Friday, September 12, 2008

McCain's Proposal [updated]

Some things McCain has said and what they mean:

"Let's give families $5000 in tax credits so they can go across state lines and get the insurance policy that suits them best."

One part of McCain's plan is very confusing, and I am not entirely certain I understand it. Remember when I asked you to imagine that you were a HR manager and suggested that it might make sense for you to just pay the insurance premiums and pay your employees less? For most of us who are insured through work, that is what is happening to some degree. I get a pay check and it indicates that just under $200 has been deducted from it for my family's health insurance. But my employer pays 80% of my premium, which means that between us, over $900 a month is being paid in insurance premiums for me and my kids. Right now, that $200 comes out of my pay check before taxes (i.e. I don't pay income taxes on it), and the other $700+ doesn't even show up on the stub. McCain wants it all to be subject to income tax.

Then he wants to give tax credits of $2500 to individuals and $5000 to families. [Note: Sheri points out in the comments below that tax credits only help people who make enough money to pay taxes. Working people who don't pay any federal income tax, would receive no tax credit.]

For many people mean that the tax credit will just off-set the new tax burden. Some will come out ahead. Some will come out behind. (See for more explanation on this.)

What he wants it to do though is to encourage families to "go across state lines to buy the policy that suits them."

What does that "across state lines" part mean? Well, as Paul Krugman pointed out, it means doing to health care what has already been done to credit cards. Right now your state might have laws saying that health insurance companies have to pay for at least 3 days of hospital care after the birth of a baby. Your state might have restrictions on how risk can affect your premiums. It may require that the insurers who cover ED meds also cover birth control meds. Some other state however, may not.

Right now, if you buy insurance, the policy you buy has to conform to the laws of your state. Going across state lines means that you can buy a cheaper policy from a company in a state with fewer regulations.

And I see why some people would find that attractive, but think about credit cards. At one time credit card companies had to follow the laws in the state of the card holder. Different states had different guidelines about how high interest rates could go and under what conditions. Federal guidelines allowed us to "go across state lines" and get whatever cards we wanted. This resulted more people getting credit, which is arguably good. It also resulted in cards which offered very low "teaser" rates, followed by significantly higher rates and finally extremely high punitive rates. Similar things have happened with mortgages. Rules were relaxed to allow greater freedom of choice, which resulted in many people getting into situations in which they could not pay their debts.

When that happens on the small scale it is one thing, but when very many people start being unable to pay their debts, it affects all of us.

The same thing with health insurance. There is a real danger that people will not read all the fine print in the insurance policies they are buying (have you ever read an entire health insurance policy?!). Many people will purchase plans that are low cost and low coverage -- lower than they expected. A percentage of these people will end up with bills they can't pay, and, as I explained above, the costs of those bills will get passed on to others.

But gets worse.

McCain wants for you to be able to opt out of your employer's plan altogether and have your $2500 tax credit put into a health care savings account for you to use for your own health care expenses. Now this could be a great thing for the young and healthy, as long as they stay young and healthy. If things go well for them, they may save up a good deal of money. If things go poorly however, they will again have bills they cannot pay.

And because they opted out of the insurance system, left the shared risk pool, the rest of us will pay more for our premiums.

I know, this all got very complicated, didn't it? Let me give you what I think is the bottom line:

Insurance is supposed to be about shared risk. Higher rates of participation means lower premiums and fewer unpaid bills to be passed on. Whenever people opt out the opposite happens. To different degrees, Hillary Clinton and Barack Obama want to get more people participating in insurance. They want people both paying into the system and benefiting from it. McCain wants to increase freedom of individual choice and responsibility. This is the opposite of insurance, and, I believe, has the potential to make our health care situation much much worse.

It is also interesting to note that in the system that McCain is pushing, a 72 year old man with a history of melanoma would probably find any insurance to be prohibitive.

Update: here is a link to an article explaining how people with risks like McCain would get insurance under McCain's plan. This particular article, looks at Alaska, for which the prospects are extremely bad. (h/t Yglesias)


  1. Or you have a family living at the poverty level that has no tax liability each year and no health insurance. A $5000 tax credit will mean nothing to them and they still won't have health care.

  2. Exactly. I worked for several years after college without making enough money to owe any taxes. I was young and didn't have any debt and I could afford to work at a job I loved that paid next to nothing. But I could not have afforded health insurance if my parents hadn't offered it to me as a graduation present, and if their health plans hadn't allowed them to keep me as a dependent. The same thing would be true if I decide to take a year off after grad school and adjunct teach. And since I have had some health issues between then and now I'm not even sure I could buy individual insurance even if I was willing to pay a reasonable amount out of pocket for it. If people can shop around for health insurance, then insurance companies can also shop around for clients, and charge prohibitively high prices for those they'd prefer not to insure.

  3. Also, I am fundamentally opposed to the idea that health insurance should be something you can easily opt out of. Just because you are young and healthy doesn't mean you can't get sick. And when you do, society will try and help. Hospitals will charge you lower rates where they can, people will hold fundraisers, etc. Not that you won't end up with debt, but no one wants to say "sorry, it was your decision not to pay for health insurance, guess you'll have to live with the consequences." In the end some of the cost of health care for the uninsured ends up being shared among the rest of us, either because hospitals charge more to offset the care they provide free, or because it's awkward to refuse to give money to a fundraiser for someone in need, or because the patient is so far in debt (or even bankrupt) they can't pay what they owe you. I really think that optional health insurance (assuming it is made affordable) ends up taxing the responsible and risk-adverse to help cover the costs of those who are willing to gamble that they'll stay healthy.


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