McCain health plan calls for shopping around

John McCain's health plan would bring about a dramatic shift in how millions of people get health insurance coverage. He would let people shop around for plans offered by insurers in other states. New Yorkers could look to Alabama, for example, or any other state when shopping for coverage.

"Why not? Don't we go across state lines when we purchase other things in America?" McCain asks.

The idea sounds simple, but has huge implications.

Consider this:

Cervical cancer screenings, contraceptives and diabetic supplies are just some of the benefits that health insurers in New York must cover when serving customers there. New York also requires insurers to accept people regardless of pre-existing health conditions and without charging them higher premiums.

The state has some of the best consumer protections around, but those protections come at a price. Few insurers offer coverage in New York's individual health insurance market. The ones that do have pricey monthly premiums.

Now shift to Alabama, identified as having among the fewest consumer protections of any state. Dozens upon dozens of plans offer coverage at a much lower cost. The trade-off: Insurers can reject applicants with previous illnesses and there's no mandatory coverage of cervical cancer screenings, treatment of eating disorders, or many of the other insurance benefits that New Yorkers get.

Health care experts say McCain's plan would make it easier for younger and healthier people to shop around for affordable health insurance coverage. That's a huge group: Nearly half the nation's uninsured adults are ages 19-34.

But people with health troubles could have more trouble obtaining coverage. Because of their pre-existing health conditions, they would not have the luxury of buying coverage in the least-regulated states. They would be stuck with plans in the most-regulated states, where premiums would increase if younger, healthier people went elsewhere for coverage.

"In the long run, what you'll end up with are fairly bare-bone policies sold to the healthy," said Len Nichols, a health economist at the New America Foundation, which is pushing for universal medical coverage.

The concept of letting people shop for insurance across state lines applies to the individual health insurance market, which now serves about 17 million people. The market consists largely of those without access to insurance through their employers, but it's a market McCain is trying to strengthen through changes in the tax code. Under his plan, people would get the same tax break - a $2,500 credit for individuals or a $5,000 credit for families - regardless of whether they got insurance coverage through work or purchased it directly.

Now, tax breaks primarily help those with employer-sponsored coverage. Employer and employee payments toward health insurance are excluded from income and payroll taxes. McCain would treat those payments as taxable wages and an income tax would be applied to them for the first time.

Polling conducted by the Kaiser Family Foundation suggests people feel a good deal of attachment to getting their insurance through employers. About 61 percent of those surveyed felt that shopping on their own would make it harder to find a plan that meets their needs; only 15 percent said it would be easier. In addition, 81 percent of respondents thought it would be harder to get a good price for their health insurance if they were to buy health insurance on their own.

Supporters say McCain's plan would entice millions of healthy people who are now priced out of the market to buy insurance. And that's the point: Get people covered before bad things happen to them.

"There's no state that's such a bottom feeder that their health insurance is a junk policy," said Grace-Marie Turner, president of the Galen Institute, which promotes using the free market to improve access to health care. "Tell me which state it is that's going to sell these terrible health insurance policies. Pretty soon the market will respond and say, 'That's terrible health insurance and we're not going to buy it from there.'"

McCain has acknowledged the need to help out those chronically ill who could be left behind. His solution: a "guaranteed access plan" that each state would operate under the direction of a board representing consumers, insurers and businesses. Each state's plan would offer multiple coverage options with premiums not exceeding 150 percent of the standard plan sold in the state.

The plans would need generous government subsidies to cover expenses, so McCain says the federal government would dedicate $15 billion to $20 billion a year to their operation.

If participants had incomes below three times the rate of poverty, the government would subsidize the cost of their premiums on a sliding scale, with the poorest getting the most help.

The concept builds on programs operating in 34 states as of the end of last year. The 34 states have "high-risk pools" that cover the uninsurable. The pools tend to be quite small and enroll only a small percentage of the uninsured. At the end of 2006, the plans covered about 190,000 people compared to more than 31 million people still uninsured in those states, according to the Congressional Research Service.

Douglas Holtz-Eakin, a domestic policy adviser to the McCain campaign, described the current set of high-risk pools as a mixed bag, with Minnesota's standing out as the best.

"Sometimes states simply do not put enough money on the table and we want to make sure that doesn't happen," Holtz-Eakin said.

By design, high-risk pools rely on government subsidies because the expenses that policyholders generate far outpace the premiums they pay. Premiums typically cover about 60 percent of the pool's expenses. Overall, economist Nichols said, the average individual enrolled in a high-risk plan pays about $5,500 in premiums annually and states spend $4,125 per enrollee to subsidize coverage.

So, if McCain ended up spending in the higher range of his estimate - $20 billion - that's enough to subsidize coverage for nearly 5 million people, he estimated.

"Herein lies the fundamental problem: If you're going to basically over time significantly erode the employer (health insurance) market, then an awful lot more people will need that high-risk pool than the $20 billion will cover," Nichols said. "We could design a program that would work, but it would require a lot more money than they're willing to commit."

While McCain's plan focuses on changing the tax code to expand coverage, Barack Obama's plan aims to subsidize the cost of health insurance for low-income people so that they could purchase coverage. They could select from approved private plans or a new public plan participating in a "National Health Insurance Exchange."