Biden On McCain’s Health Care Plan
By Dennis Sanders | Related entries in 2008 Election, Biden, Conservatism, Dumb Things Said By Smart People, Health Care, Liberalism, McCain, Palin, VeepDuring the Vice Presidential Debate on Thursday night, Senator Joe Biden had this to say about John McCain’s health care plan:
… do you know how John McCain pays for his $5,000 tax credit you’re going to get, a family will get? He taxes as income every one of you out there, every one of you listening who has a health care plan through your employer. That’s how he raises $3.6 trillion, on your — taxing your health care benefit to give you a $5,000 plan, which his Web site points out will go straight to the insurance company. And then you’re going to have to replace a $12,000 — that’s the average cost of the plan you get through your employer — it costs $12,000. You’re going to have to pay — replace a $12,000 plan, because 20 million of you are going to be dropped. Twenty million of you will be dropped. So you’re going to have to place — replace a $12,000 plan with a $5,000 check you just give to the insurance company. I call that the “Ultimate Bridge to Nowhere.”
The thing is, Biden wasn’t telling the whole story. In fact he his statement was very misleading. He made it sound like Americans will be shortshrifted their health care, as employers dump their health care plans and force Americans to have to buy health care with very little help from the government.
Now, I do think there is a lot to be desired in McCain’s plan. For one, I don’t know if will help ensure the nearly 50 million currently without any health insurance. But Biden’s assessment of the plan is at best, misleading.
Writing in the New Atlantis, Joseph Capreta explains in pretty clear terms how the plan would work:
Suppose a worker gets $50,000 in cash wages and $12,000 in health insurance.
Right now, he pays federal income taxes on the wages but not the health insurance. Let’s assume, for reasons of simplicity, that the tax rate he is paying is a flat 25% on his wages. He therefore pays $12,500 in federal income taxes. His after-tax, after-health-care income is $37,500.
Now, under the McCain plan, his employer keeps paying the premium, which is now counted as income to the worker. He therefore pays federal income taxes on $62,000, or $15,500.
But he also gets a tax credit of $5,000 for health insurance, which means that, all in all, he owes $10,500 in federal taxes, or $2,000 less than he does today. His after-tax, after-health-care income is $39,500.
If the worker decides to buy his insurance in the open market instead of through the employer, the result will be the same. His employer is indifferent to how he pays his worker as long as total costs are the same. So instead of paying premiums, the employer pays his worker $62,000 in cash wages and does not pay anything toward insurance. The worker again owes $15,500 in taxes on this compensation, and he also must buy health insurance costing $12,000. So, his pre-tax income is $62,000, he owes $12,000 in health insurance premiums, and he owes $10,500 in federal taxes (after claiming his credit). His after-tax, after-health-care income is the same: $39,500 ($62,000 – $12,000 – $10,500), or $2,000 more than today.
So Biden was being very simplistic in saying that people’s taxes go up and we get a measly $5000 check. Yes, taxes would go up because wages would go up. However, the tax credit would help offset some of the tax bite. Ross Douthat explains a bit better than I ever could:
This is an argument you hear frequently from liberals: That McCain’s plan will tax employer provided health insurance, which is worth roughly $12,000 for a typical family, which in turn will lead many employers to stop offering said health insurance; meanwhile, the plan will give the same family a tax credit worth only $5,000 to pay for the same plan they used to have through their employer. This makes the whole thing sound like a pretty rotten deal, but it also begs a pretty big question: What happened to that extra $7,000 that employers were spending on health care under the old dispensation? To hear Biden tell it, it’ll just vanish into thin air. But that’s just absurd. Right now, that $12,000 plan is part of your compensation; it’s just that the current tax code incentivizes employers to pay you in health insurance rather than in cash, because the health insurance is tax free. But that doesn’t mean that if health insurance stops being tax free and employers stop including it in your package of salary and benefits, they’ll suddenly cut everyone’s compensation by $12,000; they’ll cut it by the cost of the tax deduction, presumably, and wages will rise to roughly where they would have been if employers had never been incentivized to pay their workers in health care. So the typical family will get their $5,000 credit from the government, and something like the remaining $7,000 they need to buy health insurance will show up in their paycheck. Except that a lot of Americans will actually come out ahead, rather than just breaking even, since McCain’s plan offers a flat credit regardless of income, whereas under the current system the dollar value of your tax deduction – and thus the compensation your employer is incentivized to give you – goes up as your income rises.
As I said before, there are some good reservations about McCain’s plan. It’s just that the concern that Biden brought up, just isn’t one of them.
This entry was posted on Saturday, October 4th, 2008 and is filed under 2008 Election, Biden, Conservatism, Dumb Things Said By Smart People, Health Care, Liberalism, McCain, Palin, Veep. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
October 4th, 2008 at 1:28 pm
When my health insurance comes through my employer, it’s negotiated for me by a professional (our HR VP) who represents a few hundred potential customers. If I had to buy it on the open market, I’d have none of her expertise in interpreting the small print and also lack her leverage, since I’d represent only myself.
