3 ways to we can fix health care

The topic of health insurance is, and will remain, a prominent issue in the 2008 presidential campaign. Many Americans believe we cannot ignore the lack of health insurance for millions of us and support the idea that everyone should have it.

Thus far, attention has been focused on the plans presented by presidential candidates. John Edwards, Barack Obama, and Hillary Clinton all have issued plans for universal health insurance, and Republican candidate Mitt Romney also has offered a health insurance plan, but it probably would not lead to universal coverage. (Other Republicans have said little about health care.)

But another set of proposals also deserves the public’s attention. At a recent Brookings Institution conference, each of three papers sets forth a different option for universal coverage, and two of the three proposals differ greatly from those offered by the Democratic candidates. All three are detailed and thoughtful.

One proposal would expand the new Massachusetts plan to the national level (the “national-level Massachusetts plan”). A second proposal would entitle all Americans to a standard package of benefits, accessed through free vouchers (the “voucher plan”). The third would expand Medicare to cover everyone, not just the elderly (the “expanded Medicare plan”).

The expanded, national-level Massachusetts plan was proposed by Jonathan Gruber, an MIT economist. Earlier this year, Massachusetts established a new marketplace for insurance plans, allowing individuals and small businesses to choose among plans offered by six pre-approved insurance carriers. Premiums are comparatively low and all residents who can afford health insurance must buy it.

The Massachusetts plan supplements, rather than replaces, existing insurance arrangements. It achieves near-universal coverage by filling in the gaps in the current system, so people who are happy with their present doctors and insurance plans can simply retain them. The three Democrats’ health care plans, and especially Edwards’ plan, adopt important features of the Massachusetts plan.

The voucher plan, developed by Ezekiel Emanuel of the National Institutes of Health and Victor Fuchs, a Stanford economist, would entitle every American to a standard package of medical benefits. Each household would receive a free voucher, entitling it to this benefit package through a qualified health plan or insurance company. The standard package would be modeled on the benefits that federal employees, including members of Congress, receive today.

The expanded Medicare plan, developed by Gerard Anderson and Hugh Waters of the Johns Hopkins School of Public Health, is similar to some “single-payer” plans. It would operate under Medicare and provide everyone with the benefits currently offered by Medicare. Everyone would be charged the same amount. Individuals would be mandated to buy health insurance and employers would be mandated to offer it.

In all three plans, the practice of medicine would remain private, and people – not governments – would choose their medical providers. And in all three, low-income people would have free or subsidized insurance.

Despite these similarities, the plans differ fundamentally. The national-level Massachusetts plan leaves most of the current health care system intact, while the other two would change it fundamentally. The voucher system – unlike the other two – limits the government role as a provider of insurance. Under the Medicare plan, most insurance would be provided by Medicare itself, though insurance companies would be allowed a limited role; in contrast, under the other two plans insurance companies and health plans would compete across the board.

The financing of health care costs also differs greatly under the three plans. The national-level Massachusetts plan would be financed through a variety of existing and new government and private sources. The voucher plan would require a national value-added tax of between 10 and 15 percent, but this new tax would be partly offset by reductions in other taxes. The expanded Medicare plan calls for premium payments from employers, individuals, the Medicare payroll tax, and general government revenues.

All three plans would require substantial increases in health care spending and, therefore, additional sacrifices by taxpayers. By contrast, the Democratic candidates’ plans fail to say that new tax burdens almost certainly would have to be borne by middle-income Americans. Universal coverage will not come cheaply.

Each of the three Brookings plans has its own strengths. Because a national-level Massachusetts Plan would require the fewest fundamental changes to our current system, it might meet the least opposition from the public and interested parties in our health care system. Because the voucher system would encourage vigorous competition among insurance companies and health plans, over the long run it might provide the greatest incentives for important technical innovations and cost reductions. The expanded Medicare system would have the lowest initial administrative costs: As the dominant provider of insurance, the Medicare system could avoid marketing costs.

The Brookings papers offer thoughtful proposals, developed from competing perspectives, for achieving universal coverage. These proposals, as well as those offered by the Democratic candidates, deserve careful consideration. We are fortunate to have these plans now, because for the first time there is a realistic prospect for insurance coverage for the millions of Americans who lack it.

Edwin Dean, an economist and seasonal resident of Vinalhaven, writes monthly about economic issues. The three papers are available at www.brookings.edu/comm/events/20070717.htm.