Thursday, October 18, 2007

A Detailed Analysis of Rudy Giuliani's Health Care Plan

A Detailed Analysis of Rudy Giuliani's Health Care Plan

Rudy Giuliani's health care reform plan generally follows the Republican health care reform template that places the emphasis on making the health care market more effective in controlling health care costs and thereby enabling more people to be covered.

Giuliani would remodel the income tax system to help people buy coverage and encourage states to be more aggressive in finding ways to cover the poor.

Unlike the Democrats, who would all spend at least $100 billion a year on health care reform and thereby make getting everyone covered the first priority, Giuliani, like all of the Republicans, does not call for any new spending.

Let's take a look at the key points of his plan using the Kaiser Family Foundation candidate comparison criteria:

Provide individuals without employer-based coverage a health insurance tax deduction to subsidize their health insurance premiums and provide lower-income families a tax credit to help subsidize their premiums. Tax changes are intended to shift millions from employer-based to individual insurance.

In this one section sits 75% of Giuliani's health care reform plan.

Like many Republicans, Giuliani believes that the employer-based system that covers most people itself contributes to high health care inflation because of the generous benefits people often get that shield them from the true costs of care. If individuals have more control over the money they spend on insurance and on health care, the argument goes, then they will bring the market to bear on the system and make it more efficient and effective.

Giuliani would give families a flat $15,000 tax deduction ($7,500 for a single person) if they bought health insurance on an individual basis. Any value of that exclusion beyond the cost of their insurance could be put into a health savings account (HSA).

This Giuliani provision only applies to those who do not have employer-provided health insurance--unlike Bush's "State of the Union" plan that would apply to those in employer-based plans and with individual coverage. Bush would also have ended the tax exemption on employer provided health insurance and replaced it with a separate individual tax benefit--as would McCain.

Would this generous individual tax deduction end employer-provided health insurance?
There would be no prohibition on employer-based care in Giuliani's plan. But it would encourage employers to say to employees, "You can get a bigger tax benefit than you are now getting in the employer plan. Why don't I just give you the money as wages and then you can control how you spend it." At that point the employer's cost would increase not by the higher health insurance trend rate but at the historically much lower wage rate.

That is what Giuliani hopes the employer will do so that you take control of your health care dollars. In your hands, he sees the money being spent more efficiently. This goes to the favorite Republican ideas of "individual responsibility" and "individual choice" in health care and health insurance purchases.

An issue with this is that health care costs have continually increased each year at two to three times the wage rate. So, this could be a good deal for the consumer early on but over time wages would go up with the wage rate (3% in recent years) while health care costs would likely rise much faster--they have risen at two to three times the wage rate in recent years--creating a big potential gap. As health care costs outstrip income, proponents of this system see the consumer getting more aggressive at controlling costs and thereby bringing the system under control. Opponents argue that since the big HMOs, with all of their expertise and bargaining clout, haven't been able to bring costs under control, how will the consumer?

Since there is no such $7,500/$15,000 tax deduction now on health insurance purchased outside the workplace, this element would have a cost that Giuliani does not estimate or tell us how he would pay for.

Giuliani says almost nothing about how he would deal with the individual health insurance market underwriting issues other than to say he would expect the states to figure it out.

A $15,000 tax deduction also impacts families at different income levels differently. High-income people are in high tax brackets where the deduction is worth more and lower income people are in lower brackets, or even pay no taxes, making the deduction worth less. John McCain uses this system but provides a flat tax credit of $2,500/$5,000 instead, thereby giving the poor relatively more and the rich relatively less as a percentage of their income.

Either approach to tax-based assistance to purchase health insurance needs to be evaluated in the context of how much health insurance costs. The Kaiser Family Foundation 2007 survey of employer-based health insurance found that the average cost of family coverage is now over $12,000 a year. Even an HSA-style plan cost is almost $10,000 a year. If you were in a 20% federal tax bracket, a $15,000 deduction would give you a $3,000 benefit toward that cost. Hopefully, you would also have an employer making a contribution on your behalf.

Giuliani would also simplify health savings account (HSA) regulations to encourage more people to use these funds as a better way to get the consumer more involved in their health care spending in order to better control it.

For the low-income, Giuliani points to Medicaid assistance as well as possible employer contributions and undefined tax credits to fund the cost of care.

