Health Care Destruction
Sarah Palin ended her debate performance last Thursday with a slightly garbled quote from Ronald Reagan about how, if we aren’t vigilant, we’ll end up “telling our children and our children’s children” about the days when America was free. It was a revealing choice.
You see, when Reagan said this he wasn’t warning about Soviet aggression. He was warning against legislation that would guarantee health care for older Americans — the program now known as Medicare.
Conservative Republicans still hate Medicare, and would kill it if they could — in fact, they tried to gut it during the Clinton years (that’s what the 1995 shutdown of the government was all about). But so far they haven’t been able to pull that off.
So John McCain wants to destroy the health insurance of non-elderly Americans instead.
Most Americans under 65 currently get health insurance through their employers. That’s largely because the tax code favors such insurance: your employer’s contribution to insurance premiums isn’t considered taxable income, as long as the employer’s health plan follows certain rules. In particular, the same plan has to be available to all employees, regardless of the size of their paycheck or the state of their health.
This system does a fairly effective job of protecting those it reaches, but it leaves many Americans out in the cold. Workers whose employers don’t offer coverage are forced to seek individual health insurance, often in vain. For one thing, insurance companies offering “non-group” coverage generally refuse to cover anyone with a preexisting medical condition. And individual insurance is very expensive, because insurers spend large sums weeding out “high-risk” applicants — that is, anyone who seems likely to actually need the insurance.
So what should be done? Barack Obama offers incremental reform: regulation of insurers to prevent discrimination against the less healthy, subsidies to help lower-income families buy insurance, and public insurance plans that compete with the private sector. His plan falls short of universal coverage, but it would sharply reduce the number of uninsured.
Mr. McCain, on the other hand, wants to blow up the current system, by eliminating the tax break for employer-provided insurance. And he doesn’t offer a workable alternative.
Without the tax break, many employers would drop their current health plans. Several recent nonpartisan studies estimate that under the McCain plan around 20 million Americans currently covered by their employers would lose their health insurance.
As compensation, the McCain plan would give people a tax credit — $2,500 for an individual, $5,000 for a family — that could be used to buy health insurance in the individual market. At the same time, Mr. McCain would deregulate insurance, leaving insurance companies free to deny coverage to those with health problems — and his proposal for a “high-risk pool” for hard cases would provide little help.
So what would happen?
The good news, such as it is, is that more people would buy individual insurance. Indeed, the total number of uninsured Americans might decline marginally under the McCain plan — although many more Americans would be without insurance than under the Obama plan.
But the people gaining insurance would be those who need it least: relatively healthy Americans with high incomes. Why? Because insurance companies want to cover only healthy people, and even among the healthy only those able to pay a lot in addition to their tax credit would be able to afford coverage (remember, it’s a $5,000 credit, but the average family policy actually costs more than $12,000).
(Please note that Sen. McCain would tax this individual benefit at it's market rate. Ergo, if your family received health insurance, even if it was only catastrophic insurance, you would have to list that benefit as taxable income on your 1040. Example: $40,000 net income + $12,000 annual health care coverage benefit=$52,000 taxable income; 'flip to the table at the back of this booklet for taxes owed this year'... That is to say, for the first time in American history you would have to pay taxes on your health insurance benefit over and above your income. The left hand giveth while the right hand taketh away.--java)
Meanwhile, the people losing insurance would be those who need it most: lower-income workers who wouldn’t be able to afford individual insurance even with the tax credit, and Americans with health problems whom insurance companies won’t cover.
And in the process of comforting the comfortable while afflicting the afflicted, the McCain plan would also lead to a huge, expensive increase in bureaucracy: insurers selling individual health plans spend 29 percent of the premiums they receive on administration, largely because they employ so many people to screen applicants. This compares with costs of 12 percent for group plans and just 3 percent for Medicare.
In short, the McCain plan makes no sense at all, unless you have faith that the magic of the marketplace can solve all problems. And Mr. McCain does: a much-quoted article published under his name declares that “Opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products less burdened by the worst excesses of state-based regulation.”
I agree: the McCain plan would do for health care what deregulation has done for banking. And I’m terrified.
The international finance multiplier
Back in the day, economists used to talk about the foreign trade multiplier — international business cycle linkages via flows of goods and services. The basic idea was that since one country’s imports are other countries’ exports, a recession in one country would be transmitted to the rest of the world as slumping demand here led to an export plunge abroad.
That’s not what’s happening now, or at least not yet. We’re experiencing a global crisis, but a different kind of linkage is at work — call it the international finance multiplier. It operates through the balance sheets of highly leveraged financial institutions, which do a lot of cross-border investment. When these institutions lose heavily in one market — say, US mortgage-backed securities — they find themselves undercapitalized, and have to sell off assets across the board. This drives down prices, putting pressure on the balance sheets of other HLIs, and so on.
And so a crisis originating in Florida condos and San Diego McMansions is causing havoc for Greek banks. Financial globalization, it turns out, means globalized financial crises.
I’m writing up a little model of how this works, coming soon.
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