He attacks group health insurance—the one part of the health insurance system that actually works. Why destroy what works instead of the other way around?

By  Joel Wood

I’ve been blessed with terrific health benefits in my 15 years at The Council. That’s a good thing, considering my abysmal family history of heart disease and my lifestyle (e.g., attending political cocktail parties professionally in the selfless service of our member firms).

In a belt-tightening move mirrored by tens of thousands of employers, we recently switched to a high-deductible health plan with health savings accounts for our workers.

Our benefits broker Rock Brockman (is that a name for a theater marquee or what?) and a health plan representative met with our staff to review the new scheme. Three weeks later, we did the briefing all over again, such was the confusion. Three months into the new system, damned if I can figure it out. I just know I’m paying through the teeth when I pick up my prescriptions.

So let us consider the health insurance reform plan of presumptive presidential Republican nominee John McCain. Disclosure: I am a conservative Republican largely in agreement with McCain’s economic, social and foreign policy positions. But just as I have a thick skull on navigating my own health insurance coverage, I am mystified at the core presumption of the McCain proposal: to eviscerate the employer-provided group health insurance marketplace, leaving tens of millions of Americans to fend for themselves in a new “consumer-driven” environment.

Under the plan, McCain would eliminate any tax benefits to employers for providing insurance to their workers and make individuals eligible for a $2,500 credit and families a $5,000 credit to help pay for health insurance, with the government sending the money directly to insurers. “The fundamental problem is not the quality of health care; it’s the cost of health care. So health care must be made affordable and available,” says McCain.

That statement’s fair enough, but McCain says that his plan would save $3.6 trillion over the next decade by eliminating employer tax breaks. Maybe on paper those numbers can be found, but the overall cost to Americans could be devastating.

The theory of cognitive dissonance holds that when people hold contradictory beliefs, the mind acquires or invents new thoughts or beliefs, or modifies existing beliefs, to reduce the conflict between them. I’m going to charitably describe the McCain health care proposal as an exercise in cognitive dissonance. Two concepts—whacking employer benefits, while decreasing the numbers of uninsured—are completely incompatible. It is highly irrational to believe that destruction of the employer-provided group health insurance marketplace can have any effect but a negative one on the numbers of uninsured and underinsured Americans.

In a 2007 study by The Council’s Foundation for Agency Management Excellence, many obvious advantages of the employer-provided marketplace are identified—administrative economies of scale, cost efficiencies, flexibility, and innovation, which inure to the benefit of insurers, employers and workers. As the FAME study indicated: “Insurance companies reap advantages because they are able to provide insurance to many individuals as a result of a transaction with one employer. The system affords employers the leverage to bargain for the best prices, avoid annual adjustment premiums, and obtain long-term health insurance contracts, which are typically not available to individuals. Their employees accordingly benefit from these advantages and from the fact that most employers offer insurance to employees at a discount, as well as cost efficiencies that result from their premiums being based on a larger, more diverse risk pool.”

That study was partially based on the work of two economists, who explain the advantages of employer-sponsored plans in this month’s feature story, “Cheaper By the Dozen.”

Yet the theorists who dreamed up the extreme consumer-driven agenda for McCain (similar to lead balloons floated by President Bush’s National Economic Council) risk the loss of what works, not what is broken, with the current system. Why not instead level the playing field so that individuals get the same breaks as employers (or by easing the ability of small businesses to participate), not moving the burden entirely to individuals? The most credible and practical reform proposals build on the employer-based system while attempting to make it more affordable and more widely available.

Of course, many “consumer-driven” products have appeal. Our member brokers have done quite well at marketing such products to employers, and hence the HSA I’m now trying to navigate. The idea behind “consumer-driven” health care is that the more Americans feel the actual pinch of health spending, they are given incentive to comparison shop, and thus the more pressure there will be for free-market reform to drive down costs. Indeed, I have noted with great interest that my generic blood pressure drug is a heck of a lot cheaper than my name-brand cholesterol drug—and I guess I wouldn’t have noticed the difference before. But is my irritation going to get Pfizer to lower their prices (maybe reducing their research portfolio in the meantime)? Or is sticker shock more likely to make a lot of Americans not take the medicine they need?

The McCain campaign’s prescription for health care reform reminds me vividly of the old expression, as written by Thomas Carlyle, “You must empty out the bathing-tub, but not the baby along with it.”

Wood is The Council’s senior vp of Government Affairs. Joel.Wood@LeadersEdgeMagazine.com