Worlds Apart on Healthcare

On few issues do Barack Obama and John McCain diverge as dramatically as they do on healthcare. Both say they want to reduce costs and expand coverage to the 47 million uninsured. But while Obama wants to build on the existing employer-based system with new coverage plans for families and businesses, McCain aims to move the country away from work-based insurance and toward a system in which all Americans cut their own deals with private insurers.

If the national campaign ever gets past lipstick and the collapse of investment banks, these differences on healthcare may get the attention they deserve.

Obama's plan is like the new Massachusetts universal coverage law with one exception: There is no mandate on individuals to get insurance or pay a penalty. Just as this state did, he would expand government subsidies and programs for the uninsured. His proposed National Health Insurance Exchange looks like Commonwealth Choice, this state's lineup of heavily regulated private insurance plans for people without work-based insurance. In Massachusetts, 94.6 percent of residents now have insurance. Without the mandate, Obama's plan would never come as close to universal coverage, but it would expand coverage.

McCain, on the other hand, would use the tax code to shift insurance from the workplace to the marketplace. Under his plan, employees would start having to pay income tax on the value of the healthcare premiums they receive from their employers, making it a less attractive benefit. At the same time, McCain offers a tax credit of $2,500 for individuals and $5,000 for families toward the cost of coverage at work or in the private, nongroup market.

The upshot, analysts say, is that many young, healthy workers would reject their employers' taxable insurance benefit and either go without or find a high-deductible, low-premium policy on the private market. This would leave employers with an insured base of older, less healthy workers, which would drive up the cost of their insurance. The likely result is that many companies would drop coverage altogether.

Currently, about 60 percent of all Americans, 180 million people, get health insurance through their own job or that of a family member. A major drawback is that the insurance is not portable when an employee quits, gets laid off, or moves to a new position. But the group rates that employer-based insurance affords have kept its cost manageable. This has been the bulwark of health insurance since World War II.

After a Republican primary campaign in which candidates and debate moderators rarely mentioned healthcare, healthcare specialists are beginning to take notice of the radical base of McCain's plan. David Snow, the CEO of Medco, the largest US manager of drug benefits, told the National Press Club this month that McCain's plan "will create chaos." Robert Laszewski, a Washington-based consultant on benefits, has said that under the McCain plan most companies would stop paying for healthcare in three to four years.

McCain would not lament this. In his vision, the best way to cut costs in the system is to have many private insurers competing for the premiums of individuals by driving hard bargains with hospitals, doctors, and other providers. Critics of the McCain plan, including four health economics experts who discuss it in the current issue of Health Affairs, point out that nongroup coverage carries such high administrative costs that consumers are likely to find themselves paying higher premiums for thinner protection.