The Magazine

The Cabinet of Dr. Obama

Dissecting the health care proposals of Obama and McCain.

Oct 20, 2008, Vol. 14, No. 06 • By YUVAL LEVIN
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If you now receive insurance coverage from your employer but are unhappy with it or would rather find coverage that stays with you through different jobs or better suits your family's needs on your own, the McCain plan would give you the same tax benefit for insurance you choose as you now get only for insurance your employer chooses. If you decline your employer's insurance, the portion of your wages spent on coverage becomes regular take-home pay, which you can use to buy insurance. The additional wages are taxed, but again the new credit would cover those taxes and even leave you with a little extra. You would have just as much money to spend on insurance as your employer did. In addition, the McCain plan would vastly increase the scope of competition in the individual insurance market by permitting insurers to sell policies across state lines. It would thus create both new buyers and new sellers and start to build a genuine individual insurance market, which would bring down costs.

Finally, if you don't have insurance at all now, the new tax credit would put your family $5,000 closer to affording it. Most of the uninsured are not poor (or else they would qualify for Medicaid), and for many families without coverage an extra $5,000 and a real market to buy in would make the difference and allow them to obtain health insurance. A recent analysis of the McCain plan by noted health care economist Roger Feldman and a team at Health Systems Innovation (HSI) found that it would reduce the number of uninsured Americans by 27 million--well over half of the present total--and all without forcing anyone who now likes their coverage to lose it.

The McCain approach essentially puts employer-purchased and individually purchased health insurance on a level playing field, giving people more options and a better chance to find and afford the coverage they need.

The Obama campaign's attacks on the plan have mostly sought to confuse the public about its benefits by speaking about the parts without acknowledging the whole. Senators Obama and Biden both mentioned the taxation of health benefits in recent debates, and their campaign has run ads pointing to it as well, but all have failed to note the tax credit that more than makes up for it. The net tax burden on middle class families declines under the McCain plan, while insurance options improve. If they do mention the tax credit, they suggest it is all that families would have if they left their employer coverage--as Joe Biden put it in his debate with Sarah Palin, you would have to "replace a $12,000 plan with a $5,000 check you just give to the insurance company." But that ignores the simple fact that employer-purchased health care is purchased with employee wages. Right now, employers pay workers less in cash wages because they pay so much in premiums. With McCain's reform, workers who opt out of coverage will get more take home pay and a tax credit to more than make up for lost employer contributions to health care.

But perhaps the most dishonest charge concerns the prospects for the employer-based system itself. The Obama campaign has implied that McCain's plan would unravel the system and cause workers to be dropped from their employers' health plans. "Twenty million of you will be dropped," Joe Biden said in the vice presidential debate. In fact, the McCain plan does not alter the basic financial incentives facing employers. Workers might choose to leave employer coverage, but the McCain plan would not force them out.

Indeed, it is Barack Obama's health care plan that raises the prospect of masses being dropped from the employer-based insurance system, and his vulnerability on this crucial front may explain some of his intense defensiveness on health care. In the second presidential debate, Obama sought to address this concern through a brazenly misleading depiction of his own plan. "If you've got a health care plan that you like, you can keep it," he said. "All I'm going to do is help you to lower the premiums on it." But you can only keep your plan if your employer doesn't eliminate it, and Obama's health care proposal, unlike John McCain's, gives your employer a powerful incentive to do just that.