In recent posts on John McCain’s health care plan (here, here, and here) I’ve expressed surprise that there has not been more criticism. While people talk of fictitious tax increases from Obama, the reality is that what they really need to watch out for is the higher amounts they will be paying for health care under John McCain’s plan. Today there have been several additional articles on the topic in addition to my earlier post on this.
Three advisers of Barack Obama address the subject in an op-ed in The Wall Street Journal which they immodestly titled Why Obama’s Health Plan is Better. After discussing the potential savings under Obama’s plan they look at the higher costs under McCain’s:
In contrast, Sen. McCain, who constantly repeats his no-new-taxes promise on the campaign trail, proposes a big tax hike as the solution to our health-care crisis. His plan would raise taxes on workers who receive health benefits, with the idea of encouraging their employers to drop coverage. A study conducted by University of Michigan economist Tom Buchmueller and colleagues published in the journal Health Affairs suggests that the McCain tax hike will lead employers to drop coverage for over 20 million Americans.
What would happen to these people? Mr. McCain will give them a small tax credit, $5,000 for a family and $2,500 for an individual, and tell them to navigate the individual insurance market on their own.
For middle- and lower-income people, the credits are way too small. They are less than half the cost of policies today ($12,000 on average for a family), and are far below the 75% that most employers offering coverage contribute. Further, their value would erode over time, as the credit increases less rapidly than average premiums.
Those already sick are completely out of luck, as individual insurers are free to deny coverage due to pre-existing conditions. Mr. McCain has proposed a high-risk pool for the very sick, but has not put forward the money to make it work.
Even for those healthy enough to gain coverage in the individual insurance market, the screening, marketing and individual underwriting that insurers do to separate healthy from sick boosts premiums by 17% relative to employer-provided insurance, well beyond the help offered by the McCain tax credit.
The immediate consequences of the McCain plan are even worse. The McCain plan is a big tax increase on employers and workers. With the economy in recession, that’s the last thing America’s businesses need.
As I’ve discussed before, they might be overly optimistic about the savings we will see from Obama’s plan, especially in the short run, but there is no doubt that costs for most individuals and employers will be tremendously higher under McCain’s plan.
A related article is receiving attention in the blogosphere today. Jonathan Cohn and Ezra Klein both review and article in Health Affairs which examines the costs under McCain’s plan. The abstract sums up the problems:
Senator John McCain’s (R-AZ) health plan would eliminate the current tax exclusion of employer payments for health coverage, replace the exclusion with a refundable tax credit for those who purchase coverage, and encourage Americans to move to a national market for nongroup insurance. Middle-range estimates suggest that initially this change will have little impact on the number of uninsured people, although within five years this number will likely grow as the value of the tax credit falls relative to rising health care costs. Moving toward a relatively unregulated nongroup market will tend to raise costs, reduce the generosity of benefits, and leave people with fewer consumer protections.
The article also warns:
The reality is that providing coverage through nongroup plans is much more costly than providing that coverage through groups. Administrative expenses are twice as high in nongroup markets as in group markets. The costs are higher because insurers in this market spend considerable resources on medical underwriting, and economies of scale are lost. It is much more expensive to sell insurance to millions of individuals one individual at a time than it is to sell to a much smaller number of employer groups, each comprising thousands of employees. For a typical family that moves from group to individual coverage, therefore, the move to nongroup insurance will raise premiums for an identical policy by more than $2,000 per year. Shifting people into the nongroup market would not save money for most Americans. Rather, it would lead to increased spending on administrative costs and a decrease in the portion of health spending that actually goes to providing care.
