What the candidates mean for your health care

This article is part of a series on the presidential candidates and the squeeze on the middle class. Click here to read about energy and housing issues.

Brace yourself: Whether the next president is John McCain or Barack Obama, you can expect radical change in the kind of health care you receive and how you pay for it.

And you asked for it.

Do you worry about health care?

Patients and doctors alike have voiced deep dissatisfaction with the way things work now. Instead of having the best health care system in the world, studies say, we Americans actually pay more than anybody else -- 16% of gross domestic product compared with 11% in Germany or 10% in Canada -- and get worse care than people in Colombia, Cyprus and Saudi Arabia, among other countries, according to the World Health Organization.

Map: World's top 10 health systems

So what are McCain and Obama proposing to do about it? The candidates agree on four important measures:

1. Expanding the use of electronic medical records. About 80% of medical practices still shuffle paper files.

2. Managing patients with chronic illnesses more carefully. Diabetes, heart disease, cancer and four other diseases account for 75% of all costs.

Healthier patients, richer doctors?

3. Funding "comparative effectiveness" research to determine whether a new drug or procedure is actually more effective than existing alternatives. Right now, demonstrating that a treatment is safe is enough.

4. Emphasizing prevention. For instance, spending $1 on preventive care for young women with diabetes can save $5.19 in costly complications for mothers and children.

Reality check: These are "all things we should be doing," says Jonathan B. Oberlander, who studies health policy at the University of North Carolina. But he says both candidates overstate the short-term savings. Reducing obesity, for instance, would pay off only "a long way down the road, even if we knew how to do it."

So where's the radical change here? Let's start with McCain's plan for the health insurance you get from your employer -- or maybe used to get. As expenses soar, employers are rapidly moving away from such plans and shifting costs to workers.

Chart: Rising health insurance costs

But employers still provide the bulk of the nation's medical insurance, covering more than 158 million Americans. For many workers, health coverage matters

as much as wages. Under McCain's plan, that would change. For the first time, workers would pay income tax on the entire cost of their health care benefits. With the average premium for a family now above $12,000, that could mean a substantial tax increase for the middle class.

But McCain would also provide a medical insurance tax credit of $5,000 per family. So strictly in tax terms, it should be a wash for most families, according to the Tax Policy Center.

McCain argues that "families should be in charge of their health care dollars and have more control over care." The unspoken premise is that moving the bill from the company to the individual would give people an incentive to control costs themselves.

McCain on health care and federal programs

Reality check: Skeptics say McCain's plan would encourage more employers to drop health coverage -- or drop it for lower-ranking workers -- possibly pushing tens of millions of people into the individual insurance market. Some of those workers might be unable to get insurance on their own because of their health status; the industry currently rejects almost a quarter of applicants age 50 and older.

And with the tax credit covering less than half the cost of the typical family premium, many people would be unable to afford coverage. The shift could also mean less money going to actual medical care: Employer-based health insurance plans typically keep administrative overhead to around 15% of costs. For individual policies, it's 30% to 50%.

More: McCain on 7 top issues for the middle class

Obama's alternative would mean radical change, too. He's proposing two big ideas. The first is a new national health plan, essentially creating a Medicare-style option for people younger than 65 and allowing it to compete in the marketplace with private insurance plans. Employers would have the choice of offering private health coverage or paying about 6% of payroll into the national plan.

Obama would exempt small businesses, which have loudly resisted any health insurance requirement in the past. Instead of compelling their support, he would offer them a tax credit covering up to half the cost of their employees' health care insurance and would trust that the incentive would get the job done, in most cases.

Both the national plan and private insurers would have to take all comers and would charge the same premium regardless of an individual's health status. Parents would be required to have health insurance for their children, and the plan would provide subsidies for low-

income families.

Obama: Health care worker for a day

Obama's other big idea is for a so-called national health insurance exchange. He would have the

government use its purchasing power to set policy terms and negotiate rates for private health insurance, hoping to provide better choices for individuals and employers.

Obama says he would pay for the extra costs of this plan by allowing the 2001 income-tax cuts to expire on schedule in 2010, pushing the top rate on high earners back up to 39.6% (from 35% now). Eligibility for personal exemptions and itemized deductions would phase out above $250,000 in income for a married couple -- also a return to pre-2001 rules.

Reality check: Obama would face resistance from the insurance industry, drug companies and medical providers, as well as from political conservatives who argue that his plan relies too heavily on government mandates, regulations and subsidies. Some analysts worry that the plan would prove more costly than the Obama campaign expects.

More: Obama on 7 top issues for the middle class

But there is support for Obama in other quarters. Karen Davis, president of the Commonwealth Fund, a private foundation that funds research and grants in the health care field, predicts that competition with a national plan modeled on Medicare, in which administrative overhead is just 2% of spending, could drive down the cost of private insurance by 30%.

What about the 47 million Americans who have no health insurance? Neither Obama nor McCain would mandate universal coverage for adults. Obama would rely instead on subsidies and incentives to bring more people back into the insurance system.

McCain says he could do it by making insurance cheaper and using tax credits to help people pay the bill. He's also promised to increase federal aid for the high-risk pools the states use to cover people who cannot otherwise get insurance. Those plans now cover about 207,000 Americans, but McCain adviser Douglas Holtz-Eakin has estimated that McCain's "guaranteed access plan" would increase that to 5 million to 7 million people, at a cost to federal taxpayers of $7 billion to $10 billion annually.

Reality check: The Tax Policy Center figures that Obama's plan would reduce the number of uninsured Americans by 18 million in 2009, versus 1 million for McCain's plan. It also predicts that after gradually improving over five years, the benefits from McCain's plan would begin to reverse because his health insurance tax credit would not increase in tandem with the cost of premiums.

Karen Pollitz of Georgetown University says McCain's access plan could cost $7 billion to $10 billion -- not per year but per week. Bottom line: Neither plan will make the problem of the uninsured go away.

What about doing nothing? Experts estimate that, eight years from now, 60 million people would be uninsured and that total spending on health care would eat up 20% of gross domestic product.

Chart: How much does health care cost?

The one sure way to control costs, UNC analyst Oberlander says, is to set a budget and live with it. But neither candidate wants to talk about that because "cost control, at the end of the day, is about pain," he says. "Either you're going to limit somebody's access to services and make patients unhappy, or you're going to limit payments to providers and make them unhappy."

Talk of the pain to come won't win votes, so don't expect to hear much of that during the campaign.

But after Jan. 20, you'd better be prepared.

Return to the Middle Class Crunch series

Updated Oct. 21, 2008