Current Events Health Insurance Public Policy

Obama vs. McCain health care policies

Barack Obama and John McCain both believe that they know how to improve the American health care system. A policy brief by Michael Tanner has nice summary of the two candidates policies. I will review some of this paper today.

Obama’s general health care policy

Obama goal is to expand government provided health care and create a form of “managed competition” originally developed by Alain Einthoven. Obama supports expanding SCHIP and Medicaid eligibility. Although Obama does not support a health insurance mandate for adults, he does support a mandate for children and young adults (any one 25 or under). Obama’s goal to increase health care access, he would support a “pay-or-play” mandate. All but the smallest employers would be required to provide health insurance; those who didn’t would be compelled to pay into a national fund covering these uninsured workers. The mandate would likely require a minimum benefits package. Overall, Obama is pushing towards more government provided health care and more regulation.
McCain’s general health care policy

Compared to Obama, McCain is generally against more government participation and regulation. Instead of moving the U.S. to larger risk pools (e.g., government insurance, employer insurance) that are more severely regulated, McCain want to move the U.S. towards more individually provided health insurance. McCain’s main policy initiative is a $2,500 health insurance refundable tax credit for individuals ($5000 for families). The goal is to make health insurance more affordable, but make individuals incur the full cost of “better” health insurance at the margin. McCain is also considering risk-rating these vouchers so that individuals with severe health problems will receive a larger voucher. McCain would also allow individuals to buy health insurance from any state.

Side-by-side comparison

Obama McCain
Community Rating Yes No
Guaranteed Issue Yes No
Drug Reimportation Yes Yes
Expand SCHIP/Medicaid Yes No
Pay-or-play mandate Yes No
Government direct negotiations with drug companies? Yes No
End tax-exempt status of employer health insurance benefits? No, but capped Either eliminate or cap
Health Insurance Vouchers No Yes
Purchase out-of-state health insurance? No Yes
Allow non-traditional organizations to buy insurance (e.g., churches, professional organizations)? No Yes


So whose health insurance plan is better? If you are in favor of more government involvement in health care, you should support Obama. In the Audacity of Hope, Obama states that “the market alone cannot solve our health care woes–in part because the market has proven incapable of creating large enough insurance pools to keep costs to individuals affordable, in part because health care is not like other products or services (when your child gets sick, you don’t go shopping for the best bargain).” While Obama’s proposals will decrease insurance choice, increase regulation, and increase public funding of healthcare, Obama’s proposals are likely more progressive than McCains and will create larger risk pools. Obama’s plan is likely much more expensive. Further, an employer mandate may lead to higher unemployment levels (see Baicker and Levy paper).
If you are in favor of less government involvement, McCain is your man. McCain rejects “coercion and the use of state power to mandate care, coverage or costs.” The voucher system is similar to the one proposed by Victor Fuchs, and fairly similar to the Swiss managed competition system. A shift to individual–rather than employer-provided–health insurance accompanied by a decrease in regulation should: 1) reduce health insurance costs, 2) increase employment relative to Obama’s plan, 3) give insurance companies the incentive to create innovative products, 4) give workers more choice of their health insurance plan, and 5) be more fiscally sound for the government.

On the other hand, McCain’s plan will be more regressive and can adversely affect the ability of individuals with pre-existing conditions to buy health insurance (unless risk rating the voucher payment occurs). The McCain plan can only be successful if risk pooling can occur on the individual level. This is happening in Switzerland, but in Switzerland there is a standard benefit package which makes shopping for insurance coverage easier.
Additional Comment

Both candidates have proposals with respect to improving how medical care is delivered. Increased preventive care, EMR, and P4P are all popular measures. However, the NEJM states “Our findings suggest that the broad generalizations made by many presidential candidates can be misleading. These statements convey the message that substantial resources can be saved through prevention. Although some preventive measures do save money, the vast majority reviewed in the health economics literature do not.” The ability of any President to directly affect the quality of medical care provided to the patient is likely small. P4P initiatives are good in theory, but since most of medical care involves unmeasurable outcomes, or outcomes which depend on multiple causal factors (e.g., the quality of medical care, baseline patient health, patient behaviors), it is very difficult to implement them on a large scale.


  1. 1. McCain’s plan is not more regressive than Obama’s. It’s the other way around. McCain would replace a highly regressive tax exclusion system (about $250 billion a year) and replace it with a same-subsidy-for-all tax credit. Obama would leave the tax exclusion system in place, and allocates only $60 billion for new subsidies.

    2. Also, the plan does not involve a major shift away from employer-provided insurance. It merely levels the playing field between individual and group purchase under the tax law.

    See my review of Obama’s plan here:

    and McCain’s plan here:

  2. You state the Obama’s plan would probably be more expensive, but expensive to whom? With today’s prices, McCain’s tax credits would only pay for, what, 3 months of premiums? Then who gets stuck covering the bill?

    I am concerned about Obama’s mandate for young adults (18-25). Why would he target a population that has less money to pay for health insurance and generally less need for it as well?

  3. Is there a statistical foundation for the assertion that the right of Americans to “opt out” of health insurance ends up making the rest of us pay significantly more, and that an individual mandate in a private sector driven system would lower costs all around?

  4. Fritha, I’m sure there has been research done by health economists out there, and I’m sure your point can be validated. The U.S. spends a disproportionately high percentage of its GDP on health care (not completely apples to apples, given that we also have the highest quality of care for people who can afford it).

    A mandate solves a large portion of the pooling problem, and should reduce overall system costs by the shared allocation. The costs aren’t just actual. I would also submit that with an insurance mandate, there would be more emphasis from the insurance companies on wellness and prevention.

    But all of these what-if scenarios are difficult to apply to real-world setting given any number of unintended consequences that could arise. From a policy standpoint, I believe we should focus on overhauls at a state level with the eye of enacting on a national level the system that works best. That’s my pragmatic view, but not one that would sit well for politicians.

  5. Both the McCain and Obama leave more questions than answers. For Obama, it has to do with the true cost of enacting guaranteed access. For McCain, he needs to address in fuller detail how he will work with states to ensure funding of gap plans for individuals who will be priced out of the private insurance market under his plan. has launched a new initiative called HealthDecision ’08: Obama and McCain on Health Care. It includes both content, analysis, but also an interactive voting tool enabling people to vote for their preferred plans after they weigh through the issues:

  6. Since this is still very much a relevant issue, I would like to point out that Research!America is hosting a health and economics moderated discussion on Oct 14 which is directly on point. The goal is to get more details on both of these plans from both candidates. Douglas Holtz-Eakin, PhD will represent Senator McCain, and Tim Westmoreland, JD will represent Senator Obama. The discussion will be moderated by David Leonhardt. You can view more information at

  7. Why does this article not mention the fact that McCain will TAX YOUR EMPLOYER HEALTH BENEFITS? And that $2500 isn’t going to buy you squat.

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