Health-Care Reform Takes Center Stage

But budget constraints will limit President-elect Obama’s options.

By Kimberly Lankford, Contributing Editor, Kiplinger's Personal Finance

November 2008

Health-care reform was one of President-elect Barack Obama's major domestic issues throughout the campaign, and his victory means that health care will be a priority.

What will Obama's plan look like? Based on his campaign proposals, people would have both private and public insurance options. They could keep their current coverage through their employer or, on their own, buy new private coverage or enroll in a public insurance plan that would be portable and provide benefits similar to plans currently available to federal employees. Small businesses and individuals could buy public or approved private coverage through a national Health Insurance Exchange, a marketplace that could make it easier to shop for insurance.

Obama's plan would expand Medicaid and the State Children's Health Insurance Program, and it would provide subsidies to make coverage more affordable for lower-income people. He would require children to have health insurance, and most employers would have to provide either "meaningful coverage" (yet to be defined) or contribute a percentage of their payroll to the public plan. Small businesses would receive a refundable tax credit as an incentive to provide coverage.

In the most significant change, people could not be rejected or charged higher rates because of existing health conditions, regardless of whether they buy private or public insurance. That would be a big boon for individuals with medical problems, but it could have unintended consequences. "It doesn't give people an incentive to purchase coverage when they're healthy because they can just sign up for care when they think they’re going to need it," says Cori Uccello, of the American Academy of Actuaries.

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That's what has happened in New York and New Jersey. In those states, insurers can’t reject anyone, but residents pay some of the highest premiums in the U.S. Obama's plan will work only if the premiums end up being low enough to encourage healthy people to sign up for coverage, even if they aren't required to. That will depend on how much money the government is willing to spend on subsidies to help lower-income people.

How much will it cost?

Cost is the big question mark about any health-care plan right now. The Obama campaign estimates that his health-care plan will cost $50 billion to $65 billion per year, which he plans to fund in part by rolling back tax breaks for households with income of more than $250,000.

But coming up with the money to make big changes would be much tougher today than it was when Obama's plan was first introduced—before the government spent hundreds of billions of dollars on its financial-rescue plan. As a result, "the temptation will be to do something incremental, especially around expanding insurance for children, because the budgetary realities will be so grim," says Jonathan Oberlander, associate professor of health politics and policy at the University of North Carolina at Chapel Hill. "Any way you cut it, comprehensive health reform is a tough proposition in the near future."

A lot will depend on the makeup of Congress, says Oberlander. "Liberal Democrats will want to push Obama to move faster to do something more comprehensive, and they will argue this is too important to put off regardless of the fiscal situation," he says. And interest in health-care reform could increase if unemployment continues to grow and more people are left without group coverage.

Before overhauling the system, Congress could approve smaller changes to reduce health-care costs (both Barack Obam's and John McCain's plans included cost-reduction measures), such as improving health information technology, focusing on preventive care and changing the way medical providers are paid.

For more details on Obama's health plan, read the longer analysis by the Tax Policy Center, or go to health08.org, sponsored by the Kaiser Family Foundation.

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