Knowledge@Wharton Health Economics Research Article

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As medical costs escalate and the number of Americans without health insurance continues to rise, the 2008 presidential candidates have responded by placing health care near the top of their agendas. Indeed, many candidates have already laid out fairly detailed programs to address the nation's health care problems, although their plans to pay for new coverage are less clear-cut, according to Wharton faculty.

Leading candidates are talking about the issue much earlier in the campaign and with greater specificity than in past years -- an indication that health care is more important to voters than ever before. As a result, meaningful change in the system seems likely to occur once a new president takes office, says Mark V. Pauly, Wharton professor of health care systems. "I'm optimistic this time that we'll get something. It won't be Armageddon for the health care system, but there is actually a chance of doing more good than harm, and I wouldn't have said that in some other years."

The plans tend to fall along partisan lines, with leading Democrats endorsing mandated health care insurance for all Americans in order to guarantee that the nation's 47 million uninsured receive coverage. Republicans also want to improve access to the medical system, but they place more emphasis on market-based solutions rather than government mandates. "Both sides are talking about universal coverage and both sides are taking on the issue of the uninsured. That's a step forward," says David Asch, executive director of the Leonard Davis Institute of Health Economics at Wharton.

To pay for the added coverage, Democrats often suggest rolling back President Bush's tax cuts and ending the war in Iraq. Republicans tend to point to competition, deregulation and new efficiencies as ways to reduce costs.

According to Scott Harrington, Wharton professor of health care systems, the notion of mandating coverage is a new ripple in the health care debate. "It's a significant change. Historically we have had government funding through Medicare for seniors and the state-federal Medicaid system for the poor, but we have allowed people not to be covered. A mandate would be a fundamental change to the system."

Heading Off Harry and Louise

When it comes to individual candidates' plans, there is a wide range in specificity but some of the basic elements of the plans are similar, faculty say. Among the Democrats, Hillary Clinton, who spearheaded a failed attempt at major health care reform while she was First Lady, has outlined a $110 billion plan that mandates coverage and would provide subsidies for those who can't pay. "Hillary's plan this time around is scaled back substantially from the Clintons' 1993-94 proposal," says Wharton professor of health care systems Arnold Rosoff. "Their earlier Health Security Act plan was much more complex and ambitious, and they couldn't make it happen. I think [as a result] she has wised up."

Asch describes the current Clinton plan as more of a hybrid between free-market programs and her earlier proposal. That proposal was attacked famously in ads sponsored by the health insurance industry and featuring two characters, Harry and Louise, who raised concerns about government intrusion into the health care system. Clinton now emphasizes the notion of choice and would permit Americans to keep existing coverage or join the Federal Employee Health Benefit Program, which she says would provide greater coverage with no added bureaucracy.

John Edwards' plan, which is estimated to cost as much as $120 billion, also mandates coverage and requires employers to continue to assume responsibility for employee health benefits. His plan also calls for the U.S. government to help states and groups of states create regional Health Care Markets, which would act as non-profit purchasing pools offering a choice of competing insurance plans.

Barack Obama, too, calls for universal coverage and a mandate that all children be covered, but he stops short of extending the mandate to adults. His $65 billion plan also calls for the creation of a National Health Insurance Exchange, which would be a regulated marketplace of competing private health plans that would provide individuals with more affordable options for coverage within the private sector.

Only Dennis Kucinich endorses a full-scale single-payer system of government-managed health care similar to that in Canada. He has proposed extending Medicare coverage to all Americans.

The silence on a single-payer system shows that the candidates are reluctant to propose drastic change, according to Kristin Madison, a University of Pennsylvania Law professor and a senior fellow at Wharton's Leonard Davis Institute. "Five years ago or 10 years ago when people talked about health care reform, they were asking if it should include a single-payer system," she says. "You don't see that in today's proposals. These proposals are much more incremental."

