McCain’s health plan likely going down with him

John McCain would reform the American health care system by providing big tax incentives for it to transition from being employer-based to one built on a system of individual responsibility. He would do this by eliminating the longtime personal tax exemption on employer-provided health insurance and replacing it with a $2,500 individual, and $5,000 family, tax credit for those who have health insurance.

It’s too bad this idea will likely recede from the national health policy debate whether John McCain wins or loses the presidency. Even if he wins, the Democratic majorities in Congress will be so large there is little chance we will be able to move away from the traditional employer health insurance base in the next few years. All you have to do is look at the way Obama and all of the Democratic candidates for the Senate and House have railed against McCain’s plans to "tax your health benefits" to see how Democrats have willingly painted themselves into a political corner that makes this idea a non-starter in the new Congress.

As I have said before on this blog, I have been largely disappointed in the McCain health plan. He started out with a bold new approach but never closed the loop on so many key elements in his plan. For example, he leaves those with pre-existing conditions to the fate of state-based risk pools–a place no one would ever vote themselves into.

It never made sense to me for McCain to ask voters to take a bold leap with him to reform the health care system but do little to make voters comfortable with the consequences of all that he was proposing. As a political proposal, the McCain health plan was a disaster. Who would ever vote themselves into such a system with less health care security than they have today?

It is no surprise that a big part of Obama’s advertising budget has been spent zeroing in on the McCain health care plan’s tax changes. I am surprised they didn’t zero in on even more of it.

McCain’s failure to make such a big leap away from our current system of third-party pay something voters could look forward to also makes it harder for more serious proposals to fundamentally redo our health care system on a platform of individual responsibility–the Wyden-Bennett plan, for example.

The employer community themselves have amazingly added fuel to the arguments we need to stay with the employer-based system. The U.S. Chamber, the Business Roundtable, The National Business Group on Health, the American Benefits Council, and the NFIB have all had at least cool things to say about McCain’s tax credit idea (New York Times, October 7th). The health insurers have gone along with this opposition–most certainly afraid to call for their benefit manager clients’ layoffs!

Why are employers so against taking this big benefit cost off their books? They continue to see benefits as an effective way to compete for workers. They are also worried that they are going to get the bill anyway but won’t have any control over what it costs in a new system.

As I have also said many times on this blog, I believe that either the employer-based or individual-based approach to health care reform could work. However, my guess is that if most health policy experts could create a clean sheet health care system in America, putting it on an individual platform would be one of the things most–liberal and conservative–would agree to do.

McCain has made such a mess of selling his health plan–and Obama has done such a good job of taking advantage of it–that I fear we have boxed ourselves into the third-party pay employer-based system, that has proven to be so expensive, for a longtime to come.

The only hope for this idea is that, in the face of daunting federal and state budget deficits, a restructuring of the system on an individual platform may be the only way we can achieve health care reform on a pay-as you-go basis–Wyden-Bennett for example, pays for itself in the third year.

But the well has been poisoned over an individual-based system in the face of big Democratic majorities that have so opposed the idea in this election.

The Democrats, in trashing the idea of a tax change for health benefits, and the Republicans in so fumbling the argument, may have taken the one way we could have done pay-as-you-go health care reform off the table.

Or, both sides can take a second look at it–this time complete with the appropriate arguments and policies that give voters the health care security they require.

Speaking of fumbling the arguments for the conservative approach to health care reform, a few hours after I originally posted this, a leading McCain spokesman was quoted at CNN regarding the McCain health tax credit:

Younger, healthier workers likely wouldn’t abandon their company-sponsored plans, said Douglas Holtz-Eakin, McCain’s senior economic policy adviser. "Why would they leave?" said Holtz-Eakin. "What they are getting from their employer is way better than what they could get with the credit."

So just why would Holtz-Eakin expect anyone to vote for the end to the employer tax exemption on health benefits in favor of the McCain tax credits?

7 replies »

  1. Cheap shot on the Jews, Peter. Obama carries the Jews, Florida and about 35 other states besides. It’s President Obama, dude. You Canadians might try to do better. . .

  2. Oh, and don’t assume McCain is “Going Down”. Polls don’t show how people, in a booth, with a secret ballot, just won’t be able to bring themselves to vote for a black president, especially the Jewish community in Florida.

  3. “Sen. McCain’s plan. The $5,000 tax credit ($2,500 for individuals) can be used to directly purchase insurance for the 41% of Americans who do NOT have employer-sponsored health care – people who currently receive NO tax benefit to purchase insurance.
    For the remaining 59%, who DO have job-related insurance that they can KEEP, the tax credit covers the additional tax liability created when the tax subsidy/exemption they currently get (to the tune of $200 BILLION annually) is REPLACED by the tax credit.”
    So my understanding (and Obama’s claim) is correct, the uninsured would need just $7500.00 more to purchase healthcare while those with company plans get to pocket (again) the credit. So how is that fair?

