Edwards Health Care Plan

A load of your typical campaign pablum. Of course we start out with the boiler plate stuff about the 47 million un-insured and how it is a serious problem. Of course, it is a serious problem, but Edwards plan wont do much in terms of containing costs which is where the real meat of the problem lies.

Here are the standard “tell you nothing, but promise you the sky” bullet points:

  • Require businesses and other employers to either cover their employees or help finance their health insurance.
  • Make insurance affordable by creating new tax credits, expanding Medicaid and SCHIP, reforming insurance laws, and taking innovative steps to contain health care costs.
  • Create regional Health Markets purchasing pools to ensure that every American has a way to purchase an affordable, high-quality health plan, increase choices among insurance plans, and
    cut costs for businesses offering insurance.
  • Once these steps have been taken, require all American residents to get insurance.

Under the Edwards Plan:

  • Families without insurance will get coverage at an affordable price.
  • Families with insurance will pay less and get more security and choices.
  • Businesses and other employers will find it cheaper and easier to insure their workers.

How can you not like. Cheaper, yet better health care, and for everyone no less. For his next trick John Edwards will grow the entire world’s food supply in a small flower pot.

Ezra Klein likes the plan which is rather amusing since Klein dislikes the Bush proposal of a tax deduction for health care expenditures. Why is this interesting? Well, Edwards offers something similar as part of his plan,

Offer New Health Insurance Tax Credits: Edwards will create a new tax credit to subsidize insurance purchased through Health Markets, making premiums affordable for all families. The tax credit will be available on a sliding scale to middle class families and refundable to help families without income tax liability.

Now a tax credit works somewhat differently and it isn’t clear if this credit will apply to everyone or if it will be on a sliding scale based on income. But the effect is somewhat similar to Bush’s plan. If you don’t have employer provided health care then the tax credit will remove the distortion that favors employees who do have employer provided health care. In the case of the individual he will no longer be paying for health care in post-tax dollars, just like the person who has employer provided health care.

One problem for the “keeping costs low” part of Edwards plan is the part about giving insurance to those who have pre-existing conditions. This is like insuring a driver against collisions who has just gotten into an accident. The cost of insurance for somebody who has a pre-existing condition is equal to the cost of treatment for that pre-existing condition. The reasoning is simple. Insurance works off of probabilities. You might get into an accident or you might not. Based on the probabilities of getting into an accident insurance firms construct a menu of premiums/deductibles for various types of coverage. The reason this works is because nobody knows who is going to have the accidents. If we know who is going to have the accidents then insurance doesn’t work, after all why insure them? Pre-existing medical conditions are the same way as if we knew who was going to have the car accidents. In short, these people aren’t going to be getting health insurance, they will be getting heavily subsidized health care.

The same goes for other things a health insurer might try to seperate individuals on such as age, medical history, job and other characteristics. If you are high risk (say you eat too many cheeseburgers and drink too much) you’ll get the same premium as the person who is healthy and takes care of themselves. Of course, to do this the health insurance rates for those who take care of themselves and are healthy will have to rise. Nice way to introduce some perverse incentives into the society. Get ready for more whining and complaining about how America is getting fatter and fatter.

Basically Edwards plan will create regional pools that will basically allow people to pool their risk. Its great if you are sickly, have pre-existing conditions or simply want to be a fat slob sitting around drinking and smoking. If you are healthy and watch what you eat and exercise, then it may not be such a great deal. Further, there maybe regional transfers as well from rural areas to urban areas.

Also I’m doubtful of the idea that these regional Health Markets will be able to negotiate low premiums. Sounds more like a euphemism for price controls to me. And here is a nifty part,

Finally, they will be able to work with insurers to adopt cost-effective approaches to health care like preventive care and to collect the data necessary to drive quality improvement.

I wonder if people like Marcotte and Klein got their panties in a knot over the idea of Bushco snooping around in library records and wire-tapping. Edwards wants to have access to their medical histories. No major inconsistency there.

And while Edwards sounds the usual platitudes about cutting costs by cutting private insurance overhead there is no mention of Gammon’s Law (see here and here). This problem is one we’d more likely find with government provided health care (e.g. Medicare and Medicaid). The problem here is that there seems to be law that as a bureaucratic institution grows more and more of its resources go into administration vs. actually providing the good in question.

Now, I don’t want to give the impression that I’m all negative, although largely I have negative views of this plan. I do like the tax credit part of Edward’s plan. I also like the idea of mandantory insurance–i.e. you have insurance of you face serious penalities. However, I think Edward’s plan ignores the potential problems with moral hazard. I think it ignores the government’s role in spiraling health care costs. I think the idea that you can get more for less is generally not true. If we get to the unlikely stage where Edward’s plan is actually implemented it might cover all Americans, but I really don’t think it will contain costs. I think costs will continue to grow at their current exponential rate or even faster rates (after all we’ll have lots more people with easier access to health care) and the current growth rates are wildly unsustainable.

FILED UNDER: 2008 Election, Economics and Business, Health, US Politics, , , , , ,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.


  1. Dave Schuler says:

    I’ll take a different tack on this question since I’m sure everybody is bored with my prescriptions.

    People without healthcare coverage is a local problem. Just two states (Texas and California) have a quarter of all the uninsured. Add just a handful of other states that simultaneously have high numbers of uninsured and a high percentage of uninsured and it accounts for half of all of the uninsured nationwide.

    That strongly suggests that at least part of the problem may be the Medicaid rules in those states.

    When you examine the issue even more closely (rather than just in aggregate), in every state without exception in which there is simultaneously a large number of uninsured and a large percentage of uninsured, the state has a large population, numerically and by percentage, of immigrants. There is simply no way to make both open borders and universal coverage fiscally sound.

    Please don’t hold out Britain, Canada, France, or Germany as examples for me. Britain is an island,
    for goodness sake. And the social situations in Canada, France, and Germany are completely different than they are here. If any of those countries were experiencing the rate and type of immigration that we are and have been, their healthcare systems would collapse.

    Don’t construe this as my being anti-immigrant (I’m not). I’m just stating the facts.

    Add the free rider problem (people who can afford healthcare insurance who don’t carry it) and the problem of universal coverage becomes much, much smaller.

    The solution should be tailored to the problems we actually have.

  2. Steve Verdon says:


    Interesting, I didn’t know that the uninsured were so concentrated. Is there a connection with illegal immigration possibly?

  3. Dave Schuler says:

    The other states with high proportions and numbers of uninsured are: Florida, Georgia, Louisiana, Nevada, New Mexico, and North Carolina. Other states with high proportions (but lower numbers) are Arizona, Idaho, and Mississippi. Does that answer your question?

    BTW Alaska and Oklahoma have high percentages of uninsured, too. I attribute that to the large numbers of native Americans in those states.