Health Care Plans Fall Short on Financing

For the last few months, the nation has been completely immersed in the debate on health care. Political and business interests have not been able to come to an agreement on the ways in which a nationwide health plan would be financed. We can make some suggestions.

The two major plans that have been in the news were put forth by President Clinton and Rep. Jim Cooper (D-Tennessee), another Rhodes Scholar but Harvard Law graduate. Other plans have made the rounds of the beltway, and aspects of plans have made the rounds of the beltway, and aspects of plans from Hawaii, other states and Canada have been considered. The Clinton and Cooper plans, however, have received the most broad-based support and appear to have the greatest chances of being enacted. But these plans have serious financial side effects that must be considered.

Here are some of the basics for understanding the two policy proposals. The Clinton plan attempts to cover all American families that fit into certain groups at the same rate. The groups are constituted as follows:

1. Married couples with children

2. Married couples without children

3. Single persons with children

4. Single persons without children

Families would receive the same health care program, worth up to almost $3,000 for married couples with children, regardless of their incomes.

The Clinton plan does not include a program of copayments. Copayments are contributions by employees and/or employers towards the cost of the health care coverage. Having copayments, even if they amount to 10% of health care costs, provides a disincentive to have superfluous or unneeded tests or procedures. The patient actually has to pay a certain amount for each item, so a small deterrent to overusing the program does exist.

Since over 1/2 of the uninsured are employed, employer and employee copayments seem like a realistic way to help finance a plan. As it stands, the Clinton plan would be financed primarily by new taxes.

In contrast, the Cooper plan does index the costs of coverage to a family's income. The amount of coverage subsidized (the estimated worth per year of the plan) starts at 100 percent when the family is at or below the poverty level and decreases until the family's income reaches two time the poverty level. Poverty levels differ depending upon how many children are in families, so the plan is effectively indexed to family size as well.

The Cooper plan does have one great flaw. The plan does not encourage those covered by it to work. Taking a higher-paying job could take your family from fully insured to almost uninsured, so there is little incentive to work more. A family can keep earning more until its income rises above the poverty level; at that point, the family's subsidy for health care begins to drop.

The Cooper plan does not require employers to contribute, so its financing is still cloudy. Simply put, the government could end up picking up the entire tab. This possibility contributed to the support given to the plan by the Roundtable, an organization of CEOs of major corporations.

The model plan should be financed using copayments and government expenditures, with copayments by employers equalling or exceeding those by low-income employees. Coverage should decrease by income, but not necessarily on a linear scale. Optimally, each extra dollar earned should result in a relatively small fraction of a dollar of care removed. Hopefully, the issue of financing will be resolved in such a way that employers, employees, the government, and the taxpayers feel more benefit than burden.