Kerry-Edwards Health Plan to Surpass Costs of Clinton Care

Published September 1, 2004

The Kerry-Edwards health care reform plan, details of which have emerged during the presidential campaign, is similar in scope to former President Bill Clinton’s failed Health Security Act. Unlike the total and immediate overhaul proposed by the Clinton administration, however, the Kerry-Edwards plan would take incremental steps toward nationalized health care. The Kerry-Edwards plan relies heavily on federal programs and regulations and passes along significant unfunded Medicaid mandates to the states.

Medicaid for the Privately Insured

According to Michael F. Cannon, director of health policy studies at the Cato Institute, Kerry’s health care plan would expand government health programs and “spend hundreds of billions of dollars to provide health coverage to millions who already have it; increase the cost of private health insurance; and cause many to lose their current coverage [while] involuntarily leaving them with worse coverage or none at all.”

Cannon cited a July 2004 study by Rand Health, a nonpartisan think tank, stating that up to half of those who would enroll in Medicaid under Kerry’s proposed eligibility expansions already have private insurance but would surely drop it or be dropped by their employers when they became eligible for Medicaid.

In addition, Emory University economist Kenneth Thorpe, who served as health care economist under Clinton, has estimated the Kerry-Edwards plan would cost taxpayers $300 billion over 10 years just to provide Medicaid coverage to as many as 18 million people who already have private coverage today.

Eliminating 18 million insured citizens from private health insurance rating pools would make insurance coverage for those remaining in the pools more expensive, causing even more workers to lose the coverage they now have.

Those who end up on Medicaid may find it a poor substitute, according to a report by the Kaiser Family Foundation, which found women on Medicaid have twice as much difficulty in finding a doctor who will see them as do women with private health insurance.

Cost Increase Likely

Thorpe’s early and widely cited cost estimate for the Kerry-Edwards plan–$653 billion over 10 years–includes assumptions that some health policy experts, such as Merrill Matthews, director of the Council for Affordable Health Insurance (CAHI), and Robert Moffit, director of The Heritage Foundation’s Center for Health Policy Studies, have found questionable.

Thorpe’s projections, the skeptics note, cover nine years, not 10. They also erase much of the real cost by assuming the Kerry-Edwards health plan would increase efficiency to the point that taxpayers would get back 30 cents of every dollar spent. (See “Kerry’s $895 Billion Waffle,”Health Care News, May 2004.)

Setting aside Thorpe’s savings projections and adding the 10th year, the actual costs for the Kerry-Edwards plan come in at approximately $1.1 trillion over 10 years.

Kerry and Edwards also propose a “health-alliance” system through which all employers and individuals could purchase taxpayer-subsidized coverage. During the early 1990s, then-First Lady Hillary Clinton called them Health Insurance Purchasing Cooperatives.

Under the Kerry-Edwards proposal, insurers would be required to offer the same plans to federal workers and private citizens in the health alliance. Any plan that became unprofitable would be dropped from health alliance offerings.

The Rand Health report noted that when states have tried similar reforms, the cooperatives or alliances did not have their intended effects. “They did not increase the percentage of small businesses that offered health insurance, nor did they reduce small-group market health insurance premiums,” the report found.

Following the Strings

According to Cannon, the rich subsidies offered in the Kerry-Edwards plan would tend to encourage all health insurance companies and the currently insured to enter a health alliance. For persons insured by health plans in the alliance, Kerry and Edwards propose the federal government would pay three-fourths of all claims greater than $50,000. The Congressional Budget Office has estimated the price tag for that provision alone at $290 billion over 10 years.

Business groups are not cheering about the proposed new entitlement. According to a July 26 article in the Wall Street Journal (“Businesses Are Wary of Kerry Health Plan”), businesses are cool to the idea that they will have to give up some of the Bush tax cuts to pay for it. In addition, the article reported, they are wary of giving the federal bureaucracy more oversight of their health benefits.

Joe Antos, a health policy economist for the American Enterprise Institute, said Kerry’s plan “spends a lot of money” and involves the federal bureaucracy in such a way that could lead to a tangle of new restrictions. “If the government says it will pay for all health care costs above $50,000, it’s going to want to know how you got there. That means there will be a lot of people– auditors, examiners, and the like–looking over a company’s [medical] expenses,” warned Antos.

