Presidential candidate Senator Barack Obama (D-IL) has put forth
an ambitious health care plan. The plan proposes:
- Expanding eligibility for existing public programs, including
both Medicaid and the State Children's Health Insurance Program
- Creating a National Health Insurance Exchange to serve as a
federal regulator of private insurance plans that would compete
alongside a new National Health Plan;
- Providing income-related subsidies for those without
employer-sponsored health insurance while mandating that children
have coverage; and
- Requiring that medium and large employers provide coverage or
pay a tax, while extending tax credits to small businesses and
creating a government reinsurance program to cover businesses'
catastrophic health costs.
Analyzing proposals based on campaign documents and media
accounts is inherently difficult, as these materials lack the level
of detail necessary for a rigorous econometric analysis.
Nonetheless, several organizations have done so, using a variety of
assumptions and methodologies. Most notable are the Lewin
Group, Health Systems Innovations Network, and
the Urban Institute-Brookings Institution Tax Policy Center.
The best independent research shows that the Obama plan would
cover roughly half of the 45 million uninsured through an expansion
of public coverage; rely on soft methods of cost-savings; and
require significant increases in federal expenditures.
Coverage. According to the Lewin Group, the Obama
plan would reduce the number of uninsured by 26.6 million in 2010
if fully implemented in that year. The plan would also bring about
significant shifts in sources of coverage. While 21.6 million
people would lose their private health insurance, 48.3 million
people are projected to obtain public coverage through Medicaid,
SCHIP, or the new National Plan. Private employer-sponsored
coverage would decline by 13.9 million, and private non-group
coverage would decline by 7.7 million. Meanwhile, 18.6 million
employees would buy into the new public plan through their
workplace (as their employers switched to this plan from private
coverage), 13.1 million individuals would buy into the public plan
in the non-group market, and 16.6 million individuals would become
newly enrolled in Medicaid or SCHIP. Therefore, the expansion of
coverage under the Obama plan would be driven by enrollment in
public coverage. This would entail a crowd-out of existing private
non-group and private employer-sponsored insurance.
Estimates of sources of coverage, however, are sensitive to
assumptions about the level at which provider reimbursement is set
for the National Plan. The figures above are based on the
assumption that the National Plan would reimburse providers at a
level halfway between private market rates and the lower rates set
by Medicare. In an alternative scenario modeled by Lewin,
reimbursement was reduced to Medicare payment levels. Enrollment in
the National Plan reached as much as 42.9 million, contributing to
a 32-million-person decrease in private health insurance and a
60.1-million-person increase in public coverage. While sources of
coverage would change significantly, there would not be a
significant change in the net reduction of the uninsured.
Lewin applied a type of model known as a
micro-simulation. Health Systems Innovations Network (HSI)
conducted an analysis (funded by the McCain campaign) also using
this type of approach. It found that the plan would reduce the
uninsured by 25.5 million. It also found that 24.6 million people
would enroll in the new public plan through employers or in the
non-group market. However, the HSI study did not look at the
proposed expansions of Medicaid and SCHIP that would further
increase enrollment in public coverage.
In contrast, the Tax Policy Center (TPC) applied a different
type of model known as an elasticity-based approach. The
TPC estimated the Obama plan would reduce the number of uninsured
by 18.4 million in 2009. In that year, 4.3 million people would
gain employer sponsored insurance, 5.8 million would obtain
non-group coverage, and 8.3 million would enroll in public
coverage. The TPC did not take into account the differences in
provider reimbursement between the National Plan and private
insurance. Moreover, the results are somewhat
confusing because it is impossible to determine enrollment in the
Cost. According to the Lewin Group, health care
system-wide savings over the 2010-19 period would be about $571.6
billion. Since the plan does not fundamentally change incentive
structures in the health care sector, most of its anticipated
savings come from various delivery system improvements common to
Obama's and McCain's plans, ranging from health information
technology to disease management. The effectiveness of these
initiatives assumes major behavioral changes. As Professor Mark
Pauly, a prominent health care economist at the University of
The main problem is that these [popular, common methods] are "if
only' savings, which can be achieved "if only' certain events would
occur, such as physicians' being willing to adopt health IT,
consumers being willing to accept changes in diet and exercise.
… There is little evidence that there are known methods to
cause the "if only' behavior to occur, and to occur quickly on a
large enough scale to matter.
The efficacy of these "if only' savings has been seriously
questioned by the Congressional Budget Office (CBO). The CBO has
reported that evidence of disease management, comparative
effectiveness, health information technology, or
prescription drug re-importation reducing costs quickly and
appreciably is lacking.
Obama says the reason people lack health insurance is that they
cannot afford it. The Obama campaign, in an effort to "talk to
people in a way they understand,' made an audacious promise:
The typical family would save $2,500 on premiums under the
Senator's health plan. In calculating this figure, the Obama
advisors relied on their own best-guess estimates of "if only'
system savings at full implementation. In its analysis of the Obama
plan, the Lewin Group projects that the average savings per family
would be $426.
Lewin, HSI, and TPC all found that spending by the federal
government would, on net, have to increase significantly in order
to implement the plan.
Lewin projected that the Obama proposal would increase federal
spending by about $1.17 trillion over the 2010-19 period.
HSI estimates the Obama plan would cost $452 billion per year,
or more than $6 trillion over a 10-year period. The dramatic
difference between this estimate and others is largely a result of
HSI's assumption that under Obama's mandate to cover children, the
federal government would subsidize virtually the full cost of
coverage. Also, HSI finds that the employer mandate would add
sizeable costs to the federal government.
The TPC projects the Obama plan would cost $1.6 trillion over 10
years. However, the TPC model did not account for any of the
savings measures in the plan.
In May 2007, advisers to the campaign issued a memorandum to
"interested parties' that estimated the plan's cost.
Under "best-guess' assumptions, the Senator's advisers estimated
the plan's net cost at $50-$65 billion a year at full
implementation. The memorandum then claimed any new cost could be
covered by rolling back part of the Bush tax cuts. It is
controversial because of both its cost and savings estimates,
and other analysts have called into question the memorandum's
conclusions. Since the Bush tax cuts are set to expire
within two years anyway, they are not a viable offset, because
beyond expiration they are built into the federal government's
budget baseline. Complicating the matter further, repealing the
Bush tax cuts early has already been proposed by Obama as potential
source of revenue for a number of other policy initiatives.
Expanding Government Control
The Obama plan would reduce the number of uninsured citizens,
but it would not control costs in any significant way while
demanding considerable increases in federal expenditures. Coverage
expansion would be driven by enrollment in public plans in which
the government would set benefit levels and provider reimbursement
rates. Cost-savings would not come from fundamentally realigning
economic incentives but would rely on dubious "if only'
propositions related to changes in health care delivery.
Greg D'Angelo is Policy
Analyst in the Center for Health Policy Studies and Paul L. Winfree is a Policy
Analyst in the Center for Data Analysis at The Heritage Foundation.
Jeet Guram, a Heritage health policy intern from the University of
South Carolina, contributed to the research in this paper.