Gosh, do you think I’d wind up with a worse deal?
October 4th, 2008 at 3:06 pm
Also McCain ties is tax credit to inflation rate not cost of a ealt care bundle (tis keyboard is missing a letter), as te second increases faster tan inflation rate, in a few years people will be seriously under-compensated for tis switc.
October 4th, 2008 at 4:08 pm
Several issues:
1) What about FICA on the additional income? McCain has indicated both yes and no. If No, the proposal is not revenue neutral. If Yes, this raises taxes and also raises taxes on the employer for his share of FICA.
2) What about state income tax on additional income?
3) What about pay inequities that arise because 2 employees, with what are now identical incomes, will have different incomes because one is on employer health insurance but the other is, say, using his wife’s benefit. This will also complicate pay ranges for particular jobs. The easy answer for employers will be to drop health insurance entirely.
4) The $5000 credit will increase with inflation, but insurance premiums are rising faster. Thus each successive year gets worse.
5) There are numerous other issues having to do with McCain’s proposal to deregulate interstate purchase of health insurance policies.
October 4th, 2008 at 4:15 pm
Everyone who really believes that salaries will go up raise your hand. OK, now that we’ve identified the Republicans in the room I’d like to hear something vaguely resembling proof. The McCain plan would take risks with the welfare of a middle class that is already hurting for the sake of conservative ideology on a level with that which helped bring us our current banking mess. Ideologues never learn.
October 4th, 2008 at 4:24 pm
I think both Obama and McCain’s healthcare plans are seriously flawed. The only hope I have is that whoever gets in office, congress doesn’t let him pass his healthcare plan.
I agree with you that Biden misrepresented McCain’s plan and its affects. The main problem I have with it is that is doesn’t deal with the problem of high-risk individuals (cancer patients, etc.) who can’t get coverage. I don’t see how the free market can deal with this appropriately, and I say this as a pretty staunch free-market supporter.
My son was born with a chronic disease that will most likely require him to need expensive medical care for the rest of his life. I’m fortunate to have a job that provides healthcare coverage, but if I were forced to buy healthcare on the free market, do you think anyone would cover us? They would be foolish to. The argument for the free market is that if people paid for their own healthcare, they’d be more conscious about their health. That would be right if, like car insurance, people were in complete control of their risk. However, sometimes people get sick for no fault of their own, and the stakes are much higher than car insurance.
McCain’s answer to have statewide high-risk pools. That sounds great, except that when you pool a bunch of high-risk people with a bunch of other high-risk people, that defeats the purpose of pooling risk.
Unfortunately I don’t think there are easy answers to the healthcare problem. Both candidates have put out solutions that pander to their ideological base, and neither is workable, in my opinion.
October 4th, 2008 at 4:54 pm
I wanted to know the facts know so I did some digging to see what experts that have evaluated McCains plan had to say.
Here is what they came up with: First and foremost, what this plan does is TAX THE VALUE of your employer-paid benefits. THIS RESULTS IN MORE MONEY COMING OUT OF YOUR PAYCHECK in NEW TAXES.
Second–The “tax credit†he refers to is meant to OFFSET (to a certain degree) the NEW TAXES you WILL be paying.
McCain admits that in the future, the $5,000 credit may not be “enough to cover†the amount of NEW TAXES you will be paying. …….Sound like a bargain so far?
The McCain plan would send a credit directly to your insurance company, NOT YOU, as follows:
$5,000 credit for an entire family, however coverage for a family costs about $13,000 per year.
Single persons would receive $2,500 credit, but coverage for a single person costs around $5,000
You are responsible for paying the rest.
The people that would most benefit from the McCain plan are those persons that are buying their health insurance independently (NOT THROUGH YOUR EMPLOYER)—This only accounts for 5% OF THE POPULATION.
61% of the non-elderly population get their health coverage through their employer.
So- the experts concluded that:
“The current tax system encourages companies to offer insurance, and indeed, 61 percent of the nonelderly population in the U.S. had insurance through their jobs. (Only 5 percent, 13 million people, bought their own insurance.) McCain’s plan to tax workers on the value of their employer-provided health care plans and provide tax credits would encourage some employers, mainly small businesses, to drop health benefits, say experts, and the proposal could eventually eliminate job-based insurance altogether.â€
They also said that insurance compaines will no doubt arrange for policies for healthy, young people to fall somewhere around $5,000, luring them to drop their employer-sponsored coverage, thus creating a pool of us older, sicker folks (that still need our emp.-sponsored coverge) that they will dramatically raise rates on. This of course will make employers want to not offer coverage any more.
It’s a nightmare. Thanks, but NO THANKS!
October 4th, 2008 at 9:37 pm
KJ, how is $5000 not enough to cover the additional taxes on a $13000 additional taxable income? Maybe if you’re in a very high tax bracket. Seems like it should be more than enough to cover it.
