Saturday, September 13, 2008

Healthcare, McCain Style

by Kevin Drum, Mother Jones
Today's issue: health insurance. John McCain wants to tax your employer-provided health care benefits. He wants to replace those benefits with an insufficient tax credit — $2500 for individuals and $5000 for families (the average cost per family for health insurance is $12000).

It is amazing to me that Obama campaign has let things go this far without pointing out that McCain — who opposes the energy bill because it would increase taxes on oil companies — is actually proposing a tax increase on health care benefits for American workers. But that is precisely what the Senator from Arizona is doing.

Let's unpack this. If you get health insurance through your employer, as most Americans do, you don't pay taxes on it. Under McCain's plan you would. So if the insurance premium for your family is $14,000 (the best estimate available for 2009), you'll pay federal income tax, state income tax, and payroll tax on that amount, and your employer will pay the employer share of the payroll tax on it. For an average family, that comes to about $4,900.

But McCain's plan provides you with a $5,000 tax credit, so you're ahead of the game.

Everything is OK.

Except there's some fine print hidden where McCain hopes no one will see it: his tax credit increases each year only by the normal inflation rate. Your premiums are going to increase way faster — probably around 6-8% per year. That means your taxes are going to go up 6-8% per year too. The chart above, courtesy of CAP, shows the gory details: the tax credit doesn't keep up with the increase in tax payments. In other words, your taxes go up.

If you're in a somewhat higher tax bracket than the median, the news is even worse because your marginal federal tax rate is higher. If you live in a high-tax state like California, the news is even worse because your marginal state tax rate is higher. If you have a big family, the news is even worse because your premium will be more than $14,000 and the taxes you pay on it will therefore be higher. If your employer decides to ditch group healthcare entirely because there's no longer any tax advantage to it, then you're really screwed. And if that happens and you happen to have a chronic illness that no private insurer will touch — well, screwed hardly begins to describe it.

So that's McCain's healthcare plan: make it more expensive, make it riskier, and for some people, make it nonexistent. There's more to say about this, and you can get all the details in this CAP report written a couple of months ago. This stuff is hardly a secret. Smart, Fearless Journalism

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