For those of you who don’t stop by Swampland first on the way to this blog, here’s McCain’s adviser Doug Holtz-Eakin splainin’ something about his boss’s health insurance plan:
For the typical ESI [employer-sponsored insurance] recipient — $12,000 policy — nothing changes. The tax liability on the policy ($12,000 x .35) when insurance is taxed as compensation is $4,200; this will be immediately offset by the credit of $5,000. In short, if they want to stay with the current plan, it just means a lot of computer entries on the pay stub.
If that’s the case, the McCain plan would decrease the tax subsidy only for those with more-generous-than-average corporate health plans, while increasing it for those with plans that are average and worse, plus all the people out there who currently have no health insurance at all. Which means that, at least initially, the McCain plan would substantially increase the tax subsidy for health care, but distribute it more fairly and evenly than it is now. Over time, though, the subsidy is likely to shrink, as James Kvall of the Center for American Progress explains in yet another of Karen T’s posts:
This would work by holding down the growth in the credit to the inflation rate (about 2% a year), unlike the current benefit which rises with health care premiums (about 6%). Surprisingly quickly, the tax cut turns into a tax increase, even for typical workers with ordinary health care plans.
Now if you believe that the tax subsidy for health care is a major part of what drives health care costs up, as many conservative economists do, this is a good thing. If you don’t, everything’s messier. The McCain plan would still be fairer than the current system, in which the people with the swankiest employer-paid health plans get the biggest tax break. But it might well mean a decline in the quality of health-care available to most people now covered by corporate plans.
And that’s still leaving aside all those questions about adverse selection, the value of expert decision-making, etc. I don’t think this McCain plan is some kind of scam. It just shows clear signs of having been designed by free-market-oriented economists who don’t know all that much about the health-care system. As a mostly free-market-oriented non-economist who doesn’t know all that much about the health-care system, I’m naturally sympathetic to it. But I’m also extremely dubious of how well it would work in practice.