Kerry's Health Plan: Coverage For (Almost) All

Insurance premiums would fall by as much as $1,000 a year

By Laura D'Andrea Tyson

According to a recent survey, more Americans worry about being able to afford health care than about losing a job or suffering from a terrorist attack. Their anxiety is justified. In the last three years, the cost of family health insurance has skyrocketed by over 40%, and 4 million Americans have joined the ranks of the uninsured. Eight out of 10 of the uninsured are members of working families. And having insurance does matter to one's health. The uninsured receive less preventive care, are diagnosed at more advanced stages of disease, and once diagnosed, receive less care and suffer higher mortality rates than the insured.

President George W. Bush and Senator John Kerry have different visions about what the government should do to tackle this crisis. According to independent estimates by Emory University health economist Kenneth E. Thorpe, the Bush plan of limited tax credits for the purchase of health insurance would cost about $90 billion over 10 years, providing coverage to about 2.5 million more Americans. The Kerry plan would insure 27 million additional Americans, resulting in coverage for 95% of the nation's citizens and 99% of its children at a 10-year net cost of about $650 billion. Kerry would pay for his health plan by rescinding the Bush tax cuts for those with incomes in excess of $200,000 a year, restoring their tax rates to the levels that prevailed under President Bill Clinton. Lest we forget, the '90s were years of rising budget surpluses, falling interest rates, high productivity and economic growth, and record low unemployment.

THE STRENGTH OF KERRY'S health proposals is that they build on America's existing health-insurance arrangements. One plan would expand funding for Medicaid and the State Children's Health Insurance Program, which already cover millions of people. This would extend coverage to more working families who currently earn too much to qualify for these programs but too little to pay for health insurance on their own. Kerry is also proposing refundable tax credits for the purchase of health insurance by small businesses, workers between jobs, and people from the ages of 55 to 64 who do not have employer-based coverage. Finally, individuals and businesses would also be able to buy coverage in a national group-insurance scheme modeled on the Federal Employees Health Benefits Program, which currently covers more than a million federal workers.

Perhaps the most important component of Kerry's health plan is the creation of a government reinsurance program to cover a significant share of the costs of catastrophic claims, reducing their burden on private insurers and businesses that provide insurance for their employees. Less than one-half of 1% of all insurance claims are responsible for 20% of health-insurance payouts. Insurers have huge financial incentives to avoid such claims by denying coverage to the seriously ill and those in danger of becoming so. As a result, those most in need of insurance are least likely to be able to get it. And those who can buy insurance are forced to pay higher rates that reflect not only the likelihood of their own catastrophic costs but also the cost of others, including the uninsured.

Kerry's reinsurance program would reimburse employer and other group health-insurance plans for a substantial portion of the costs associated with such claims. To be eligible for government reinsurance, businesses would have to offer affordable coverage to all of their workers. Health economists estimate that Kerry's reinsurance program would cut health-insurance premiums by as much as $1,000 per year and make them more stable over time.

Critics of the Kerry plan claim it will simply redistribute income from wealthy Americans to the uninsured. Not so. It will make the insurance market more efficient, reduce premiums for everyone who purchases insurance, and provide all Americans access to the same choice of private health plans enjoyed by those who work for the federal government, including members of Congress.

As insurance premiums soar, as large numbers of workers bear the personal cost of job loss, and as an even larger number worry about losing their jobs sometime in the future, health insurance has emerged as a potent issue that could tip the balance in this year's Presidential election. On this critical issue, the candidates offer voters a clear choice. A comparison of their plans demonstrates that one is clearly superior to the other.

Laura D'Andrea Tyson, dean of London Business School, chaired the Council of Economic Advisers from 1993 to 1995 and is an informal adviser to Democratic Presidential nominee John Kerry.

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