Will a $5,000-tax credit be the silver bullet to solve health care?

If Senator John McCain becomes U.S. president he plans to give each American family $5,000 to pay for health insurance premium costs in the individual market. Individuals would get $2,500 for the same use.

How does McCain propose to pay for this? In part, by revoking the tax deductibility of workers’ health benefits and by making cuts to Medicare and Medicaid. Even with these provisions, however,  The Tax Policy Center estimates McCain’s plan will run an estimated $1.3 trillion short in funding over the next ten years.

In McCain’s “Health Care Action” television ad, he says, “The problem with health care in America is not the quality of health care, it’s the availability and the affordability. And that has to do with the dramatic increase in the cost of health care.”

McCain is correct in saying that rising costs are our greatest
challenge, but will $5,000 make health care for families more
affordable or available? Probably not given that McCain’s plan does not
include a provision to increase the tax credit with the rising costs
insurance. And according to the Kaiser Family Foundation, the steep increase in health insurance premiums isn’t going to decline anytime soon.

Kaiser reports that families currently pay $12,680 each annually for
health insurance. That’s a 107% increase since 2000. Following this
trend, families’ annual premiums are likely to be $15,680 or more in
three years.  The $5,000 tax credit certainly won’t compensate families
whose employers decided to stop offering coverage.

What about availability? McCain says his plan would promote
competition by allowing insurance companies to sell products across
state lines. Health insurance is largely regulated by states, thus
state law dictates most insurance mandates and consumer protections. An
unintended (or intended depending on your point of view), is that
insurance companies may flock to states with lax health insurance laws.
This won’t make it any easier for people with pre-existing conditions
or those beyond middle-age to obtain coverage in the individual market.

Looks like the $5,000-solution won’t be enough to solve the U.S. cost problem and improve health care.

9 replies »

  1. The centerpiece of the health care legislation is its provision of tax credits to low and middle income individuals and families for the purchase of health insurance. For tax years ending after 2013, the new law creates a refundable tax credit (the “premium assistance credit”) for eligible individuals and families who purchase health insurance through an exchange. More Info.

  2. As I understand it the McCain “plan” seeks to remove state mandates so people can choose from a buffet of insurance coverage. You’ll find that reduced pools for choosen coverage will actually raise premiums for each type of coverage. People will also choose the least expensive not knowing what they’re really buying and when they get something that’s not covered will go back to the taxpayer to get the treatment paid for. Buy less and you’ll get less – that’s not reform.

  3. it seems the mccain campaign may have put ideology before common sense on this one. A well-crafted tax credit policy could spur us in the direction of consumer-directed healthcare (the merits of which can be discussed independently). However, any such policy should:
    1) Provide enough for folks to replace health insurance they may lose
    2) Create a system to purchase group insurance other than through employment (based on geography, interests, etc.)
    3) Deliver targeted assistance for high-risk people
    4) Encourage people to purchase health insurance before they get sick
    Without all four of these I’m afraid the McCain plan goes a long way toward achieving its vision and risks access to care for millions.

  4. I was laid off in 1985, a healthy 30 yr old with a COBRA payment of +/- $100/mo. When my COBRA expired after 18 mo, my rate jumped to >$1000/mo. When I asked why the increase, I was told that only someone with some terrible pre-existing condition would keep their insurance. I got an individual policy at that time and kept it in force ever since, as I never wanted to be trapped in a job because of health insurance.
    I spend more on insurance than any other expense and have Auto, Life, Homeowners, Earthquake, Flood, Disability, etc. None of them are connected to my employment. Why should health insurance be any different?
    The historical basis of employer health insurance goes back to wage controls imposed after WWII. It distorts the market by destroying price signals, and gets people to expect that someone else is going to pay for their routine medical care.
    I don’t expect my homeowners policy to pay for painting the kitchen or fixing my broken dishwasher. I want insurance to cover for a catastrophic event, like a fire. I need moderately priced health insurance to cover for a major illness or injury; not a routine office visit.
    It’s so convenient to work with the IRS or DMV I can’t wait for government to get more involved in health insurance.
    Do they have a role? Of course. The CEA administers my earthquake insurance and FEMA has my flood policy. This is because no one in Nevada wants to participate in the flood program and Floridians have little earthquake risk. That is how insurance pools work and the government has to step in. They could provide a similar backstop for people with cancer or other pre-exisiting conditions that have difficulty getting an individual policy.
    Have you ever looked at the difference between hospital list price and the negotiated insurance rate? Doctors settle for 20-30 cents on the dollar with the insurer. This is where uninsured patients really get screwed, having to pay some inflated list price.
    The McCain plan seeks to remove the distortion in the insurance market and introduce competition to drive down policy rates. People should be able to get low cost catastrophic policies which they could pay for with their tax credits. Having a policy would dramatically reduce the prices for routine procedures.

  5. “Silver bullets” just seems to be one of the terms that health care analysts/policy/academics seem to love shortly followed by the following phrase “There is no silver bullet for healthcare.” Makes sense since you aren’t hunting werewolves.

  6. I guess Obama’s charge that the tax credit will go “directly to insurance companies” is correct. You’ll get the credit as long as you’re willing to also spend the addtional $7,680 for private coverage, otherwise the unpaid credit will just be retained by the government. This is the best plan I’ve seen to get us to single-pay the fastest as more people become unisured and we get closer to crisis.

  7. Until there is substantial restructuring of medical care received (MCR) to include effective primary prevention through wellness and health life style, all these programs will fail to (A) make MCR affordable, (B)improve the health status of Americans or (C) make MCR)less dangerous.