Code Red: Two Economists Examine the U.S. Healthcare System

February 20, 2008

Scoping the Candidates I: McCain on Health System Reform

Filed under: Health Reform — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 3:32 pm

David Dranove:


Now that it looks like John McCain has sewn up the Republican nomination, I thought it would be interesting to look at his health reform platform.  I went to his web site and was pleased to find a long list of talking points about health care, even if there is no detailed proposal (such as those offered by Obama and Clinton.)  (Here is the link)

While all the Democrats are talking about covering the uninsured, McCain begins by discussing cost containment.  As you pointed out in an earlier blog, we may not be able to do the former without the latter.  Unfortunately, McCain is pretty vague about how he will reduce costs.  He calls for “fundamental change”—who could object to that?  But what does he mean?
McCain does provide a long list of ideas, even if there is a lack of originality and substance.  McCain favors competition, but we have had a competitive healthcare market for 20 years.  Will he promote vigorous antitrust enforcement, or will he allow the FTC to continue down the path to benign neglect?  He wants to empower patients, but does he understand that today’s consumer movement is fundamentally flawed?

But there are a lot of positives to mention.  He wants to reform payment systems to encourage prevention and care coordination.  He wants Medicare to stop paying for medical mistakes.  He wants to vastly improve health information technology and do a better job of measuring and reporting outcomes.  Thanks to our good colleague Mark McClellan, the former Medicare czar,  these initiatives are already underway at least to some extent.  If McCain does nothing else but push harder in these directions, he will at least abide by the familiar medical dictum, “First, do no harm.”  That might not be half bad.  Finally, as a good Republican McCain is obliged to mention tort reform.  Only the most creative dreamers (i.e., those who willingly ignore the peer reviewed research) believe that this will have much of an impact on spending.  I am glad that McCain gives this only passing notice.
What about access?  McCain wants to provide $2500 tax credits to all individuals and $5000 to all families to help them buy insurance.  This will cost a lot and he doesn’t say how he will fund it, but economists agree that this simple step will go a long way towards covering the uninsured.  He also wants to encourage states to experiment with health reform models; you know I am a big fan of this idea.  He seems to want to reform the tax code to eliminate the special benefits given to employer-sponsored insurance, though it appears he will do this by extending the same benefits to other sponsors (such as churches or community groups that might also offer insurance.)  This seems wrong on two counts.  First, it extends the massive tax subsidy.  Second, it assumes incorrectly that other organizations can create stable risk pools.

Overall, McCain’s platform seems a lot like the candidate himself.  It is fairly moderate, reasonably thoughtful, and unlikely to either satisfy anyone completely or turn anyone off completely.  I sort of like it.  Now where are the details?

William White:

McCain deserves kudos for forthrightly calling attention to cost containment issues.  He also deserves credit for calling for restructuring of payment systems to place more emphasis on managing care vs. complex treatments.  This said, I’d agree that so far, he is long on ideas and short on specifics.  His web site simply provides bullet points and a link to a speech from last fall.

Most of McCain’s proposals here are pretty mom and apple pie— Few would disagree with more IT or attention to chronic care.  And despite McCain’s rhetoric on making cost containment a top priority, there isn’t much novel— basically he offers a rehash of arguments for consumer directed care and more individual responsibility.  This seems pretty weak tea in the face of the crisis he claims we face.  Greater reliance on consumers to shop could yield some savings, but how much?  As we’ve discussed previously in this blog, better coordinating services and preventive care may make us healthier.  But the impact on total healthcare costs is an open question— it could increase them.

More generally, it’s often hard to figure out just where McCain is coming from.  He tells us “Most importantly, any reform must respect the freedom to your care and insurance just as they are.”  That’s nice. But he then goes on to advocate a shift towards Health Savings Accounts (HSAs) and payment reforms like single billing for episodes of services such as heart care.  Both options are currently available, but the market has not taken us there.  Is he proposing to expand their use through regulation?  This would mean imposing big changes on a lot of people.  Similarly, McCain makes a strong case for moving to a national marketplace for insurance and medical services in place of our current patchwork of state regulation and for standardized tax credits to replace selective subsides for private health insurance.  However, he goes on to propose federal-state partnering to provide risk adjustment for families who face particularly expensive care that would be tied to state’s willingness to allow people on Medicaid and SCHIP purchase private insurance.  It’s hard to square coupling federal credits with state based risk adjustment with creating a national market for insurance and furthering geographic mobility.

