased sharply from 38.4 million in 2000.

Each candidate has been loose with facts and numbers in attacking the costs of the other's plan, but health-care experts view McCain's plan as the more dramatic of the two, because it would tinker more with employer-provided insurance.

History is important to understanding why.

For more than 60 years, most working Americans have gotten health insurance through their employers. The practice dates to World War II, when federally imposed wage caps led employers to compete for workers through benefits such as health care. The system is unique to the U.S. among developed countries. Last year, employers provided health coverage to more than 162 million Americans.

In the 1950s, the Internal Revenue Service encouraged employer-based insurance by allowing companies a tax deduction for providing it. Since then, employees' contribution to their health care has been an invisible tax break, because those contributions come out of their paychecks before their income is taxed. More than 62 percent of working-age Americans receive health insurance this way.

Yet there is no tax break for at least 17 million Americans, many self-employed, who purchase their own health insurance.

Taxing benefits

To level the playing field and get more Americans insured, McCain proposes to tax health-care benefits. He would offset this tax by providing all working-age Americans a refundable tax credit of $2,500 for individuals and $5,000 for families. Employers could opt out of providing employees coverage, or they could continue to do so and still receive a tax deduction.

"Tying the tax break for health insurance to the workplace worked for three, four even five decades. It is not working today in this incredibly mobile work force, where four in 10 change jobs each year," said Grace-Marie Turner, who runs the Galen Institute, a research group that promotes the kind of consumer-driven health care now championed by McCain.

Health insurance experts think that McCain's plan could lead young, single and healthy workers to opt out of employer-provided insurance because they could save money by purchasing high-deductible plans that cost less in an open market.

This, in turn, would increase the pool of older, less healthy workers in employer-provided health plans -- thus raising the costs of insuring them for their companies, which under McCain's plan could opt out of providing insurance. The plan therefore threatens to hasten the demise of employer-based insurance.

Fronstin said that, while employers won't abandon it overnight, they will over time. "If they no longer think it is competitive in the labor market to offer health benefits, they'll do something else."

In an interview this month, the U.S. Chamber of Commerce's head of government affairs was cool to the McCain plan.

"We believe the employer-based system is the foundation of health insurance coverage in this country," Bruce Josten said.

A national exchange

Obama's plan is no less radical.

He proposes keeping the current system of employer-based insurance, but large companies that don't provide enough insurance or any at all would have to pay into a special fund. This fund would help pay for a national insurance exchange, through which workers could purchase insurance from the private sector or from a new federal health-care program like the one that federal workers have now.

On the campaign trail, Obama frequently emphasizes that his plan is not a national health plan, because those who are happy with their existing employer-sponsored plans don't have to switch. But he would offer the option of enrolling in his new government-provided plan to anyone.

"That is going to erode employer-based health insurance," said Turner of the Galen Institute. "It's so stacked against the private insurance companies that I think you are going to find fewer offerings of private insurance because they can't compete."

That's more likely to happen with small businesses, which are struggling to provide ever more costly health coverage, said Mark Pauly, a health-care expert at the University of Pennsylvania's Wharton business school.

"What we have now really isn't working" for them, Pauly said. "Either one would offer the potential for a lot more choice to people who work for smaller firms and frequently have no choices."

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