McCain's Health Care Shell Game

We've spent considerable time here at Economists for Obama pulling our hair out trying to understand how the McCain health care plan would work. We've conducted several analyses of the plan's likely effects, based on our best understanding of the plan at the time.

I wrote this analysis last April, assuming--as the McCain campaign's official plan seemed to say and published accounts stated--that the McCain insurance tax credit would not apply to employer-provided plans. Months later, the McCain campaign said that, no, it could be used for employer-provided plans.

Then, last month, Jonah wrote this post taking a close look at the effects of the McCain plan, assuming--as public statements from the campaign stated--that under the plan, employer-provided health care benefits would be subject to payroll tax (as well as income tax.) A few days later, I discovered through an account by a third-party analysis that the campaign had apparently switched positions on this.

It would seem that the McCain people are trying to keep the plan as a moving target. That way, its flaws are harder to spot, and even fair and serious-minded critics (like us) get dizzy trying to understand what the plan is.

The confusion that the McCain campaign has kicked up around its own plan was enough to get Factcheck.org to criticize a UAW ad as being made on a "false assumption," when that assumption (the non-exclusion of benefits from the payroll tax) was part of the version of the McCain plan that was first publicized.

This shell game cannot hide the fundamental problem with the McCain plan: it would drive young and healthy workers to drop their employer-provided plans, leading to the eventual implosion of the employer-provided system, and leaving people on their own to purchase insurance in the individual market. In this market, many people with pre-existing conditions would not be able to purchase coverage. Sarah Palin herself would probably not be able to buy coverage on this market, given the fact that she has a child with Down syndrome. I discuss her case in more detail here and explain why McCain's proposed subsidy for high-risk pools is no where close to what would be needed to cover these people.

The Factcheck piece led me to this page on the McCain site about his health care plan. (This must be very new, because just a few weeks ago I checked again to see what the McCain site said about its health care plan, and I didn't see this page.)

There's a great deal of information on this page that is incorrect or deceptive, but here's what I found most confusing:

Importantly, younger and healthier employees with the McCain health care tax credit will have a bigger incentive to stay with the employers. For example, a 25-year-old employee in the 25 percent tax bracket with a $2,500 tax credit could either purchase a policy in the individual market for the same amount or stay with his employer plan and receive a $5,000 policy with an additional $1,250 to invest in a portable health savings account. Why would people choose worse insurance and less money? (bold and italics theirs)

The first statement is precisely the opposite of the truth. Younger and healthier employees have the greatest incentive to leave their employers, because they are low risk and thus able to buy plans more cheaply on the individual market than from their employers.

The part in bold italics just doesn't make sense. If the person in his example has a $5000 policy with his employer, to obtain that policy he would have to use his $2500 credit plus $2500 out of pocket, which is clearly more money, not less. Whether this is worse insurance or not depends on what a young, healthy single guy can get for $2500, but it may well be more than he get from his employer's $5000 policy.

I really don't understand what the text quoted above is trying to say. Can anyone explain it to me? Oh, Doug Holtz-Eakin, why do you torment me so?