Another idea that could use further thought is a proposal to allow veterans the choice of purchasing care from outside the VA system.  It’s a seemingly attractive plan, especially for vets living at distance.  But what would it really mean for their access to care?  VA budgets are already under pressure and there are extensive restrictions on eligibility.  A voucher type system would almost certainly increase financial pressures.  Unless it’s coupled with plans to make corresponding increases in budget, the likely consequence is further reeducations in eligibility.  Finally, I may of missed something, but despite a lot of discussion of the merits of “competition,” a search for the word “antirust” on McCain’s health related web pages found— nothing.


  1. Will,

    The Republicans seem to be long on ideas that sound big but will act small. How many uninsured got that way because insurance markets are local? How on earth will HSAs affect anyone who isn’t mostly healthy unless they are totally restructured with far higher ceilings and greater copays relative to deductibles? And how will more IT help if it is not standardized and we don’t massively ramp up collection of outcomes data.

    All steps in the right direction, but baby steps. This is policy by sound bite.

    Comment by David Dranove — February 26, 2008 @ 11:46 am

  2. David comments that we have had a competitive market in healthcare for 20 years. I don’t think so. The government has opened up the market to unlimited demand, while schools limit the supply of services – a sure recipe for spiraling costs.

    There are no uninsured today. Those who do not pay for health insurance simply go to emergency rooms and the insured population pay the bills as part of their premium.

    The solutions are quite simple:

    1. Decouple health insurance from employers. It makes no sense for an employee of company x and an employee of company Y to have different coverages and premiums mandated by some HR bureaucrat in each company. If the market was opened for individual/family coverage, the volumes would drive prices down – as people learned how to shop for healthcare – like they do for anything else.

    2. Stop playing around with the medical and public policy community that wants to stay with paper. The current system guarantees poor and expensive service delivery – as well as many medical errors.

    3. Don’t expect government to rule your life. You have choices – make them.

    Comment by JR Gordon — March 4, 2008 @ 12:33 pm

  3. I am a Kellogg alum and have spent more than 30 years in the health care field.

    For politicians, health care reform poses a dilemma. On the one hand, they are being asked to deal with the familiar list of problems in our health care system, most notably the uninsured. On the other hand, their constituents whose employers offer health insurance are largely satisfied with what they have. As a friend of mine remarked “I don’t want Congress to reform MY health care.”

    From a politician’s perspective, that leaves only one safe pathway: incremental approaches that are likely to have only minimal results but that are unobjectionable, e.g., increase Medicaid enrollment, offer tax credits, offer HSAs. Structural changes carry the risk of the ultimate national tragedy: the defeat of the politician who voted for them.

    I think a better understanding of this split in public attitudes would be a useful step toward identifying what changes Americans are and are not willing to accept in the delivery and financing of health care. Is there some room to develop a political consensus?

    Comment by David Marcus — March 5, 2008 @ 6:03 pm

  4. David:

    Your comments ring true. Fifteen years ago I was on a panel discussing Bill Clinton’s reform proposals. The panel unanimously agreed that nothing ambitious would ever get through Congress. Will history repeat itself? Or will the Democrats win the White House, build a working majority in both chambers of Congress and do something dramatic because they can?


    Don’t kid yourself. There are over 40 million Americans who are one illness away from financial catastrophe. The number of medical bankruptcies is open to debate. I know because I got slammed for pointing to a relatively “low” figure, but even that low figure represented far too many personal tragedies. And the uninsured have less access and get care later, driving up costs.

    And if the uninsured do get free care, they are really just imposing a tax on everyone else. I like to say “An uninsured individual is a free-rider in the making.” One positive thing to say about Clinton and Obama’s plans is that they will result in more individuals contributing at least something towards their medical bills.

    Finally, efforts to decouple insurance from employment are doomed to fail without massive government oversight, due to the potential abuses of cream skimming and adverse selection. The theoretical and empirical evidence for this is overwhelming. So we could have individual coverage, but we can’t have individual coverage and free market insurance.

    Pick your poison.

    Comment by David Dranove — March 7, 2008 @ 9:43 am

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