McCain's Health Plan. The Short Version

My beloved spouse and mother of my child has pointed out that my last post on Senator McCain's health proposal was just a bit confusing and, perhaps, impossible to finish. This is an important issue and Senator McCain's proposal is really revolutionary so I have tried to clarify and simplify the post. Here it is. If you want to see my calculations. Go back to the May Day post.

So John McCain has proposed a major policy initiative. We will transform Health Care in this country and here's how it will happen: Everybody will get a refundable tax credit, $2,500 for individuals and $5,000 for families. They can use this tax credit to purchase individual and family health insurance on competitive private health insurance markets. If they find insurance for less than the tax credit they can put the extra money in a tax-free health savings account where it will earn money to provide against future health care needs.

So here is what you should know about how the plan will really work:

You probably won't get the tax credit. If you are like most people, 70% of us, you get your health insurance through your employer. The McCain tax credit is designed to encourage people to purchase health insurance as individuals on the private market. If you keep your employer provided insurance you won't get the free money. Sorry.

You and your employer might see a tax increase. The McCain plan will also treat employer provided health insurance as taxable income. You will pay income and payroll tax on this "income". Your employer will pay payroll tax. Senator McCain's economic guru estimated that this would "save" the government $3.6 trillion over the next decade.

Calm down. McCain is thinking about you. You will probably be able to use your refundable tax credit to offset the additional income tax. You might even be able to use it to offset the additional payroll tax. Of course you will need to document all this on your tax forms and fill out some extra forms so that you can pay the same taxes that you have always paid. Your employer will probably see his or her tax bill go up.

If you decide to take the tax credit you probably won't be able to buy the same health insurance that your employer provided. Your employer provides you with group health insurance and the cost of this insurance reflects the average cost of health care for all employees, healthy or sick, young or old. Average employer spending on individual health insurance is about $5,000. Average spending on family health insurance is about $12,000. This reflects the costs to insure the average family.

Unless your health is considerably above average, you will have to find extra money somewhere to cover you medical spending. You might find a family plan that costs $5,000 per year with an $8,000 per year deductible. You might get lucky and get through the year. Or your child might get juvenile diabetes - this one is purely genetic - as happened to some friends of mine. They had to find $8,000 to pay for the deductible and of course their future insurance premiums went up.

This plan will not bring us any closer to affordable, quality health insurance for all. Health Insurance companies do two things very well: They evaluate risk and they design contracts that are unattractive to high risk people. They know from experience that any policy that makes life easier or lowers premiums for people who actually need health coverage will attract these people away from their competitors. 

This is how competition in the health insurance market works. Companies that provide quality, inexpensive health insurance to people who need it have high costs and go out of business. Companies that insure people who do not need insurance for low rates and sell expensive low quality policies to people who need insurance have low costs and prosper. If you want more of the same, with some additional taxes thrown into the mix, vote for McCain this November.


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