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Thursday, May 20, 2004

Kerry's Health Plan

Two of the web's best economists and public policy analysts have praised Kerry's health care plan. But what is the plan? I find Kerry's nontechnical description of the plan to be pretty impenetrable. Kerry wants people to pay less for health care, but how's he going to do it?

So here's my understanding, largely based on former Clinton health economist Ken Thorpe's description. The main items (not counting prescription drugs) in the plan seem to be

(1) expanding federally-paid medical care for the poor (Medicaid and SCHIP) to cover people who aren't quite so poor (adults up to 200% of poverty and children up to 300%. ($518 billion over 10 years)

(2) A reinsurance program that would cover 75% of catastrophic costs over $50,000 for pretty much everyone with private health insurance. ($257 billion)

(3) Tax breaks to small business, the unemployed, and the near-elderly to buy health insurance, capped at 300% of poverty. ($177 billion)

The first two ideas make a lot of sense, since they expand the government's role as an insurer, something it does quite well, with much lower administrative overhead than the private sector. Also, since everybody (more or less) gets these benefits, there should be relatively little adverse selection (the bane of insurance: with sick people rushing to buy insurance, insurance companies do their best to cherry pick and keep them out).

I'm less sure that the various tax breaks are so terrific. Why not just cut taxes for lower-income people? Maybe the point is to reduce the number of people who drop private coverage and enroll in the federal program. But why bother? I don't see how spending a lot on tax breaks to keep people from accepting subsidized health insurance gains much of anything.

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