Wednesday, October 15, 2008

The Strengths of McCain's Health Care Plan

From Yuval Levin: The Cabinet of Dr. Obama
Over the past few weeks, in a series of television ads, in stump speeches, and in the presidential and vice presidential debates, the Obama campaign has sought mightily to attack John McCain's proposal for health care reform. It's vehemence and tenacity have been striking, especially given how little McCain himself has actually had to say about his plan. Ironically, their misleading critiques actually hint at the strengths of McCain's proposal, and point to the serious vulnerabilities in Obama's own approach to health care politics.

At the core of the McCain health care agenda is the most important conservative policy innovation since welfare reform: the transformation of the benefit now given to employer-provided health coverage into a health insurance tax credit made available to all. For almost 70 years now, the federal government has given a significant tax preference to employer-provided health insurance. When your employer takes money out of your wages to purchase coverage on your behalf, the money is not counted as part of your gross income, so you don't pay any taxes on it. But if you purchase insurance yourself, not through an employer, the money you use to do so gets taxed.

This makes employer-provided insurance vastly more appealing and places a serious burden on those to whom it is not available or who prefer coverage other than what their company offers. It has prevented the development of a genuine market in individually purchased health insurance and therefore artificially keeps insurance costs high. [...]

(bold emphasis mine) Exactly. As a self employed person, I have to purchase my own insurance. I have to pay taxes on it, as income. People with employer provided insurance don't and it's grossly unfair. We need more freedom and more choices in buying our health insurance and making our own health care decisions.

Some folks who get their insurance from their employer are satisfied with the status quo, and don't want to rock the boat. But what if we could have the best of all the options?

[...] How can the problems of the current system be addressed without displacing the millions of Americans who are satisfied with it?

The McCain solution is to change the incentives for consumers, but not for employers, so that people find themselves with more options, but are not forced out of their current insurance arrangement. Rather than exempt from taxation all the money used by employers to buy insurance, he would treat it as income but then provide individual taxpayers (regardless of how they obtain their coverage) with a credit that more than covers the taxes. The effect of this, from the point of view of individuals and families, would be to make employer-provided coverage just one option among many.

All American taxpayers, regardless of whether they now have health insurance or where they get it, would receive a $2,500 health care tax credit ($5,000 per family) under McCain's plan. If you now have health insurance through your employer and would like to keep it, you can do that and the economics of the arrangements would change only slightly, and (for all but the top 5 percent of taxpayers) for the better. The money your employer takes out of your wages for your insurance would be taxed, but the new credit would more than cover the additional taxes, leaving you with the insurance you have now, and with a little more money in your pocket at tax time (between $700 and $1,600, according to the estimates of the Tax Policy Center). Things don't change for your employer, and they get a little better for you. [...]

Under this plan we would all have more choices, and more people would be covered too. Read the whole article, it's very detailed and also shows how and why Obama's arguments against it are baseless, and the weaknesses inherent in Obama's own plan.

Related Links:

[The truth about] Mac's health insurance plan

There's No Place Like Home:
What I learned from my wife's month in the British medical system.

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