It seems you are mixing up two different scenarios. Either your employer provides healthcare benefits, or it does not. If it does, it means you will pay additional taxes, but also receive the $5000 tax credit (again, that seems like more than enough to cover it). If it decides to cut health benefits, then your income should increase (yes, call me stubborn, but I do actually believe in the basic principles of supply and demand that would indicate that the employer would pass at least some of the savings to the employee–or perhaps use the savings to hire more employees which would then increase demand for employees, thus increasing pay). Plus you would have the $5000 tax credit. Yes, you might have to pay some money out of pocket for healthcare, but most employees do now as well even if their employers provides healthcare benefits.
So, for normal relatively healthy people, I think it’s not a bad plan. Like I explained above, my main problem is that that is does not sufficiently address what to do with the high-risk people for whom there is not a good market solution, which is a huge problem.
October 4th, 2008 at 9:47 pm
As for Obama’s plan, he wants to create a government plan that has good benefits and is affordable, and then make private plans compete with it. The problem is, the government plan is subsidized, making it impossible to compete with. Less competition does the opposite of decreasing health care costs, which is the root of the problem.
Additionally, his plan will be subsidized by big business that don’t provide health benefits. So tell me, economist Obama, how many minimum wage employees Walmart will lay off when the cost of employing them doubles? Congratulations on turning poor people into unemployed poor people.
October 5th, 2008 at 11:06 am
I’m glad Obama is finally mentioning the worst aspects of the McCain health plan. It’s actually socialized health care at its worst. It may be better for healthy people, but it’s going to be a nightmare for everyone else.
If you read McCain’s website, he states that “An important part of his plan is to use competition to improve the quality of health insurance …”
But keep reading down the page, and he mentions people that he labels “traditionally uninsurable.” These are people, like John McCain himself, who have previously been diagnosed with cancer, heart disease, diabetes, arthritis, or any other condition that would make them likely to need more health care than a healthy person. Millions of these people are currently covered under employer-provided group policies. They become “uninsurable” as soon as the McCain plan is implemented, if his new tax code encourages employers to drop their group health benefits.
According to the McCain website, these people will be able to find coverage by applying for a state-funded high risk pool, if their state even has one.
If you don’t qualify under your own state’s health plan, or if there is no state health plan in place yet, the only way you can ’shop’ for health coverage is to put your belongings in a rented truck and move to a state, like Oregon or Washington, that does offer coverage for high risk citizens.
Once your family has moved to this new state, you’ll need to wait until you meet the state’s residency requirements, praying in the meantime that you don’t get sick or have an accident. Once you’ve been accepted, you have to pray you don’t need care for the condition that branded you ‘uninsurable’ until the state plan’s pre-existing condition exclusion clause has expired. That’s a lot of praying required for a plan that’s supposed to “improve the quality of health insurance.”
If you happen to already live in that state, get ready to pay higher taxes to cover all the newcomers who come ’shopping’ for health coverage.
The McCain website does not give any estimate about how many people will be forced into state-run programs, but you can do a simple survey yourself. How many of your own family members and friends have conditions that would make them potentially unprofitable to a health insurance company? If you or anyone you know may fall into this category, and your own state has a high-risk medical plan, it’s time to check the premium rates, (they’ll be high), and you’d better hope that the current economic downturn doesn’t force them to limit enrollment. If your own state doesn’t have a state-run health plan, it might be time to check the help-wanted ads in the nearest state where you may be able to get coverage.
Or, better yet, don’t vote for John McCain.
The McCain health plan – all the profits to private insurance companies, all the risk to state taxpayers. If you don’t believe me, read his plan yourself, at http://www.JohnMcCain.com
October 7th, 2008 at 3:04 am
What makes anyone think that the $5,000 tax credit will be a permanent thing. Once McCain gets his hands on the tax revenue from our health insurance benefits he’ll have 7 billion excuses to cut tax credits next year
McCain also stated that the extra money from the tax credit that isn’t used to pay the extra taxes can be put into a health savings account. He better read the law. Anyone who has medical insurance with a normal deductible and out of pocket cost CANNOT have a health savings plan.
Paul Quickel
October 7th, 2008 at 5:51 pm
Paul,
It’s one thing to question whether McCain’s plan is a good idea. It’s another to question whether he’s even going to go through with it. Of course, both criticisms are valid. But if they are, then so is the Republican argument that Obama will raise taxes, despite what he says.
As for it being against the law, I don’t think anyone is suggesting that his plan (or Obama’s) would be implemented without changing law in more ways than one. It would take a legislative effort to implement either of their plans, and so it’s insignificant that the law would also need to change regarding health saving account.
February 24th, 2009 at 3:06 pm
Biden is an idiot anyway…who cares. Obama and Biden don’t have half the experience McCain does. It was the media that helped Obama win…says a lot about the American People!