Tuesday, October 7, 2008

McCain's Health Care Plan

Good column by Paul Krugman on McCain's Health Care Plan.

Basically, McCain wants to remove the tax benefit companies get for providing health insurance to their employees, and instead have people buy it for themselves with a tax credit. On the surface this sounds enticing and modern because it removes the need to stay at a company just because of health insurance benefits, which is indeed a problem facing employees in today's loyalty-free workplace.

The removal of the tax incentive for employers will surely result in employers dropping health insurance coverage as a benefit for their employees. I remember being puzzled in college as to why employers are so depended on for health coverage. Well, I was in college during the great DOWNSIZING of corporations, so you can see why it seemed so illogical for both employees and employers...employers were the last persons you wanted to be reliant on, and what's in it for the employer? Well, once upon a time, employers strove to attract employees, who were seen as a LONG TERM INVESTMENT, and offering health insurance was a sweet benefit. But at some point it became the norm, and thereafter, the culture changed so employees became disposable and interchangeable.

(By the way, universal health coverage takes care of this problem)

But the major flaw, if not deception, in McCain's "let the free market work" plan is that insurance is not, as economists would call it, a normal good. Insurance is peculiar in that the more folks that are in a SINGLE PLAN, the more risk is diversified, and the more affordable it is overall. This, by the way, is why UNIVERSAL COVERAGE makes so much sense, because you are broadening the pool way larger than any private insurer could...to include the entire COUNTRY.

This is also why small companies cannot afford group health insurance, compared to large corporations. Large corporations have lots of employees in their plan, so it is less riskier for insurance companies...the risk is diversified.

If small businesses are paying through the roof for group health insurance, what do you think will happen when the plans are now made up of INDIVIDUALS?

So, what will happen in McCain's plan is that private insurance companies will offer really inexpensive plans to those who are young, male and healthy. And VERY EXPENSIVE plans (or more likely, plans that disguise the fact that they don't cover much at all) for everyone else.

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