Sen. John Kerry has proposed a plan to radically reform the U.S. health care system. 1 If he is successful, millions of middle-income families will be enrolled in Medicaid, the federal-state health program for the poor. Millions more will get their insurance through a system of managed competition modeled after the federal employee’s health system and similar to what Hillary Clinton proposed more than a decade ago. Most people would be unable to remain in the private health plan they have today.

The Kerry plan would not mandate that employers provide health insurance coverage, unlike the Clinton plan of years ago. Instead, it would use economic incentives to induce people to voluntarily insure. Among the inducements:

• The federal government would pick up the additional cost of insuring Medicaid children if the states expand eligibility and meet their goals for increased enrollment, including enrolling 95 percent of children in families with less than 300 percent of poverty level income.
• The federal government would also pay 75 percent of the cost of catastrophic health expenses if employers offer insurance to all employees and pay one-half the premium costs.

There would be additional subsidies for many of those who insure through the system of managed competition, including:

A refundable tax credit for small businesses that insure low-income employees;
• A 75 percent tax credit for workers between jobs and a 25 percent tax credit for workers age 55 to 64 years;
• And a limit to how much insurance could cost (6 percent of income at the poverty level, rising to 12 percent at 300 percent of poverty) for everyone else who individually enrolls.

We put the price of these reforms in excess of $1 trillion over 10 years — an amount equal to almost $1,000 per year for every household in America (see Table I). This estimate differs in two ways from Kerry’s own estimate, calculated by Emory University Professor Kenneth Thorpe: 2 First, Kerry's (i.e., Thorpe’s) most recent projection delays the introduction of the program by one year — making the first year’s cost zero. Second, Kerry is now projecting offsetting savings, most of which consist of the perennial promise to eliminate waste and inefficiency. Our projection includes 10 full years of operation and ignores phantom savings. 3