  4. Actually Donna according to the independent commonwealth fund analayis the McCain plan would only cover about 2 million people and the Obama plan would cover 34 million.
    The concept of insurance is based on shared risk and there is no question that if you drop “mandates” like pregnancy, mammograms, mental health insurance parity and allow the healthy to buy low cost low coverage plans that some people would initially benefit. The remaining people in the pool would be higher risk and have ever higher costs.
    A recent Commonwealth Fund study found that nearly two-thirds of working-age adults—an estimated 116 million people—either were uninsured for a time during 2007, were insured but had such high medical costs compared with their incomes that they were underinsured, reported a problem paying medical bills, or did not get needed care because of its cost and yet we as a nation pay 40% more then the next highest cost country so clearly something needs to be done.
    As someone who buys their own individual policy I would in fact support being able to do that with tax free dollars and there is a strong argument to move away from employer sponsored plans as well as a misunderstanding about McCains plan (which has some great attributes like paying for episodes of care) but neither proposal really takes a close look at the intersection between quality, cost and access.

  5. Sen. McCain’s plan. The $5,000 tax credit ($2,500 for individuals) can be used to directly purchase insurance for the 41% of Americans who do NOT have employer-sponsored health care – people who currently receive NO tax benefit to purchase insurance.
    For the remaining 59%, who DO have job-related insurance that they can KEEP, the tax credit covers the additional tax liability created when the tax subsidy/exemption they currently get (to the tune of $200 BILLION annually) is REPLACED by the tax credit.
    For example, a family earning $80,000 a year in a 25% tax bracket with a $12,000 a year plan will get $5,000 to cover their new $3,000 tax liability – with $2,000 left over to go into a health savings account – about $1,200 per family on average. The new FAIR tax subsidy benefits ALL Americans, not just those with job-related coverage.
    And with Sen. McCain’s proposed new national marketplace for insurance, premiums will drop as well, due to competition and pricing transparency. For example, in New Jersey, which has over 40 mandated coverage items, a 25 year old man psy about $5,500 for a good policy. But if he’s willing to forgo acupuncture or in vitro fertilization, or any combination of items he has to pay for even if he’ll never use them, under McCain’s plan, he could buy the same basic coverage in Kentucky, with fewer mandates, for about $800. Sen. McCain’s $2,500 individual tax credit would MORE than cover that plan – with $1,700 left over that would be deposited directly into a portable health savings account for him to use on uncovered things like glasses or co-pays, or even acupuncture, if he wants it. Opening up the marketplace will save American families about$1,400 per year, according to an independent estimate, and on its own will allow about 12 million people who can’t afford health insurance in their own states purchase their own with the use of their tax credit.
    And despite what the Obama camp is claiming, Sen. McCain will NOT pay for this plan by cutting Medicare – he has a whole group of proposals, including streamling payments, reducing fraud and waste, lower drug prices and not paying for medical mistakes that will cover any additional costs.
    Independent estimates note that Sen. McCain’s plan will reduce the number of uninsured in America by 27.5 million – more than half of those currently uninsured. Obama’s plan will cover fewer at a higher cost.
    And, yes, the money can ONLY be spent on health care – why wouldn’t it be, since that’s what it’s FOR?

  6. McCain’s plan never stood even a snowball’s chance in hell of being enacted by a Democratic Congress. It was a classic example of pandering to the base- in this case, the Editorial Board of the Wall Street Journal. It was a relatively inexpensive way of confirming his shaky conservative bona fides without coming close to actually reforming anything. McCain could never explain what he was attempting to do clearly enough to get political credit for redistributing health benefits from wealthy to less wealthy people through the interaction of the benefit tax w/ his tax credit.
    Sadly, as Robert correctly observes, his inept handling of this issue has drastically undercut any future movement away from employer based coverage, something that needs to happen to get us to a less inflationary health benefit. It also walls us off from the largest potential reservoir of funding for a coverage expansion (the $240 billion employer/employee tax exclusion). This just wasn’t a serious proposal and it made Obama’s limp and unoriginal plan look scholarly and substantive by comparison.

  7. McCain has indeed shot himself in the foot in many respects, and his advisers seem incredibly loose-mouthed about more than one issue. However, my cynicism decrees that there will be no significant change in health care within the next President’s term (other issues will take precedence), so who knows how this will eventually play out after all? The public may throw ’em all out then and start over – again…….