Tuesday, October 28, 2008

McCain Health Care Proposal Sucks

Anyone who has analyzed John McCain's health care proposal knows that the numbers don't work and if you lose your employer paid health care coverage - something the McCain plan might prompt - there is no way in which decent coverage can be purchased with the tax credit McCain is offering. I know - I review the costs of coverage for my firm's plan every year. Here are some highlights from CNN that look at the consequences of McCain's plan which is definitely a case of voodoo economics if there ever was one:
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Under McCain's plan, employees would get taxed on the value of their health insurance, which on average costs $12,680 per year for a family, according to the Kaiser Family Foundation. Workers pay an average of $3,354 in premiums, while their employers cover the rest.
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Most employees have their premiums deducted from their paychecks without paying tax on them. So, if you make $50,000, you are likely paying tax on only $46,646 of income. Under McCain, your taxable income would rise to $59,326. If you were in the 25% tax bracket, it would mean an additional $3,170 in taxes.
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But this increase would be knocked back by the $5,000 tax credit. So in the end, you'd actually have $1,830 to put in a health savings account, which could be used to cover premiums and other medical expenses.
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That is until the other shoe drops:
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"If companies know their employees have the tax credit, it relieves them of the burden of providing coverage," said Sara Collins, who directs a health insurance program at the Commonwealth Fund. McCain's plan "moves people out of the employer system and to the individual market."
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Experts, however, fear that eliminating the tax advantage of employer-based coverage would prompt younger, healthier workers to leave their office plans. If that happened, costs for the remaining workers could skyrocket. Companies may drop coverage altogether.
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Some 74% of companies said that eliminating the tax exclusion would have a "strong negative impact on their workforce," according to a September survey by the American Benefits Council. Estimates vary, but the Tax Policy Center estimates that 20 million people would lose their employer-based coverage by 2018. Roughly the same number would gain insurance through other means. But, overall, McCain's plan would do little to reduce the number of uninsured.
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Also of concern, experts say, is the fact that the $5,000 tax credit would be indexed to inflation. As a result, it would not keep up with the swiftly rising cost of health care, which was soaring as much as 13% a year in the middle of this decade.

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