On the Republican side, leading contenders -- including Rudy Giuliani, Tommy Thompson, John McCain and Mitt Romney -- have focused more on a continuation of the current private, market-based system without mandates. Harrington says Giuliani's plan emphasizes tax incentives and improving affordability to reduce the number of uninsured. "But the proposal thus far is not too sharp in terms of specifics. Giuliani is taking the gradualist approach and trying to work around the edges to improve things without starting to create a significantly greater role for government."

Romney's plan would shift charity care funds to subsidies for private insurance, emphasize high-deductible plans and make Medicaid a block grant allowing states more flexibility in developing health care programs. He does not, however, endorse a plan that includes mandated coverage as was enacted in his home state, Massachusetts, when he was governor.

David Grande, a senior fellow at the Leonard Davis Institute, says the Republican proposals lack force. "They reflect an ideological preference for a market-oriented solution but most serious health policy analysts would look at a plan like that and say it would have marginal impact on coverage rates. Any plan that relies on subsidies to purchase private insurance costs a lot of money. You have to give a lot of money to convince people to purchase insurance and that's where the lack of mandates becomes a real problem."

McCain has unveiled a plan that attacks the nation's health care problems from the standpoint of cost control rather than focusing on bringing the uninsured into the fold. The proposal also seeks better management of chronic conditions, such as diabetes or heart disease, which McCain says account for 75% of all health care costs. In addition, he calls for hospital and doctor compensation to be linked to performance, starting with the Medicaid and Medicare programs.

An important element of the McCain plan, according to Rosoff, is the elimination of the employer write-off for health care. Instead, McCain proposes a tax credit of $2,500 for individuals and $5,000 for families that would go toward the purchase of health insurance. "A move away from employer-based health insurance would seem to be a good thing," says Rosoff, "but it's not clear that this is the best way to go about it."

Pauly suggests that many of the plans from both parties could lead to important changes in regulation of health insurance that are not so obvious in a swift appraisal of the proposals. "The thing to worry about is what's below the surface." The Democratic candidates' plans would likely entail new regulation of health care coverage, such as what services insurers could offer and what insurance could qualify for subsidies. "The real issue is the specter of more intense government regulation."

'We Don't Let People Bleed in the Streets'

While most plans make at least some attempt to address the problem of rising health care costs, the issue is enormous and will color the future of health care reform even if the candidates attempt to play it down, according to Wharton faculty.

"Universal health insurance is a great thing, but it is also very costly," says Wharton health care systems professor Guy David. "It's not very easy politically to talk about cost. It's fun to talk about the uninsured and access and making health care fair, but these are just slogans. At the end of the day we, the American people, pay for health care. No matter how we finance health care -- through taxes, subsidies, employers or subsidizing hospitals -- we're paying for it and we're going to keep paying for it."

David says that when health care is made more available, it inevitably becomes less affordable. He pointed to another sticking point for the candidates and their health care platforms: Most voters are not among the uninsured. "What people really care about is what health care costs. Premiums have gone up fast in the past couple of years and insurance is less affordable for those who have it. If we take 47 million people and give them an insurance card to walk into a hospital, the system will be more congested and more costly."

He also points out that the current system provides care for the uninsured through tax breaks for non-profit hospitals that, in return, must agree to treat the indigent. "We don't let people bleed in the streets. One way we do that is subsidies to nonprofit hospitals. It may be a very inefficient way to finance health care, but it exists. If we have universal health care, why do we need non-profits or why should they get exemptions?"

In an article titled, "An Uncertain Prescription: Are Tax Exemptions for Nonprofit Hospitals an Efficient Way to Fund Indigent Care?" David and co-author Lorens A. Helmchen, a professor of health policy at the University of Illinois at Chicago, write: "Poor people might be better off if they could decide for themselves how tax revenue earmarked for their medical care was spent. Under the current system, this decision is the responsibility of the hospital administrators who, in effect, offer the poor a take-it-or-leave-it menu of services."

Mandates would attempt to address the "free rider" problem in which people who tend to be young and healthy choose not to pay for coverage even if they have the money. Instead, they take their chances and depend on some form of charity care if they have a medical emergency. If those people were paying into the system, says Harrington, the added premiums would help underwrite the expenses of those who are sick.