Giuliani does not have a mandate that either employers or individuals purchase coverage--consistent with all other Republicans and in opposition to the general Democratic approach.

Permit individuals to purchase insurance across state lines.

Like all of the other Republicans, Giuliani believes that a more vibrant individual health insurance market will do a great deal to make health care costs more affordable.

The big issue with this kind of individual system is that the individual health insurance market is not ready to take all of the new business. Today, you can get an individual health insurance policy but only if you are healthy. The individual health insurance market is fraught with pre-existing condition provisions, medical underwriting, and rating by age. If you are young and healthy you can get a comparatively affordable health insurance policy. If you are age-55 it a comprehensive plan cost you and a spouse more than $10,000 a year and if you have hypertension, heart disease, diabetes, and a long list of other things you probably can't get coverage.

If Giuliani wants to create a national individual health insurance system--the ability to "purchase insurance across state lines," then he has a federal, instead of the existing state, system of regulation and he needs to tell us how his federal system will accommodate all comers including those who have pre-existing conditions.

There is some reference to state "high risk pools." But there is no free lunch here. Who is going to subsidize these pools so the sick can afford them and how will they work in connection to a federal health insurance charter for the individual market?

Provide states with block grants to encourage innovation, reduce health costs, enroll the eligible uninsured in public plans, and address adverse selection issues.

Giuliani would seem to leave these individual health insurance market issues to the states, "address adverse selection issues." So, he would give the private insurers a national charter and then leave the fall-out (those they choose not to cover) to the states?

He apparently believes that by reshuffling existing federal Medicaid and SCHIP money and giving the states more flexibility in how to spend it he can cover more people.

The providing of block grants to the states is at the heart of the current SCHIP debate and the Bush veto of that program's extension because the states have gone beyond covering people over 200% of the poverty level--a position Giuliani has also taken in support of President Bush.

Giuliani needs to be clearer on just what he would expect the states to do, how far these block grants would go, and how he expects the states to deal with those who can't get covered by insurers Giuliani would have operating under a new federal charter.

Cost containment:
  • Invest in health information technology to lower costs through improved efficiency and quality.
  • Create transparency for prices, provider qualifications and risk-adjusted procedure outcomes to expand competition and reduce costs.
  • Supports medical liability reform.
  • Streamline the FDA drug approval process to reduce regulations that delay new cures.
  • Proposes that “health insurance should be redefined to cover wellness as well as sickness.” Promote healthy lifestyles and tie federal Medicaid payments to a state’s success in promoting preventive care and tracking obesity in children.
The Giuliani cost containment program is very similar to not only his fellow Republicans but the Democrats as well. While the Dems don't support the traditional Republican approach to medial malpractice reform (capping damages), the emphasis on health information technology and information about prices, provider outcomes, and wellness and prevention is very similar to all of the candidate's positions. Like his Democratic and Republican opponents, these measures are things largely already underway in the market with limited effect so far. And, like the other candidates, Giuliani is apparently reluctant to suggest anything that would raise the ire of the key stakeholders--doctors, hospitals, drug companies, and insurers. Nor would we expect a Republican with a firm belief in the value of a robust market to do more.


Giuliani says nothing about spending any additional money for the block grants to states to cover more of the poor or his new tax deduction. Apparently he contemplates no more government spending on health care believing that just reshuffling existing money will cover many millions more.

His focus would be on a big new deduction for individually purchases health insurance and expecting a more robust market to create the savings necessary to make care more affordable both for consumers and governments with the money now in the system.

However, if Giuliani is right about the impact a more robust market could have on costs, it would be years before these initiatives would be in place, allowed to run their course, and be effective. He says nothing about this transition. What would all of the uninsured do in the meantime? How would individuals afford today's health insurance costs? Where would the federal government get the money to help the states with the block grants he is calling for?

Rudy Giuliani's health care proposal is a very brief outline and a political proposal--just like all of the other candidates plans. It is a good proposal to be making during the Republican primaries where voters don't want any big government plans or more spending--especially from a candidate that many conservative Republicans worry is too liberal.

But his proposal also has a lot of gaps and unanswered questions.

It will work in the Republican primaries but if he wins the nomination he is going to have to fill in these gaps for the rest of the voters who will be more demanding of comprehensive health care reform.

You can also see my analysis of the other candidate's plans by using the topic index to the right.

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