Tuesday, September 30, 2008

McCain's Health Plan: You're on Your Own

By Jared Bernstein, Huffington Post. Posted September 29, 2008.

An estimated 20 million people would lose employer coverage under McCain's plan.

With less than 40 days to go until the presidential election, let's assess where things stand.

Obama appears to be building an edge in the polls and has some upward "mo." That said, the election appears to be a lot closer than it should be given this fact: on two of the issues that concern voters the most -- the economy and the war -- the policies of the Bush administration are widely viewed as dismal failures. Yet McCain's plans are clearly an extension, if not an "amping up," of precisely those policies.

There's a third issue of great concern -- health care -- which should also favor Obama, but it hasn't been discussed much, something I'll try to rectify in a moment.

Another reason the election feels closer than it should be is the strange, erratic, even histrionic campaign being run by McCain. Most recently, it's the "economy's fundamentals are sound," the whole "will-he, won't-he" on the first debate, the distracting, self-aggrandizing way he placed himself in the bailout debate, the politics-first choice of Palin. It all points to the kind of unpredictable, seat-of-your-pants, gut (vs. reality)-driven leadership style of the last eight years.

And, as noted above, his policies seem to derive from a meeting where he and his advisors took a close look at the last eight years and said, "Damn, that's good. Let's double down."

You might think that voters who haven't already made up their minds would look at these bad policy choices along with all this recent flailing about, and feel more than a little squeamish about handing the reins to this team.

Yet, it's close. There are lots of reasons for that and I won't try to sort them out. One factor that has perhaps been underappreciated is that even now that folks are starting to pay attention, they often don't believe that the candidates will do what they say they're going to do. If that's the case, why bother listening to their differences (negative campaigning is effective here as well)? Better to make the call based on gut reactions.

That's a mistake. Both candidates will put great effort into implementing their plans. When John McCain says he's out to cut corporate taxes by a third and pursue "victory" in Iraq, I believe him (a Democratic majority in Congress would try to block him, but I don't want to bank on their success).

So, with no disrespect to gut reactions, and to complement the beginning of the debating season, I recommend we head for the weeds to take a closer look at the other big issue of voters' minds: health care.

The current system is unraveling...that much is known. And the two candidates have very different plans to fix it. Here are some things voters should know about them.

McCain: A $3.6 Trillion Tax Increase and a Shove Into the Open Market

In the first presidential debate, McCain argued that he wants every family "to have a $5,000 refundable tax credit so they can go out and purchase their own health care." To which Obama later responded: "... you may end up getting a $5,000 tax credit. Here's the only problem: Your employer now has to pay taxes on the health care that you're getting from your employer. And if you end up losing your health care from your employer, you've got to go out on the open market and try to buy it."

You see, the 140 million of us who get health care for ourselves and our families through our jobs do not pay taxes, either income or payroll, on this part of our compensation. The McCain plan ends that exclusion, and thus becomes a $3.6 trillion tax increase over 10 years on workers. What was a tax-free part of your compensation is now taxable income. You'll pay income tax on it and you'll pay payroll taxes on it.

Once that happens, your employer's incentive to offer coverage is diminished, and experts estimate that around 20 million people will lose employer coverage.

So, you're thinking: Wait a minute. McCain's health care plan makes part of people's income newly taxable and that leads to millions losing health coverage. That can't be all there is to it.

Of course not. As he said in the debate, he'll take that revenue from the tax increase, and give it back to you as a tax credit, so you can go buy health care on the open market, or as the health care wonks call it: the non-group market (the group market is where your employer shopped for coverage for the group formed by you and your co-workers). In fact, the McCain team claims that the plan is revenue neutral: they taketh by subjecting more of your compensation to the income and the payroll tax, and giveth back through the subsidy.

But there are two very big wrinkles here. First, when it comes to brokering a deal with insurance companies, there's strength in numbers. Shopping for health care in the non-group market is not most people's idea of a good time. They have no obligation to cover you -- you as much as cough in there, and they're likely to have you escorted out. As my EPI colleagues Bivens and Gould wrote in a new paper, "the individual market is characterized by poor information about policies, discriminatory pricing, coverage exclusions, refusal to cover preexisting conditions, and denials of policy renewal. Even worse, other planks of the McCain plan actually call for removing many of the (already insufficient) consumer protections that currently exist." (BTW, see their paper to be the first on your block with an estimate of the number of folks who might lose coverage in your state.)


See more stories tagged with: obama, health care, mccain, health care reform, tax credit

Jared Bernstein is a senior economist and director of the Living Standards Program at the Economic Policy Institute in Washington D.C.

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