Were McCain’s High-Risk Insurance Pools Better Than Obama’s?

Yesterday, our old friend and former McCain campaign adviser Douglas Holtz-Eakin wrote an editorial distancing the former presidential candidate from the high-risk insurance pools in the new health care law. President Obama has argued that the program — a temporary measure designed to provide coverage for individuals who are uninsured for at least six months — was modeled off of McCain’s proposal to cover every American with a pre-existing condition in state-based high-risk policies, and has touted the provision as an example of the Republican ideas contained in the health care bill.

Under the law, a state can meet the new HRP requirements (the pools have to cover at least 65 percent of costs, have limited out-of-pocket expenditures, have no exclusions for pre-existing conditions and cost no more than a standard rate for a standard population) by 1) improving the affordability standards in its existing program, 2) building a new pool that meets the federal requirements or 3) allowing the federal government to enroll its residents into a national program. Holtz-Eakin takes exception to the notion that this has anything to do with what his boss was proposing on the campaign trail:

In contrast, McCain’s GAPs would have emphasized best practice as a condition for federal assistance — including permitting GAPs to band together with other states’ GAPs to enlarge pools, purchase coverage across state lines and lower overhead costs.

It would have provided incentives for use of innovative tools to reduce health care costs. As a condition of federal assistance, states would have permitted a broad range of insurance, including preferred-provider organizations and health savings accounts. McCain’s GAPs would have addressed both cost and coverage, improved competition in insurance markets and expanded the quality of insurance offerings.

In addition, McCain’s plan would have put serious money behind the needs of those with costly conditions. How much? More than $20 billion annually, according to Lewin Group estimates.

There is a clear bottom line: Obamacare marches into a state with no regard for the existing high-risk strategy and no attempt to coordinate to achieve sensible coverage, competition and budgetary outcomes. In return, states get a temporary program with a 2014 expiration date.

Thus, at its best, it is a bandage that won’t foster market reforms.

I’m not going to deny that there are some differences here, but I also don’t believe that the Democrats were under any kind of obligation to adopt McCain’s “GAPs” since the senator ultimately voted against the measure, along with every other Republican. The final provision was a compromise between McCain’s proposal and Democrats’ principles but the basic concept is the same incredibly expensive proposition: bring all the sick people together, put them in a single risk pool and see how much that costs you. Holtz-Eakin says that McCain would have put “serious money” behind the proposal, more than $20 billion annually. But during the campaign, he suggested that far less would be needed.

“When Mr. McCain unveiled his high-risk pool proposal, his chief domestic policy adviser, Douglas Holtz-Eakin, the former director of the Congressional Budget Office, estimated the federal cost at $7 billion to $10 billion. Mr. Holtz-Eakin said five million to seven million uninsured people would be singled out for coverage,” the New York Times reported in July of 2008. “But in a recent interview, Mr. Holtz-Eakin emphasized that the projections “could change dramatically” depending on how the program was structured.”

The point of all this is to say that HRP are just a very expensive way of doing business, no matter whose version you consider. The states that are choosing to opt out of the program are arguing that $5 billion over three and a half years is not nearly enough and who’s to say that they would be satisfied with the kind of funding McCain was proposing? According to a 2008 report from the Tax Policy Center, using high-risk pools “to prevent large losses in insurance coverage among the sick and needy” would require far more than $100 billion over 10 years. The real cost would be “on the order of $1 trillion over ten years given projected health care costs.”

No matter how much better Holtz-Eakin believes McCain’s proposal was at containing costs, he can’t possible agree that the GAPs were sustainable over the long term. Obama’s approach is an interim measure which may require more funding, but at least it ends once the exchanges begin.