In Part 3 of this series I analyzed the candidates’ positions on expansion of pubic programs. In this post I assess the candidates on parts C, D, and E of the Kaiser Family Foundation’s health08.org framework: C. Premium subsidies to individuals, D: Premium subsidies to employers and E: Tax changes related to health insurance.
First, here is the Kaiser summary:
C. Premium subsidies to individuals
- Provide a refundable tax credit of up to $2,500 (individual) and $5,000 (families) to all individuals and families for the purchase of health insurance
- Provide income-related premium subsidies, in addition to the tax credit, to individuals enrolled in the Guaranteed Access Plan. [Note: this plan will be discussed in Part 5]
- Make federal income-related subsidies available to help individuals buy the new public plan or other qualified insurance
D. Premium subsidies to employers
- No provision
- Provide small businesses with a refundable tax credit of up to 50 percent of premiums paid on behalf of their employers if employer pays a “meaningful share” of the cost of “a quality health plan”
- Provide federal subsidies to partially reimburse employers for their catastrophic health care costs if the employers guaranteed that premium savings would be used to reduce employee premiums
E. Tax changes related to health insurance
- Reform the tax code to eliminate the exclusion of the value of health insurance plans offered by employers from workers’ taxable income
- Allow individuals owning “innovative multi-year policies” that cost less than the tax credit to deposit the excess into expanded HSAs
- No provision
The candidates’ positions on these topics present quite a contrast. McCain’s positions are bold, radical and sweeping. Obama’s are modest and targeted. Overall I think Obama’s positions are better because they build on rather than undermine the employer-sponsored model in place today, but a modified version of McCain’s plan –along the lines of something that would actually be passed by Congress– might be superior.
A centerpiece of McCain’s program is to eliminate the tax deduction for employer-paid health insurance and replace it with a tax credit to individuals and families. He’d also provide some additional subsidies to lower-income people, especially to those whose pre-existing conditions make insurance unaffordable.
As McCain points out, employer-deductibility of health insurance costs is unfair to those who lack employer coverage. The problem with eliminating such coverage is that it will erode employer-sponsored insurance and increase the number of uninsured. Meanwhile the tax credit won’t be high enough to pay for health insurance, so many employees who lose their health insurance are going to be stuck. That’s especially true for people with pre-existing conditions, who benefit today from being part of larger risk pools thanks to their employers. Overall inefficiency will rise, too because administrative expenses for individual plans are higher than those for large groups.
What I’d like to see instead is a cap on deductibility, preferably not indexed to inflation at all or indexed at a low rate. That would correct the unfairness over time without causing employers to dump health insurance. It would also provide an incentive for health plans to come up with insurance products that stay below the cap –perhaps containing costs as they do so.
McCain’s tax credit is a lot better than a tax deduction because it’s of equal value to people in high and low tax brackets. So I give him points for that. I also like the emphasis on multi-year policies. Those are good because they align the incentives of members and plans. For example, a health insurer that’s responsible for a member’s costs five years into the future rather than one is going to have an incentive to invest more in prevention and wellness, which will lower overall costs and keep the member healthier.
Obama’s positions are very clearly focused on reducing the number of uninsured. Individual subsidies are useful to make insurance affordable and the emphasis on tax breaks for small businesses is well-targeted. Almost 100 percent of large companies already provide health insurance, it’s the smaller ones that don’t. And small employers are often worried about having a catastrophic loss that would drive up their premium. By taking that risk off their books –in exchange for keeping costs down for employees– Obama is trying to increase the percentage of employees who take insurance that their employers offer.
The various Obama provisions do a good job of reducing the number of uninsured, but it might just be simpler to skip the tweaking and propose a single-payer system. Obama’s too smart to propose something suicidal like that, however.
Obama’s plan would be better than McCain’s if enacted as described, because it would reduce the number of uninsured while McCain’s plan would have the opposite effect. However if McCain’s proposal led to a cap on employer deductibility as a compromise –which seems likely– I’d favor it.
Stay tuned for Part 5: Creation of insurance pooling mechanisms.September 18, 2008