Posted on Oct 10, 2008 by Sergio Ulloa
With just one month left until the U.S. Presidential election and growing financial problems in the country, and abroad, it seems like a good time for a quick review of the U.S. insurance landscape.
What should be shockingly obvious at this point is that healthcare in America is by no means the best healthcare in the world as some politicians like to tout. Not even close. The country ranked 37th out of 191 countries
in a WHO study in 2000 for health system performance, right below Denmark, Dominica and Costa Rica in 34th
While the American insurance and healthcare market tends to be highly fractured and complex, due to a mixing of state-by-state differences and federal programs, it seems that the overarching trend since 2000 has been overwhelmingly downwards. The state of Florida, like much of the rest of the country, has seen the cost of health insurance
grow over three times faster than the median incomes (although better than Missouri which had 4.4 times faster premium growth
over median earnings).
Families USA, a Washington, D.C.-based consumer health advocacy group, recently released a state-specific study called 'Premiums vs. Paychecks', studying growing healthcare premiums and earnings from 2000-2007. The results are back and they are, in a word, scary. Families on employer-based insurance plans got stuck with a total increase in annual premiums of 72% between 2000 and 2007. That makes a US $4,908 jump from approximately US $6,800 to US $11,700 in premiums. The part paid by the employer rose 63.1% to US $7,899 in 2007, while the employee had a 94.1% increase in their share of the premium, nearly doubling it from US $1,969 to US $3,821 over 8 years. If you're an individual
on an employer-based insurance plan, don't start feeling left out. Total premiums for individual employer-based plans only jumped 60.6%, up US $1,576 over 8 years to US $4,176. The part paid by the employer increased 55.8% (US $1,170) to US $3,266, while the individual's contribution rose a measly 80.5% to $910. As if that weren't enough, there are an estimated 3.7 million uninsured residents in Florida. This equates to one out of four people under the age of 65 in the state is uninsured
Those figures are a little disconcerting, but it only becomes truly depressing when you stand them next to median earning figures. Over 8 years, median worker earnings rose only 20.2% in Florida, translating into just a US $4,600 increase from US $22,573 to US $27,353. Now, while I wouldn't be too impressed if it was me, it's not too bad; except for the fact that those numbers aren't adjusted for inflation. When earnings are adjusted for inflation they become real
earnings, and when we look at the real
earnings from 2000-2006, it looks real
bad. Median real earnings in the United States dropped from US $29,303 to US $27,239 over those 7 years.
This is not an isolated incident either. A survey released by the Kaiser Family Foundation and the Health Research & Education Trust confirms the findings of the Families USA studies, showing premiums more than doubling since 1999 while earnings increased 34% and general inflation rose 29% over the same period of time. On top of increased premiums (up 5% just this year
), the Kaiser/HRET survey also shows an increase in worker insurance plans with high deductibles of at least US $1,000. The survey shows that of all covered workers in the country, 18% are now on plans that require the individual to pay US $1,000, out of their own pocket, or more before their health insurance will start making payments. This figure is up 6% from 2007. This change in the way most people are receiving coverage is even more emphasized in small businesses of 3 to 199 employees. Now, 35% of these small businesses are on plans with high deductibles
, up 14% from last year.
So now we have a better idea of what the last 8 years have been doing for the American public's insurance, what are the possible directions this could go given the impending election of a new U.S. President? It's probably fair to assume that either of the candidates from the Republican or Democratic parties will win, as there really is no serious competition from third party candidates. So what are our most likely options for the future? The Republican candidate, John McCain, espouses a change in the system which would see an increase of people covered under private insurers, while Barrack Obama, the Democratic candidate, wants to change our public insurance system for better coverage through government plans. Hardly surprising given party lines, but let's take a closer look at each plan.
McCain's plan centers on opening up the market for private insurance. As previously mentioned, most Americans get their health insurance through their place of work. The way it usually works is both employer and employee each pay a certain amount into the healthcare plan, and then the government provides the company with tax breaks. McCain plans on removing the tax breaks for companies and instead giving tax credit directly to people so they can buy their own healthcare
. Tax credits of US $2,500 would be available for individuals and US $5,000 for families. Restrictions on buying insurance across state lines would be in relaxed in order to increase competition. Some states do not permit the use of health status for calculating premiums while others do, so relaxation of where you can purchase insurance from frees up individuals and companies to buy from either, depending on which gives them the best plan. The McCain plan says that federal subsidies will be provided for high-risk groups who are usually denied coverage for their health issues
On the other hand, Obama's plan focuses more on regulation changes and expanding public program coverage. Medicaid would be expanded to increase the number of low-income adults it covers, and a new public plan would also be rolled out with the aim of providing private or public health insurance coverage for everyone. In addition, insurers would be obliged to offer guaranteed coverage to all applicants regardless of medical history and would also be prohibited from basing premiums
on health status for both employers and individuals.
Based on a study by The Lewin Group
(a health and human services consulting group), we thankfully have some data and numbers which can help us compare the two. There are a few distinguishing areas in the plans that we'll look at and they will be: the reduction in the number of uninsured people; the total federal net expenditure; the number of people covered by public vs. private; and the change in annual family health spending.
The Lewin Group projects that under current law there will be 48.9 million uninsured people in America by 2010. Going on McCain's plan, there will be a reduction in the number of uninsured by 21.1 million people; the Obama plan would lead to a reduction of 26.6 million. So we would see a 43.1% reduction in uninsured people under McCain's plan, and a 54.4% reduction under Obama.
The next set of figures give us an idea of how much money the federal government will end up shelling out under the two plans. Between the years 2010 and 2019 the study estimates that McCain's plan will cost the federal government US $2.05 trillion, while the Obama plan will rack up a US $1.17 trillion bill. Although, you should know that the study was not provided with details, by either candidate, about how exactly this would be funded.
Moving on, let's take a gander at how the two plans will change the lay of the land in terms of how many people would be covered by either public or private plans. Based on the numbers insured and uninsured by 2010, McCain's plan will lead to an increase in people covered by private health insurance by 26.5 million but will move 5.4 million off of public health insurance. Obama's plan will lead to 21.6 million leaving their private insurance plans and an added 48.3 million people joining public coverage
Finally, let's look at the projected change in the amount of money families spend on health insurance annually, for the year 2010. The study says that based on the candidate's proposed plans, families will spend US $1,411 less under McCain's plan, while spending US $426 less under Obama's plan.
So there you have it. Each plan would have its plusses and minuses, and I truly hope that the information will at least help you better understand what's going on. However, considering there has been no real change to the American healthcare system in decades, and that either of the candidate's plans will, in all likelihood, be absolutely butchered by partisan hackery and interest group meddling in Washington; it will be immensely difficult to make such a large scale change. Therefore, it's a good thing the financial world is in good, solid standing to help usher in the changes of the future. Wait, it's not? Oh, dear.