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Bush vs.Kerry on Health Care

George W. Bush and John Kerry take different views on the amount of
money that should be spent on health care, the number of people without
insurance that is acceptable, and on the role of the private and public
sectors.

By jeff Atkinson Published September/October 2004

Two of the biggest differences in the health-care policies of George W. Bush and John Kerry are the amount of money each is willing to spend on health care and the number of uninsured people that will be covered under their respective plans. President Bush’s proposals are projected to cost $90 billion over ten years and would extend coverage to 2.4 million more people, whereas John Kerry’s proposals are projected to cost $653 billion over ten years and would cover 27 million of the 45 million Americans who currently do not have insurance.

The cost projections come from Kenneth Thorpe, PhD, who is chair of the Department of Health Policy and Manage-ment at Emory University in Atlanta. Kerry would pay for his proposals by eliminating the tax reductions that Bush gave everyone earning more than $200,000 per year. Bush, of course, would keep his tax cuts in place. See chart belowcomparing Bush’s

and Kerry’s proposals.

Both favor tax credits

Tax credits figure prominently in both candidates’ approaches for providing health insurance for persons with low to moderate incomes. Bush would provide tax credits of up to $1,000 for individuals and $3,000 for families. Those benefits would phase out when the individual’s income reaches $30,000 or family income reaches $60,000.

Kerry’s proposal provides more tax credits per person or family. He would provide 75 percent tax credits for persons with income up to 300 percent of the poverty level. (In 2004, 300 percent of the poverty threshold is $27,930 for a single person and $56,550 for a family of four.) Kerry also would offer a 75-percent subsidy to purchase insurance for up to six months for workers who are between jobs. In addition, persons age 55 through 64 who do not have access to employer-sponsored health insurance would be eligible for a 25 percent tax credit to purchase coverage through the Federal Employees Health Benefit Program.

With the average cost of health insurance at $3,383 per year for individuals and $9,068 per year for families (2003 data), it is likely that under either Bush’s or Kerry’s plans, many people still will have difficulty affording health insurance, unless their employers are paying most of the cost.

Catastrophic coverage

To reduce the cost of health insurance for individuals and employers, Kerry proposes that the federal government act as a stop-loss or catastrophic insurer. Under the proposal, the government would pay 75 percent of claims for individuals that exceed $50,000. In order for an employer to be eligible for this coverage, the employer would need to meet three conditions: (1) the employer must cover all workers at the firm, (2) the employer must encourage use of disease management programs as part of its health plan, and (3) the employer must demonstrate how it will share savings with the workers. Kerry’s campaign estimates that the stop-loss coverage will save families up to $1,000 per year on insurance costs.

Supporters of the plan say it will save families money not only by shifting costs to the federal government, but also by reducing the total cost of insurance. Part of the reason insurance premiums are high is because of the uncertainty about the amount of claims, particularly very high claims. If the high claims are removed from the risk pools of individual insurance plans, the need for each plan to charge premiums to cover the possible high claims will be reduced and total insurance costs may drop.

If Kerry’s plan is adopted, there will be some new costs, as well as potential savings. Some government entity will need to administer the catastrophic coverage program, including determination of what claims should be paid and how much.

Bush, while in office, has approved funding to help provide insurance to persons who have high health risks and difficulty obtaining insurance. In 2002, Bush signed legislation that made $100 million available to 30 states with high-risk pools.

Health Savings Accounts

President Bush favors the use of Health Savings Accounts (HSAs) funded by individuals or their employers. The program for HSAs was signed into law as part of Medicare reform legislation. HSAs can be used to purchase high-deducible insurance policies as well as to pay for out-of-pocket expenses not covered by the policies, including glasses, contact lenses, and orthodonture. For families, the minimum annual deductible on the insurance policy is $2,000.

The rationale behind HSAs is that the premiums on high-deductible insurance policies will be lower than premiums on regular policies and that individuals will have incentives to avoid unnecessary expenses. Deposits into HSAs are tax-deductible. Amounts left in HSAs at the end of the year can be rolled over to the next year, and the HSAs will be portable. An employee who has established an HSA with one employer can continue with the same account when the employee moves to another employer. At age 65 a person may withdraw funds from an HSA for non-medical purposes without penalty, but will pay income tax on the amount withdrawn.

Bush also favors the creation of Association Health Plans by which small businesses can band together to negotiate insurance for their employees. Bush says this will lower the cost of insurance by reducing administrative costs and giving small employers purchasing power similar to large employers. Kerry criticizes the plan, saying that it will perpetuate the problem of “cherry-picking” by which small employers with comparatively healthy workers obtain favorable rates while employers with less healthy workers face very high rates.

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