Page last updated at 01:43 GMT, Sunday, 2 November 2008

Is healthcare reform still possible?

By Steve Schifferes
BBC News

US hospital
The US spends more on healthcare than any other country

After the economy, healthcare is the biggest domestic issue influencing voters in the US presidential election.

Both candidates have ambitious plans to reform the health system to expand the group covered by health insurance, and to control costs.

But the scale of the financial bail-out and the growing size of the US budget deficit could limit any attempt at reform, whichever candidate is elected.

"Do we have the money to be our brothers' and sisters' keeper? The answer is No," says health economist Uwe Reinhardt of Princeton University.

Medicare: government-funded healthcare for over-65s
Medicaid: government funded healthcare for poor people
Employer-funded health insurancee: paid by salary deduction, tax deductible
Uninsured: treated in emergency rooms only
"We have to worry about Goldman Sachs. That's where we are."

The US healthcare system is the most expensive in the world.

Employer-based insurance plans cover most people in work, and there is government insurance for older people - but 45 million citizens have no health insurance at all.

This is why voters see healthcare reform as an urgent priority.

Delayed treatment

The rising costs of healthcare premiums, and of co-payments -which insured patients are obliged to pay up front when they receive treatment - are also threatening household budgets.

According to a recent poll by the Kaiser Family Foundation, nearly half of all Americans have delayed or postponed a medical procedure because of the high cost, and one in three have had trouble paying medical bills.

I believe the state of the US economy makes the need for health-care reform even more urgent
Senator Max Baucus, chair, Senate Finance Committee

"Healthcare is now every bit as much an economic issue for the American people as job insecurity, mortgage payments and credit card debt," said Kaiser president Drew Altman.

According to Kaiser, employer-sponsored health coverage premiums for family coverage have increased by 97% since 2000, from $6,438 to $12,680 in 2008, and the share paid by the workers has more than doubled, going from $1,619 to $3,354.

Tackling costs

John McCain's healthcare plan is the more radical. He aims at replacing the current system of employer-based insurance with individual health insurance plans, and would give a $5,000 tax credit to families to pay for the switch.

There are no easy paths to financing universal coverage
Professor Jonathan Oberlander

He says competition among healthcare plan providers would bring down costs.

Under his plan, the government tax credit would only rise in line with inflation, not with the much more rapidly rising cost of healthcare, thus putting more pressure on excess spending.

But the plan carries big risks. Mr McCain would finance his plans by cutting the $200bn tax break given to employer-based health insurance plans.

This has worried private industry, which believes it could weaken its ability to provide employer-based insurance.

"The private marketplace, in my opinion, is ill-prepared today with an infrastructure for an individual-based health insurance system," said R Bruce Josten of the US Chamber of Commerce, in an interview with the New York Times.

Expanding coverage

Mr Obama's plan is more modest, and reflects the lessons of the failed attempt at healthcare reform in the Clinton administration.

John McCain in Missouri, 20 October
Mr McCain wants radical free-market reform of health care

He would keep employer-based plans, but require companies that don't offer "meaningful" coverage to contribute toward the costs of a public plan ("play or pay").

And he would require all children to have health insurance.

The government would subsidise the cost of providing health insurance to those who did not have employer plans.

Mr Obama would also regulate the health insurance industry to ensure that it did not refuse coverage to those with existing conditions.

Mr Obama, like Mr McCain, argues he can keep down costs by introducing tougher controls, and he plans to pay for the subsidies care by repealing tax cuts for the rich.

Comparing costs

The independent Tax Policy Center estimates that both plans would be very costly.

It says the Obama plan would cost $1.6 trillion over 10 years, while the McCain plan would cost $1.3 trillion.

The distribution of costs and benefits would be quite different.

The Obama reforms would cost less in the first year, but the bill would rise as more people took up subsidised insurance.

The McCain plan would reduce tax revenues substantially in the first year, but over time the costs would go down.

However, the Tax Policy Center estimates that after 10 years, the Obama plan would lead to a much bigger reduction in the number of uninsured, cutting it by 34 million in 10 years, while the McCain plan would only cut it only by 5 million.

Budget woes

The rapidly rising federal budget deficit could be a huge problem, however.

The budget deficit has reached $480bn this year, and some experts predict it will rise above $1 trillion by next year, when the cost of the bail-out is included.

All major financing options have serious political liabilities

Professor Jonathan Oberlander of the University of North Carolina

This would represent half of all of federal spending, and put enormous pressure on interest rates and new spending programmes.

Most healthcare analysts believe that even without the deficit "there are no easy paths to financing universal coverage," as Professor Jonathan Oberlander of the University of North Carolina writes.

"All major financing options have serious political liabilities; they risk arousing either public opposition and anti-tax sentiment or stakeholder opposition," he adds.

He argues that neither plan is likely to generate enough cost savings to be self-funding, and that fiscal rules will make it hard to count the expiry of tax cuts as fresh income.

However, the key Democratic Senator in charge of such reform suggests that it would still proceed.

"While some suggest that the current economic situation might thwart efforts to overhaul America's healthcare system, I believe the state of the US economy makes the need for healthcare reform even more urgent," said Democratic Senator Max Baucus, chair of the Senate Finance Committee.

The debate over healthcare reform could become the biggest battle the new president has to fight.

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