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McCain, Obama Health Plans Critiqued

September 17th, 2008

Yesterday, Health Affairs published a set of papers that critiqued the health plans of presidential candidates John McCain and Barack Obama, along with a paper by Wharton economist Mark Pauly outlining areas of compromise between the two plans. [All three papers are free access online–extended through the election. Related content on Health Affairs Blog includes: a conversation between three of the authors, a defense of Obama’s plan by David Cutler, a defense of McCain’s plan by Tom Miller, and a look at the VP candidates’ debate.]

In their article, University of Michigan professor Thomas Buchmueller and coauthors argued that the McCain plan would strip consumers of protections while producing few actual gains in the number of Americans with health coverage. Meanwhile, Joe Antos of the American Enterprise Institute and coauthors faulted the Obama plan for attempting to impose behavioral changes through top-down regulation, rather than addressing perverse economic incentives that drive health care costs.

News media and bloggers jumped into the fray. New York Times columnist Bob Herbert, in the third most-emailed Times story of the day, wrote of McCain’s “radical agenda,” saying: “These are changes that will set in motion nothing less than the dismantling of the employer-based coverage that protects most American families.” His op-ed hit a nerve, with over 400 comments to date.

Ezra Klein, who blogs at The American Prospect, elaborated on the decline of employer-based insurance under the McCain plan: “Its first-order effect would be to take employer health insurance away from 20 million Americans who currently have it…. That, of course, is not the whole story. Kicked out of employer pools and pocketing a shiny new tax credit, a fair number may seek care on the individual market. The problem, though, is that care on the individual market is far worse.”

Over on the Wall Street Journal blog, the “Washington Wire,” Laura Meckler offered clarification on how McCain’s plan would aim to keep people in employer insurance plans: “McCain’s economic adviser Douglas Holtz-Eakin argues that many would stay in employer coverage, partly because of a key policy decision the McCain camp made in designing its plan. In trade for the new, generous tax credit, McCain would subject the value of health benefits to the income tax, meaning workers would have to pay taxes on the value of whatever health insurance employers provide. But neither employers nor workers would have to pay Social Security taxes on those benefits.”

Kevin Sack on the New York Times politics blog, “The Caucus,” highlighted the potential loss of coverage under McCain’s plan: “Senator John McCain’s top domestic policy adviser, former Congressional Budget Office director Douglas Holtz-Eakin, recently said in a conference call with reporters that Mr. McCain’s health care proposal would ‘put 25 to 30 million individuals out of the ranks of the uninsured, into the ranks of the insured.’ In an article released Tuesday, a panel of prominent health economists concludes that Mr. Holtz-Eakin’s projection is off by, well, 25 to 30 million.”

CQ Politics spoke with Neera Tanden, domestic policy director for the Obama campaign, who said the net new costs to the government under Obama’s plan would only reach $50 billion to $65 billion annually. However, Antos and colleagues believe that the Obama campaign’s cost projection may understate the true cost of its plan by roughly $100 billion annually.

Both plans, however, would ultimately face uphill battles in Congress, concluded Perry Bacon, Jr., on the Washington Post’s political blog, “The Trail.”

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2 Responses to “McCain, Obama Health Plans Critiqued”

  1. Neil Gardner Says:

    Gracemarie said:

    “The Buchmueller article does not give the detailed assumptions on whether the studies they relied on accounted fully for current and proposed changes. But one thing is certain: They don’t account for market dynamics that would give people many new options in a much more functional market and increase access to more affordable health coverage.”

    In the past (and even now) the individual healthcare insurance market was dysfunctional in that pre-existing conditions were often excluded, cost were a weapon the insurance companies could use to force out undesirables, and original acceptance into the plan was an experience in pure company subjectivity! Any now ideas that have any effect to expand the individual insurance market in healthcare better deal with these insurance company side advantages or that effort at expanding the individual market will be too costly to succeed from both a pure cost and coverage perspective.


  2. gracemarie Says:

    Misunderstandings of Sen. John McCain’s health policy initiatives continue to confuse the policy debate, as the Health Affairs article by Tom Buchmueller, Sherry Glied, Anne Royalty, and Katherine Swartz demonstrates.

    Among other initiatives, Sen. McCain would provide a new health credit of $2,500 for individuals and $5,000 for families to help them buy health insurance, substituting this direct and portable credit for the current invisible, inflationary, and outmoded tax break that ties health insurance to the workplace.

    The article concludes that Sen. McCain’s plan would cause 20 million people to lose their job-based health insurance, while 21 million would pick up coverage in the individual market.

    The authors do not acknowledge in their paper that there are two tax breaks currently provided through the Internal Revenue Code to support employment-based health insurance — a “deduction” for employers, and an “exclusion” from taxable income for employees of the compensation they receive in the form of health insurance. In addition, they do not acknowledge that the wages of employees would be grossed up to account for the value of the policy. Not fully taking into account these three aspects of Sen. McCain’s plan, described below, could have distorted their results.

    • For employers: The McCain plan doesn’t touch the employer deduction so the incentives for the employer would be the same as today: Whether the employer offers compensation in the form of health benefits or direct compensation, employers still receive a tax deduction for the amount they spend on health coverage. In addition, the payroll taxes they pay continue to be protected from corporate income taxes under the McCain plan. These provisions make providing health insurance neutral for employers in terms of financial incentives.

    • For employees: The article emphasizes the repeal of the current tax exclusion that protects the value of the health insurance policy from being taxable to employees, but it gives only passing mention to the new refundable health credit that replaces the exclusion. The McCain health credit of $5,000 would actually be worth more to the average family than the $4,200 estimated value of the current tax exclusion for job-based insurance.

    • Grossing up of wages: The paper does not mention that employees’ wages would be grossed up to account for the value of their health insurance policy, giving them additional resources to purchase coverage.

    The value of job-based health insurance is part of the compensation package of workers. The great majority of workers would keep their coverage at work and, for them, substituting the credit for the exclusion would be merely a bookkeeping change. But for those who don’t, they would demand the money they had been receiving in the form of health insurance be returned to them in the form of higher wages.

    Combining the health credit, the added pay, and the amount that workers are paying now for their share of the health insurance premium can put as much or more money on the table as today.

    In addition, it would provide new incentives for more affordable, portable insurance. And the credit would provide greater fairness, giving people the same tax break whether they receive their health insurance through the workplace or on their own.

    Workers would have more options in a health insurance market that is competing for their business, and not just in the individual market. People would find new kinds of groups to help them make their health coverage arrangements — churches, professional associations, labor unions, and other groups that may be a more stable force in their lives than their jobs.

    The refundable health credit also would provide significant new resources for workers at the lower end of the income scale who often receive no help at all today in purchasing coverage. They would get the full value of the credit toward the purchase of insurance, even if they don’t owe that much in taxes.

    Updating the intersection of health and tax policy is vital to bring our health sector into the 21st century.

    The Buchmueller article does not give the detailed assumptions on whether the studies they relied on accounted fully for current and proposed changes. But one thing is certain: They don’t account for market dynamics that would give people many new options in a much more functional market and increase access to more affordable health coverage.

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