McCain's health insurance plan: Is he nuts?

Bringing some order out of our chaotic health insurance system has to be one of the first priorities of the next U.S. administration. The answers aren’t simple, and they are made more complex by the intervention of hundreds of lobbyists who could care less about anything other than protecting their own turf. One of the most frightening ideas I’ve heard, however, is the plan being floated by Senator John McCain. On his web site (http://www.johnmccain.com/Informing/Issues/19ba2f1c-c03f-4ac2-8cd5-5cf2edb527cf.htm) his campaign makes the following statement:

“An important part of his plan is to use competition to improve the quality of health insurance with greater variety to match people's needs, lower prices, and portability.

Let’s talk about competition, quality, and variety. As an independent advisor (I’m not affiliated with any company), when I run a quote for my clients of the possible plans, I’m usually confronted with at least five companies offering hundreds of plans—at competitive prices. Whenever a new company comes along that offers lower than market prices, the end of the first year almost always results in increased premiums. It doesn’t do a company much good to attract thousands of clients if they loose money on every one.

Portability is a separate issue. McCain is talking from his big-business orientation. He apparently forgets that more than half of the employers in this country are small businesses—many of whom can’t currently afford to offer health insurance. Those employees who can afford to self-insure already have portability. Those who leave employment in large firms already have the protection of COBRA, although it’s always a shock when people learn how much their employer had been subsidizing their premiums.

But here is McCain’s scariest claim:

“While still having the option of employer-based coverage, every family will receive a direct refundable tax credit - effectively cash - of $2,500 for individuals and $5,000 for families to offset the cost of insurance. Families will be able to choose the insurance provider that suits them best and the money would be sent directly to the insurance provider. Those obtaining innovative insurance that costs less than the credit can deposit the remainder in expanded Health Savings Accounts.”

In order to pay for this, McCain would eliminate the tax break to employers who provide insurance for their employees. In other words, employers who now claim health insurance as a business expense will no longer be able to do so. Think this through folks … if many employers don’t provide insurance now because they think they can’t afford it, does it make sense to make it even less affordable?

And how about that “generous” credit to individuals and families? Unless a person is very young, $208 per month ($2,500 divided by 12) won’t buy much more than catastrophic insurance. That’s great if you are perfectly healthy and say, don’t need health insurance. If you have health issues, then your only protection would be the out-of-pocket (OOP) maximums.

I recently ran a quote for a healthy 19-year-old. Only two of 11 HMO plans had premiums lower than $208 and they both had $5,000 OOPs. (It’s no mistake that looks like Oops!).

The PPO plans were considerably lower, for the most part, but all had either high deductibles or high OOPs and sometimes both. Remember, we’re talking about a 19-year-old. You don’t even want to know what someone on the north side of 60 would have to pay.

Another aspect of his plan that borders on the completely wacky is to allow people to purchase insurance products in other states. State Insurance Commissioners monitor and approve plans within their states, and they enforce regulations. Who is going to look out for you if you have a problem with a plan purchased in another state? It’s just not as simple as McCain claims it will be.

Finally, if you think selecting the right insurance is difficult now, imagine sifting through hundreds of companies, comparing thousands of plans. As a professional advisor, I think I’d find that almost overwhelming. How would someone trying to sort through the mess themselves ever be able to figure it out?