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Medicaid Expansion and Tax Credit Incentives

In the upcoming 2008 presidential election, issues surrounding healthcare are gaining

increasing prominence in discussions among candidates. Over the past 15 years, the overall

number of uninsured has grown more quickly than the US population, and today we have 47

million uninsured men, women, and children. Additionally, the rising cost of healthcare as well

as its quality are topics of pressing concern, and substantial revision and reform of our existing

healthcare system will be required to effectively confront these challenges.

Hillary Clinton, Democratic Senator from New York, has proposed a scheme by which

the country will drive toward accessible and affordable healthcare for all of the country’s

citizens. This will be achieved with a federal mandate that requires individuals to purchase

health insurance with the help of an income-related tax subsidy. Funding will come from raising

the taxes of high-income earners, and a number of government boards will be set in place to

determine quality measures and offer select insurance plans. John McCain, Republican Senator

from Arizona, has adopted a different approach to the same question. His plan removes the tax

exemptions related to employer-sponsored insurance and promises to use this money to provide

a tax credit to all those who buy insurance. This refundable tax credit will serve both as an

incentive for people to acquire insurance and as a means to make their purchase more affordable.

While both Clinton’s and McCain’s plans attempt to reform the healthcare system, their

proposals reflect their party affiliation, as the Democratic plan relies largely on government

intervention and the Republican one on the power of private markets. Because a large

population of the United States consists of voters with centrist tendencies, a more moderate

proposal, such as the one outlined below, could be important in winning their support.

To attract moderate voters, a Medicaid expansion to include a larger proportion of low-

income citizens, coupled with a refundable tax credit incentive scheme for those not eligible for

Medicaid, will strike a balance between large government regulation and market forces. It will
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be funded by reforming the tax code in a way that removes the favorable tax treatment of

employer-sponsored insurance as well as by the value of health capital gained from providing

timely healthcare to the uninsured. Furthermore, the plan will try to contain costs by

encouraging preventative care and setting up a federal board that will negotiate with insurance

companies as a large group buyer and will offer its plans to the public. Quality will be improved

through a host of pay-for-performance incentives that will be determined both by public and

private institutions.

The major ways in which this moderate plan will offer healthcare coverage to United

States citizens are an expansion of Medicaid and a refundable tax credit to those who purchase

health insurance on their own. Currently, 65% of the uninsured are people whose income is

below 200% of the poverty level. By expanding Medicaid eligibility to this income level, the

plan targets the most vulnerable uninsured population: those who cannot buy insurance because

it is not affordable. Additionally, the expansion would include a provision for a partial buy-in,

so that citizens who did not meet the 200% of the poverty level cut-off could pay varying fees

for Medicaid benefits, depending on their own income level. This way, the plan would give

coverage to a large portion of the 47 million Americans who do not have insurance. For all

those who did not qualify for Medicaid, a refundable tax credit would be offered to purchase

insurance coverage. The amount would be similar to John McCain’s $2500 per individual or

$5000 per family.

This plan would appeal to moderate voters more than either the Clinton or McCain

proposal because it incorporates both conservative and liberal ideas about healthcare reform. As

national exit polls in the 2004 presidential election demonstrated, the most important issue in

healthcare for Democrats was the problem of the uninsured1, and this proposal makes a

concerted effort to address that question by expanding Medicaid to the most vulnerable

uninsured population. The plan expands coverage close to the level of the Clinton proposal and
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past that of the McCain plan, thereby attracting moderate voters with its middle-of-the-road

stance.

For the rest of the population, this proposal relies on market mechanisms and incentives

to aid citizens in purchasing affordable and quality healthcare coverage. Senator Clinton’s plan,

which operates through both individual and employer mandates, has been heavily criticized from

the right as “a pretty clear march toward socialized medicine.”2 In fact, Republican presidential

candidate Rudolph Giuliani has said that this tactic of “government command and control” is “a

prescription for an increase in wait times, a decrease in patient care, and tax hikes to pay for it

all.”3 Thus, in order to rely less on big government intervention, this moderate proposal would

encourage buyers to enter an individual insurance market where plans compete for their clients.

While this would allay fears of government control over medicine and attract right-

leaning moderates, the proposal would also appeal to left-leaning moderates by creating federal

institutions to support individual insurance purchasers. Drawing on the idea of Senator

Clinton’s Health Choices Menu, a government board would be set in place to offer all

Americans affordable insurance coverage such as that enjoyed by members of Congress and

federal employees. This board will hold the same negotiating leverage that large employers

currently hold over insurance companies, and will be able to provide insurance to Americans at

competitive prices and with lower overhead costs. This is not included in the McCain plan and

will make the market approach more attractive to left-leaning voters. Thus, this moderate plan

strikes a middle ground between a federal mandate and pure market competition: individuals are

faced with a competitive market where they have a strong incentive to buy insurance, but there

is a government safety-net that ensures that people always have the choice of an affordable

healthcare option, should they desire it.