Similar to Clinton Plan

As Moffit has noted, Clinton tried and failed to gain business support for his health care overhaul, even with the promise of significant financial assistance for participating firms. As with the Kerry-Edwards plan, Moffit said, business leaders thought the Clinton proposal included too many mandates, regulations, and strings attached to the federal bureaucracy.

That is a major current concern of the National Federation of Independent Business. Dan Danner, the group’s senior vice president for public policy, told the Wall Street Journal on July 26, “It’s a huge amount of money. But it’s got to come from somewhere, and we are always concerned that more strings are attached.”

Helen Darling, president of the National Business Group on Health, told the Journal giving the government responsibility for highest-cost medical care indicates a “blank check mentality.” Darling also said once an employee’s health care bill hits the cap, “there’s no reason for anyone to pay attention to the cost.”

In his acceptance speech for the Democratic Party nomination, Kerry pledged to reign in spending on corporate welfare. His health care reform plan, however, includes a major corporate entitlement: tax credits that would total about $177 billion over a decade, which he pointed out is “more than twice as generous as the health care tax credits proposed by Bush.”

New Mandates

A collection of statements from numerous speeches made by Kerry prior to his formal acceptance of the Democratic Party nomination further defines the scope of his proposed new health care approach:

  • “To make affordable health care a right–not a privilege–for every American.”
  • “Premium-relief for workers of up to $1,000 each.”
  • “A 25 percent tax credit for people ages 55 to 64 whose salaries fall below 300 percent of the federal poverty level.”
  • “A 75 percent tax credit for people between jobs and below 300 percent of poverty.”
  • “A tax credit of up to 50 percent for small businesses that cover low- and moderate-income workers.”
  • “Expanding state-based programs to insure all children and millions of adults.”

In explaining this last entitlement expansion, Kerry said he would have the federal government “pick up the full cost of more than 20 million children enrolled in Medicaid.” In exchange, states would be required to expand eligibility for children’s coverage to 300 percent of poverty, as well as expand coverage for families up to 200 percent of poverty and for adults up to 100 percent of poverty. In the 48 contiguous states for a family of four, 300 percent of the FPL is $56,555. In Hawaii, it is $65,040, and in Alaska it’s $70,710.

In addition, Kerry has repeatedly said he’ll push for “more affordable drugs” by allowing them to be imported from foreign sources where they are cheaper.

Medicare for All, HSAs for None

The current program most resembling the Kerry-Edwards plan is Medicare, with its benefits rationing, one-size-fits-all policy standards, price controls, fraud oversight and prosecution, and large administrative bureaucracy. Kerry has previously voiced approval for allowing the federal government to set price controls on insurance premiums within his health alliances.

Cannon suggests, “By starting small, over time Kerry could achieve what Clinton could not: an effective government takeover of the health care sector.”

Kerry’s plan takes an approach completely opposite from that of the increasingly popular consumer-directed health care movement. According to Grace-Marie Tuner, president of the Galen Institute, early results of the government approval of health savings accounts (HSAs) show tens of thousands of uninsured Americans have gained coverage through the new accounts linked with high-deductible insurance. Experts such as Greg Scandlen of the Galen Institute, CAHI’s Matthews, and Daniel Perrin, executive director of the HSA Coalition, project millions more will enroll in the next two years. (See “Consumers Take Control with HSAs,” Health Care News, August 2004.)

Kerry has a long history of opposition to health savings accounts, having voted against the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, which made the new coverage option available effective January 1, 2004. According to Senate voting records published in the Congressional Record, Kerry also voted repeatedly against earlier legislation to authorize Medical Savings Accounts (the predecessor to HSAs).

Kerry recently went on record as saying HSAs are a part of the Bush administration’s tax relief program he seeks to dismantle. His allies in the Senate have introduced legislation to repeal the enabling law.

Devil’s in the Details

The American Enterprise Institute’s Antos decried a lack of specifics in Kerry’s plan, saying, “[The] details are minor things that you worry about if you get elected. He wants to spend a lot of money to cover a lot of people, and he makes no bones about it.” Antos continued, “For sure, everyone should get adequate health care. But who pays? Kerry’s major campaign proposal raises the specter of Hillary Clinton’s health program, which sought to provide similar blanket coverage and was roundly rejected by Congress and public opinion.”

Cato’s Cannon warned, “Kerry’s platform represents perhaps the greatest threat to health care and patient sovereignty since the Clinton health plan, and it would bring America several steps closer to a system of socialized medicine, with all the increased costs and rationing of care that follow.”

Conrad F. Meier ([email protected]) is managing editor of Health Care News.