Dissecting McCain's Medicaid Trust Fund

April 28, 2008— -- As John McCain prepares to flesh out his health-reform policies during a Tuesday speech in Tampa, Fla., Democrats see pre-existing conditions as his Achilles' heel.

Unlike plans offered by Democrats Barack Obama and Hillary Clinton, McCain would not require insurance companies to cover individuals without regard to pre-existing conditions.

Instead, he is proposing to create a subsidized high-risk insurance pool.

"We're not leaving anybody behind," McCain recently told ABC News' "This Week with George Stephanopoulos." "We will, as part of our plan, have a special Medicaid trust fund set up to help care for those people who have pre-existing conditions."

Although McCain refers to his proposal as a "Medicaid trust fund," he is not proposing to enroll people with pre-existing conditions in the federal-state program for the poor.

His plan, according to his senior policy adviser, is to "improve the kinds of backstops" that exist in some states but not all.

"The key is to make sure there is more money on the table in this contract between the insurer in this higher cost risk pool and the individual," McCain senior policy adviser Douglas Holtz-Eakin told ABC News. "Whether that money comes first to the individual and then heads over to the insurer, or if the federal government simply directly gives it to the insurer, is an administrative detail," he added.

While McCain has begun to outline his plan for Americans with pre-existing conditions, he has not made a final decision as to who would qualify for help.

"The senator is still working through the details of the exact cut-offs and eligibility requirements," said Holtz-Eakin. "The senator is going to make his final decision on eligibility criteria coming up in the next couple of months."

Funding for McCain's trust fund depends on savings being produced under Medicaid.

"McCain's proposal will be to use some of the savings that would come out of the Medicaid program, because people are now in private insurance, and to develop a federal backstop -- a program that would give high cost individuals an insurance policy," said Holtz-Eakin. "Insurers that participate in the program would receive higher premiums."

It is unclear whether the Medicaid savings McCain envisions would put enough "money on the table" to persuade insurers to accept those with pre-existing conditions at an affordable price.

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