Commentary

Questions and Answers About Obama’s Health Plan

Barack Obama has made his support for comprehensive health care reform a centerpiece of his campaign. However, the details of his proposal are getting lost amidst the swirl of campaign rhetoric. And the devil is in the details. Here are some hard questions to ask about the Obama plan.

Q: Will Sen. Obama’s plan cover everyone?

A: No. Although Sen. Obama’s plan will almost certainly extend coverage to more people than would Senator McCain’s, it still fall short of “universal coverage.” The Obama campaign estimates that at least 2 million Americans will not be covered; Clinton campaign advisor Jonathan Gruber from MIT believes the number is closer to 15 million. Other estimates suggest even higher numbers.

Q: Will I be able to keep the insurance coverage I have now?

A: Not necessarily. On the stump and in commercials, Senator Obama says that his plan is based on allowing you to “keep your current coverage.” But what he is not telling you is that he wants to impose a “standard benefits package” that every plan would have to offer. Those additional benefits will reflect the power of various special interest provider groups and disease constituencies, not consumer preferences. So, if you have an insurance policy that you are happy with today, but it does not match the type of plan that Sen. Obama thinks you should have, then you will have to switch plans, even if the new plan costs more.

Q: Will I pay more or less for health insurance?

A: It depends. If you are a lower-income worker, Sen. Obama’s plan would provide you with substantial subsidies to help you pay for insurance. Sen. Obama also supports “community rating” that requires insurance to charge the same premium to everyone regardless of a person’s health. So, if you are older or in poor health, your premiums will likely come down. Community rating will increase premiums for the young and healthy in order to cross-subsidize those who are older and sicker. Sen. Obama has also promised that his plan would reduce premiums by increasing the use of electronic medical records, cutting administrative costs, and emphasizing preventive care, but most experts believe those projected savings are highly speculative and unlikely to be seen for many years - if ever.

Q: Will his plan raise taxes?

A: Almost certainly. Estimates of how much the Obama plan would cost range from $65 billion per year (the campaign’s estimate) to $600 billion per year (by Health Systems Innovations (which has consulted for the McCain campaign). More neutral sources put the cost between $110 billion and $160 billion per year. Any way you look at it, the Obama plan will cost a lot. Sen. Obama has not spelled out specifically how he would pay for these costs, but more generally has suggested that the extra money would come from allowing the Bush tax cuts to expire and ending the Iraq war. But, given his other spending promises, estimated to run between $300 billion and $1 trillion per year, some additional revenue will almost certainly be necessary. Moreover, Obama would require that nearly all businesses, including many small businesses, provide health insurance to their employees. This mandate will increase the cost of employing a worker by nearly $12,000 per employee. This is effectively a tax increase on businesses, and will ultimately be passed on to their workers.

Q: Is this government-run health care?

A: Not in the sense of a single-payer program like in Canada. But the government would certainly have much more control over the health care marketplace. Private insurance companies would still exist, but they would operate much like public utilities with the government involved in deciding what benefits they offer, what they can charge, and how they operate. Beyond that, Sen. Obama would establish a separate government-run health insurance plan that would operate in competition with private insurance plans. In theory, people would be able to choose between the government plan and private insurance. In reality, however, such a government-run plan would have an inherent advantage in the marketplace because it would ultimately be subsidized by American taxpayers. The government plan could, for instance, keep its premiums artificially low or offer extra benefits since it can turn to the U.S. Treasury to cover any shortfalls. The lower-cost, higher benefit government program would attract consumers, undercutting the private market, resulting in an inexorable slide toward government-run health care.

Michael Tanner is a senior fellow at the Cato Institute and author of Healthy Competition: What’s Holding Back Health Care and How to Free It.