Krishna Guha: Democrats’ vision of healthcare for all

FT.com / Home UK / UK - Democrats’ vision of healthcare for all: If Barack Obama is elected president in November, one of the biggest – perhaps the biggest – item on his domestic agenda will be healthcare.

With 47m people in America uninsured and widespread frustration over rising premiums, health reform is a huge issue. It is also central to the Democrats’ strategy for addressing middle-class anxieties and dealing with the cost of an ageing population.

David Cutler, a Harvard professor, helped craft the Obama health plan. In an interview in his offices at the National Bureau of Economic Research in Cambridge, Massachusetts, he sets out three objectives.

“One is to cover everybody. The second is to bend the curve on health cost inflation. The third is to have a public health system that works.” The key to expanding coverage, he argues, is to make insurance “more affordable and more accessible”.

The plan envisages tax credits for low- and middle- income people to buy insurance – which would probably end up in the region of $110bn to $120bn (€70bn-€76bn, £56bn-£61bn) a year.

“We don’t have a specific subsidy schedule in mind, but the cost of tax credit systems is typically in that range, and we are comfortable with that,” Mr Cutler says. The net cost of the whole health plan after planned savings would be $50bn-$65bn a year, which would be paid for by reversing the Bush tax cuts for high-income households.

An Obama administration would create geographically based health exchanges where individuals without company plans could buy a private or public plan.

Mr Cutler says there would be a “minimum federal standard” for plans offered on exchange, but he adds: “You would not want to specify it too much.”

Critics say lobbyists would exploit the national standards to entrench wasteful spending. Mr Cutler says Mr Obama believes that with the right kind of process it should be possible to avoid reform being hijacked by vested interests. To stop companies off exchange from cherry-picking healthy customers – and leaving only the sickly on the exchange – an Obama administration would ban risk-based pricing of all individual insurance plans.

Mr Cutler says “98 or 99 per cent of people would be covered without a mandate” that requires people to have insurance. But a mandate could be added later.

Mr Obama “does not have any religious objection to mandates”, he says. “The issue of no mandate was not to save money. It was because he didn’t feel comfortable mandating something that didn’t exist.” The Obama campaign believes it is possible sharply to improve value for money in healthcare and save $200bn a year – $2,500 per household – within four years, though only a fraction of this is assumed in its budget plan.

“We overpay for health a lot,” says Mr Cutler. “Anywhere from 40-45 per cent of medical spending is not contributing to medical outcomes at all.”

Most economists agree a lot of cash is wasted – but disagree on the solution. Mr Cutler says the Obama campaign took every good idea it could find and said: “Let’s do all of them.”

These strategies include increased focus on prevention, including use of drugs to manage conditions such as diabetes; smarter purchasing using data from digital medical records and comparative effectiveness trials; and reduction of administrative costs by pooling individuals.

The Obama plan includes $10bn a year for five years to put medical records online. “That sets you on a path for a fundamental transformation of healthcare.”

Mr Cutler claims the Republican contender John McCain’s health plan is “much more radical” than Mr Obama’s. He argues that by eliminating tax breaks specific to corporate health plans (the money is redeployed as individual tax credits), a McCain administration would speed the collapse of corporate healthcare.

Many economists think it would ultimately be good to sever the link between jobs and health insurance. But Mr Cutler says: “You have to build a new home before you tear down the old one.”

Douglas Holtz-Eakin, senior policy adviser to Mr McCain, says nothing in the McCain plan would make companies less willing to provide health plans.

He believes the Obama plan risks “repeating all the mistakes of the past”. It would see government take on tens of billions of dollars of private insurance costs.

“It sets up a new government insurance programme and sets up a large new health bureaucracy at the same time,” he says. The idea that the solution to US healthcare problems lies in Washington “is at odds with everything we have learned”.

Mr Cutler rejects the “big government” charge. He says the Obama plan would achieve “big things” in an “evolutionary rather than revolutionary way”.