He adds that any new plans to extend coverage to the uninsured must be viewed in the larger context of the nation's two other public programs, Medicaid and Medicare, which are expected to face "catastrophic" funding shortfalls as the Baby Boomers age. "To think about adding another program that conceivably leads to far higher costs and far greater subsidies begs the question: Where is the money going to come from?"

Is Technology the Answer?

Many of the candidates' plans turn to the promise of information technology as a way to reduce costs and improve quality. Even though the industry does lag others in developing electronic data systems, it is unclear how much savings new technology will be able to deliver, according to faculty. Microsoft recently introduced a new online service called HealthVault in which consumers can store their own medical information, such as blood test results and vaccinations. The company insists the free, ad-based service will maintain users' privacy.

Rosoff notes that in 1996, Congress passed the Health Insurance Portability and Accountability Act (HIPAA),which created new standards for electronic medical data and was designed primarily to improve the efficiency of claims-handling. Along with these cost-saving provisions came elaborate privacy protections that have taken a decade to put into operation. "The perception of many in the health care industry is that HIPAA was a big cost increaser, not a cost saver." He also suggests that many of the "administrative simplification" provisions of the law have now been implemented; therefore it may not be so easy to wring additional cost savings out of new information technology.

Grande agrees that the cost savings resulting from electronic data systems are unknown, but that information systems could lead to improved health care quality. Insurers can already use data to look for ways to improve quality. Meanwhile, physicians' offices could also take advantage of more sophisticated technology to monitor patients in order to manage illnesses more effectively. For example, Grande says, it would be helpful for a practice to know if its diabetes patients had been referred to an eye specialist in any given year.

According to Rosoff, although the health care landscape remains complex, the momentum for reform has accelerated since the days of Harry and Louise. "What I think has changed from 1993-94 is that, although employers were struggling with health care, I don't think they had thrown in the towel." Now, he says, employers have been so beaten down by rising premiums and employees who are unhappy with paying more of their own expenses that they are ready to walk away from offering health care benefits. "The employers' willingness to stand their ground in the past reinforced various other stakeholders in the health care system who didn't want to see change come. The employers were a powerful block, but [these days] that block is shaky."

Now that the plans are taking shape, Asch predicts that the candidates' next step will be to market their health care solutions as the campaigns move into full throttle. He says he has been watching the way words are used to generate powerful messages attached to health care. Clinton, for example stresses "choice" and McCain has latched onto the word "freedom." In the past, he says, opponents of reform have invariably used the term "socialized" medicine to drum up voter concern about change. "It's so funny that the word has been connected to medicine in a negative way. What's wrong with socialized medicine? Nobody says, 'I drive my kids to our socialized school on our socialized roads.'"

Needed Above All: Leadership Ability

Grande argues that since the candidates' plans within each party are quite similar, voters who are deeply concerned about health care should not cast their votes on the nature of a candidate's plans, but for the candidate they think has the most leadership ability to get his or her program passed. "There have been many failed attempts before. What we need more than anything for health care reform is leadership that comes from a new president."

He says Clinton appears to be consolidating support and is emphasizing her understanding and experience with health care. "On the other hand," he continues, "one could easily argue that what the country really needs to achieve health care reform is fresh, new inspiring leadership. Obama brings that to the table."

Harrington imagines a scenario in which miscalculations in the cost to mandate universal coverage may ultimately trigger deeper reform than any candidate is endorsing at this point. "The devil will, in fact, be in the details and it is quite possible a mandate will make matters worse. In conjunction with the Medicare and Medicaid funding problem, mandates could create inexorable pressure for something really radical -- for a single-payer system or more formal or informal rationing of health care through budgeting, as is done in many countries."

For the immediate future, however, the prospects for health care reform seem to be moving along a more gradual continuum. "I think it's highly likely that the changes in our health care system will be incremental," says Rosoff. "There will be a series of steps, some significant perhaps, some just tinkering. But I doubt we will see sweeping reform. I just don't think we have the political will in this country for that, at least not for now."

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