Kerry Recycles Health Care Plan

August 02, 2006

Senator John Kerry (D-MA) dusted off the health care platforms from his failed 2004 presidential bid in a speech in Boston this week.  Devon Herrick, senior fellow with the National Center for Policy Analysis (NCPA), noted that as before, Kerry’s plan would come at a high cost to consumers and taxpayers.

“Roughly two-thirds of health spending would subsidize insurance for those who already have coverage,” said Herrick. “This plan would be extremely expensive in terms of what it attempts to achieve.”

Kerry’s plan to expand enrollment in government programs would crowd out private care. Employees will drop out of employer plans in order to enroll in public programs. When companies with large numbers of newly-Medicaid-eligible employees drop their health plans altogether, the rest of the employees will be left without health insurance.

A study by Harvard University Professor David Cutler and Massachusetts Institute of Technology Professor Jonathan Gruber found the Medicaid expansions were substantially offset by reductions in private coverage. As a result, expanding Medicaid is a very inefficient way of insuring the uninsured.

Emory University Professor Kenneth Thorpe helped Kerry design his plan in 2004. The NCPA calculated the costs per newly insured using Thorpe’s data. The analysis showed:

• If Medicaid expansion induces a 30 percent contraction of private insurance, the cost of insuring each new person, on net, will increase by more than one-third. 
• At a more realistic 50 percent crowd-out rate, the cost almost doubles —reaching $4,466 per newly insured person or $17,864 for a family of four. 
• At a 75 percent crowd-out rate, the cost of each newly insured person reaches $8,623 or $34,492 for a family of four.

Based on Kerry’s own estimate from 2004, his proposal costs twice as much as President Bush’s consumer-driven plans per newly insured. Under more realistic assumptions, Kerry’s plan may cost up to six times more than the Health Savings Account (HSA) plans Bush implemented during his first term.

“Experience has proven that HSAs and similar health plans attract the uninsured,” said Herrick. “HSAs are efficient because they encourage individuals to be better health care consumers. They are also far less costly to implement, and the savings benefit those who need it most: health care consumers.”

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