A major healthcare issue that was at the top of the list for both Republican and

Democratic voters in the 2004 exit polls was the cost of insurance and medical services4. For
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this reason, this proposal will focus on cost containment through various approaches. First and

foremost, the plan will greatly encourage healthcare providers to adopt the practice of

preventative medicine and the coordination of chronic disease treatment. Both the Clinton and

McCain plan endorse these goals. In departing from the Clinton plan, this proposal will allow

insurance to be sold across state lines, encouraging the formation of a national competitive

market, which will attract right-leaning moderates. At the same time, the federal Health Choices

Menu will offer affordable options to all Americans because it will save tremendously on

overhead costs. This is not part of the McCain plan and represents an aspect that will draw left-

leaning moderates.

This proposal will also address costs associated with malpractice lawsuits, but not

through extensive tort reform as proposed by McCain. Rather, it will do so by establishing

disclosure guidelines, which will protect physicians from the inherent risks of practice, which

are present even for the most qualified physicians. Moderates will find this approach appealing,

since it tackles the issue of malpractice, but in a cautious way that invites federal guidelines.

Lastly, the proposal will work to lower drug costs by changing laws to make generic drugs more

quickly available to the population. This measure does not go to the same lengths as the

McCain plan, which lends the market more power through its drug re-importation policy. It also

does not give in to the same kind of government regulation as the Clinton plan, which threatens

to curtail direct-to-consumer advertising of prescription drugs. Thus, this proposal’s focus on

patent laws represents a middle ground that will be popular with moderate voters.

Issues of quality carry similar importance especially in light of the Institute of Medicine’s

2001 report, Crossing the Quality Chasm, which claimed that Americans were receiving lower

quality care than they should be5. This plan will encourage pay-for-performance (P4P)

incentives that reward providers for meeting or exceeding a wide array of quality measures

determined for each condition. While insurance companies can identify these criteria on their
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own, those healthcare plans that are offered through the federal Health Choices Menu will be

selected so that they are in line with national quality standards to be determined by an official

board. Additionally, like the Clinton plan, this proposal will support federal recognition of

maintenance of certificate programs. The McCain plan leaves little room for government

intervention, especially since it does not tie its support for national standards to any market

mechanisms, such as the one offered above. The Clinton proposal, however, does not grant the

same importance to private markets in setting P4P incentives, as done under this plan. Once

again, a middle-of-the-road stance should win moderate votes for this approach rather than that

of Clinton or McCain.

Finally, this proposal would greatly appeal to moderate voters in terms of its financial

and social fairness. In order to finance this proposal, the tax code would have to be changed to

remove the favorable treatment of employer-sponsored insurance. It is estimated that between

$91 and $160 billion is lost as tax breaks each year under the current scheme. By eliminating

these provisions, the money could be used to fund the tax credits and the Medicaid expansion.

Importantly, this proposal does not rely on tax increases proposed by Senator Clinton, thereby

appealing to right-leaning voters who would not otherwise have liked the Democratic plan.

From a social perspective, the moderate plan works to insure low-income populations, which is

an action that will resonate with left-leaning voters since it is reminiscent of universal coverage,

something not included in Senator McCain’s proposal. Additionally, the economic benefits of

insuring the uninsured would attract both left- and right-leaning moderates. In a 2003 report, the

Institute of Medicine estimated the value of health capital lost each year due to uninsurance to

be between $65 and $120 billion6. All voters would be attracted by this proposal’s use of the

financial productivity of insured and healthier citizens.

Overall, this plan’s approach toward reforming the healthcare system combines

principles of government intervention and market forces. The expansion of Medicaid to cover a
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larger part of the uninsured population represents a left-favored approach, while the use of

refundable tax credits to provide incentives for purchase of coverage relies on a conservative

belief in the power of private markets. This mix of individual incentives and government

oversight will attract an important population of moderate voters and has the potential to make

great strides toward improving America’s healthcare.

1
Blendon R.J. et al. 2005. “Voters and Health Care in the 2004 Election.” Health Affairs Web Exclusive.
2
Anderson, Curt. "Giuliani criticizes Clinton health plan as 'socialized medicine'." Associated Press 17 September 2007.
3
Lambro, Donald. "Ill-fated '94 plan casts shadow over new effort." Washington Times 18 September 2007.
4
Blendon R.J. et al. 2005. “Voters and Health Care in the 2004 Election.” Health Affairs Web Exclusive.
5
Institute of Medicine. 2001. Crossing the Quality Chasm. Washington, DC: National Academies Press.
6
Institute of Medicine. 2003. Hidden Costs, Value Lost. Washington, DC: National Academies Press.