McCain's Healthcare Plan

The Wall Street Journal recently published an article on the McCain health care proposal. I must confess that I do not fully understand the implications to the tax code, and how that would affect me. However, there are several aspects that raise serious doubts in my mind:

“He would replace the current income tax exclusion for employer-sponsored health insurance with a refundable tax credit -- $5,000 for those who purchase family coverage and $2,500 for individual coverage.”

I am single, and I pay about $30 a paycheck for health insurance through my employer. This amounts to about $780 per year. Supposedly, it costs my employer about $3120 to pay the rest of my health insurance premiums. So that total cost is about $3900. Under McCain’s plan, my employer would no longer get a tax exclusion on the premium paid by the employer. Because of this loss of tax incentive it is likely that employers would stop providing health insurance. In return, according to the McCain plan, I would receive a tax break of $2500. For me to get the same coverage that I currently have, I would have to pay an additional $1400! How is this good for me??

“Mr. McCain would also reform insurance markets to stem the growth in health insurance premiums.”

This I believe is the key to the problem. Yet the article says nothing more about reforming the insurance markets. If a politician – any politician – thinks they can actually take on the powerful healthcare lobby, why not do this first with the current system in place? If and when you are able to implement meaningful reforms, then take the next step and encourage individuals to buy individual insurance.

“This [the current tax exclusion for employers] creates an incentive for people to purchase policies with low deductibles, or which cover routine spending. These policies look a lot less like insurance and more like prefunded spending accounts purchased through employers and managed by insurance companies. Consider homeowners and auto insurance policies. Do these cover routine spending on cleaning the gutters or tuning up a car?”

Here is the big difference that I see between car insurance and maintenance, and health insurance. On average, I have the oil in my car changed about 4 times a year at $25 each. I get a minor tune up done once a year for about $100. Every 3 years, I have a moderate tune up for about $400. Every 6 years (roughly 60k miles) I have a major tune up at about $1000. Throw in a set of new tires every 3 years ($400) and other maintenance of $1000 every 6 years. So considering a six year period, my average annual cost is about $800. Contrast this $800 with “routine” medical costs – annual physical = $1200. Monthly prescription medication cost without insurance = $100 or an annual cost of $1200. Two routine dental appointments a year = $400. Total = $2500. Bottom line – routine maintenance on your car costs much less than “routine” health care, and that’s why people need health insurance that covers routine issues, while you pay for routine maintenance on your car.

“The Lewin Group, a respected private health-care research outfit, recently estimated that the McCain credit would increase the number of insured by as much as 21 million. It is true that many may no longer get their insurance through their employer, but they will be given the resources to purchase insurance on their own.”

Here is where I get lost! The article uses an example of a family of four, and a health insurance policy that costs $14,000. If this family loses employer-paid insurance, then they go out and purchase a plan for $14,000. Assuming that they are in a 30% tax bracket, the policy would effectively cost them about $9800. McCain gives then $5000. The family is still out $4800, are they not?

The article concludes that McCain’s plan will reduce the national spending on healthcare. I agree with that comment. However, it appears to me that the burden of the healthcare cost is then passed on to the individual. More importantly, the article fails to discuss the implications of McCain’s healthcare plan on people with pre-existing health conditions, if employers stop providing healthcare coverage. Today, insurance companies refuse to cover pre-existing conditions, or charge exorbitant premiums for these individuals. The number of Americans with pre-existing health conditions is high. Here are a few numbers: People with diabetes = 21 Million. People with some form of heart disease = 85 Million. Americans with cancer = 10 million. Americans who are HIV Positive = 1 Million. No doubt, there probably are patients with multiple existing conditions, so simply adding up these estimates is not correct. Nonetheless, the numbers do illustrate that there are a very large number of Americans – in the tens of millions – who have existing medical conditions. McCain’s plan, and the Wall Street Journal article really do not address them.




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