Summary of McCain’s Health Plan
Karl Rove has weighed in on why Republicans should compete with the Democrats on health care. According to Politico:
“The RNC event also broached taking control of traditionally Democratic issues such as health care, with even Rove stressing a need for Republicans to start addressing the matter. Congressman Calvert described health care as ‘one of the seminal issues’ of the upcoming election and asked, “Are we going to move towards socialized medicine or away from it? Because we can’t move towards the middle.”From today’s Rocky Mountain News, the following is a pretty good summary:
“By contrast, McCain’s agenda would primarily expand choices for consumers. Among other things, he would allow Americans to purchase health coverage from a licensed insurer in any state; individuals could shop nationwide for an appropriate policy and compare prices. He would also allow membership organizations (like AARP) or other non-employers to sell group policies.
Most dramatically, he would end the tax deduction that employers receive for providing health insurance; instead, individuals would receive tax credits they could use to either purchase policies or invest in Health Savings Accounts. They would no longer depend on their employers for medical coverage.”
In late February, CNN ran the following summary:
“Today, McCain is advocating a plan that’s radically different from those of Clinton and Barack Obama, and – if he goes all the way by following Gramm – could revolutionize America’s healthcare system. For McCain and Gramm, the problem with our healthcare system – and the reason why over 47 million Americans are uninsured – is that it’s excessively, scandalously expensive. The solution, they say, is to let Americans shop for healthcare with their own money. McCain advocates giving tax rebates of $2500 per individual or $5000 per family. With that money, families could purchase policies on their own. What’s truly radical about the plan is that it eliminates the tax exclusion for healthcare benefits offered by companies to their employees, and replaces it with the $2500 to $5000 rebates.
Consumers could then use that cash to buy their own insurance in what Gramm foresees as a vibrant, consumer-driven marketplace for healthcare packages.”
Fortune Magazine Editor at Large Shawn Tully concludes of the three remaining candidates– Obama, Clinton and McCain — the best health plan is McCain’s. Here’s Tully’s summary of the tax and other implications of McCain’s plan:
“Who has the best plan? Both have huge flaws, but on balance McCain’s is better.
“McCain’s main pillar is the elimination of a tax break that employees receive if their employer provides their health care. That may not sound like a shocker, but it is. The exclusion dates from World War II, when the federal government imposed controls on wages, but allowed companies to compete for workers by offering tax-free health benefits in lieu of pay. The law is largely responsible for the nightmarish patchwork of corporate-provided medical plans we enjoy so much today. Employees and their unions demanded richer and richer packages, and employers complied, since they could buy far more benefits for their employees than workers could buy with after-tax dollars on their own. Americans have paid a steep price, however, by sacrificing their raises as corporate insurance bills exploded, never more so than now.
“McCain suggests that we junk all that. Say you’re earning $100,000 a year and your company provides about $9,000 toward your $12,000 family premium, which is about average. Today you’re taxed only on the $100,000. Under McCain’s plan, you’d also pay on the $9,000. That could mean an extra $3,000 or so in federal taxes alone. To compensate for the extra levy, McCain would provide a $2,500 federal tax rebate for individuals and $5,000 per family, meaning a family would simply subtract $5,000 from its tax bill, the equivalent of a big cash payment.
“Here’s where it gets interesting. Employers would no longer be able to buy more health care with $9,000 of their employees’ money than the workers could buy on their own. The raison d’être for corporate health benefits would vanish. Employers have another compelling reason to pass the ball to the employee: While wages are rising around 3% ayear, their health-care costs are growing at three times that rate. “I predict that most companies would stop paying for health care in three to four years,” says Robert Laszewski, a consultant who works with corporate benefits managers. Hence, an employer that pays $9,000 for your benefits would simply pack an extra $9,000 a year into your paycheck. (Why? Because in a competitive labor market, companies would have to hand over that cash to employees or risk losing them.) So you’d have $6,000 after tax, plus the $5,000 family credit, to buy insurance. That’s $11,000 in new cash that employees can set aside for health care.
“So what types of policies would they buy? Employees (and their families) with corporate plans – about 150 million Americans – would probably rush toward high-deductible, low-premium insurance, and use what’s left over to pay cash for routine procedures. They would couple those high-deductible policies with Health Savings Accounts, which allow families to put away up to $5,800 ayear, before taxes, for medical expenses. Those plans cost about $10,000. That’s not a huge saving from the typical $12,000 corporate plan, but it’s a start. More than four million Americans already have HSAs, and the McCain plan would make portable, high-deductible plans the product of choice for a new generation of healthcare consumers.
“Besides eliminating the employer exclusion, McCain’s plan boasts another nice feature. It would allow consumers to choose an insurance plan that suits their stage of life. If you’re young and healthy, for example, you probably want the cheapest plan you can get. If you’re 45 and have four dependents, maybe you want something a bit more expensive and generous. Nine states, including New York, California, and Texas already require that as many as 50 benefits be covered, a list that ranges from in vitro fertilization to mental health services to prescription drugs. These requirements increase the cost of insurance; they’re a major reason young people have dropped their coverage. Under the McCain plan, insurers in any state would be free to offer the plans with a vast variety of deductibles, co-pays and benefits. UnitedHealthcare and Blue Cross/Blue Shield plans already provide a menu of packages tailored to groups as varied as Gen Xers and retirees.”