The Heritage Foundation

Executive Summary #1805 on Health Care

October 12, 2004

October 12, 2004 | Executive Summary on Health Care

Executive Summary: Details Matter: A Closer Look at Senator Kerry'sHealth Care Plan

Senator John Kerry (D-MA), the Democratic presidential candidate, is offering an expansive health plan that would cost well in excess of $1 trillion during its first 10 years of operation.

Complex and far-reaching health care proposals are invariably difficult to explain to the general public and even more difficult for Congress to enact and for the executive branch to implement. This is especially true of Senator Kerry's health plan because it is not a single, coherent plan, but rather a wide array of complex policy changes affecting public and private health care coverage. In combination, the goal of these initiatives is to address rising health care costs and expand health care coverage to millions of Americans.

Array of Initiatives. Senator Kerry's plan makes major changes in employer-based insurance and government health programs, proposes initiatives to improve quality and cut administrative costs, and offers a variety of tax subsidies and coverage arrangements to businesses and individuals. His most dramatic provision is to create a separate pool within the Federal Employees Health Benefits Program (FEHBP) called the Congressional Health Plan, which would be open to all Americans, espe­cially the uninsured.

However, the differences in financing and risk sharing between the FEHBP and the proposed Congressional Health Plan make it extremely unlikely that the new program would work as the FEHBP does today. Instead, it is more likely to become an engine of government regulation than a model of consumer choice and competition.

Costly Complications. While Senator Kerry's plan would newly insure between 25 million and 27 million Americans, it would also incrementally expand federal control over the financing and delivery of health care. It is fraught with unin­tended consequences for taxpayers, employers, and workers. Specifically, the Kerry plan would:

Shift the cost of private health insurance to taxpayers. The federal government would cre­ate a "premium rebate" subsidy and displace private insurance as payer of the bulk of high-end health care costs. According to the Lewin Group, the premium rebate to cover high-end health care costs would result in estimated additional federal spending of $725.7 billion over 10 years.

Dramatically expand Medicaid, thus crowd­ing out private coverage options. The Medic­aid expansion alone would cost an estimated $553.1 billion over 10 years. Research shows that public program expansions historically crowd out private health insurance.

Accelerate the growth of federal control over the health care system. In order to secure government subsidies for coverage, employer-based health insurance would be required to comply with new rules. Enforcing these rules would require new monitoring requirements.

Impose an enormous new tax burden on Americans. The Kerry plan is clearly expen­sive. Analysts at the American Enterprise Insti­tute estimate that it would cost $1.5 trillion over the first 10 years, while the Lewin Group, one of the nation's leading econometric firms specializing in health policy, puts the 10-year price tag at $1.25 trillion. Professor Kenneth Thorpe, a prominent health policy analyst at Emory University, estimates that it would cost $653 billion over 10 years.

In any case, it is unlikely that Senator Kerry's proposed tax and spending increases, includ­ing tax increases on American families making over $200,000 per year, would enable him to cover the costs of his health care program. Therefore, taxpayers would have to pay even higher taxes to finance the plan.

The Unfinished Business of Reform. The health care system needs a systemic transforma­tion. Although the Kerry plan represents an impressive commitment of taxpayer dollars to expand coverage, it would fall short in transform­ing the health insurance markets or making patients the key decision makers in the health care system. As Joseph R. Antos, a senior health policy analyst at the American Enterprise Institute, has observed, "Taking a lesson from previous reform efforts that failed to gain popular support, the Kerry agenda stays carefully within the framework of public and private health insurance as we know it today."

In effect, Senator Kerry's plan would reinforce the major institutions that comprise the health care status quo. Employers would get new federal subsidies, even for people who are already insured. As John C. Goodman, president of the National Center for Policy Analysis, has noted, nine out of 10 dollars of Senator Kerry's package of health care spending would go directly to employ­ers, insurance companies, and state govern­ments-not individuals.

Robert E. Moffit, Ph.D., is Director of, Nina Owcharenko is Senior Policy Analyst for Health Care in, and Edmund F. Haislmaier is Visiting Research Fel­low in the Center for Health Policy Studies at The Her­itage Foundation.

About the Author

Robert E. Moffit, Ph.D. Senior Fellow
Center for Health Policy Studies

Nina Owcharenko Director, Center for Health Policy Studies and Preston A. Wells, Jr. Fellow
Center for Health Policy Studies

Edmund F. Haislmaier Senior Research Fellow, Health Policy Studies
Center for Health Policy Studies