Wednesday, April 30, 2008

By the Numbers: McCain on Health Care

John McCain, in what one Cainanite called “a major policy speech”, unveiled his health care proposal yesterday. His plan entails giving tax credits to families that purchase their own health insurance, which, by his logic, would allow those that have employer provided insurance to keep their coverage and the rest of us to benefit from the glorious, invisible hand of the market to keep our health insurance costs down. For those with no income tax liability, the credit would come as a rebate.

This post isn’t to make an argument for why this is bad—I don’t want to insult the intelligence of the Alterdestiny readership—but rather to show just how bad an idea this is.

First off, as the Clinton campaign pointed out, this plan would all but eliminate employer provided health insurance. What incentive would an employer have to offer insurance if employees could get a tax credit or rebate to purchase their own? It would seem easy (if unconscionable) for a business to axe health care costs from the bottom line citing the tax credit as a viable option for employees.

The numbers tell the real truth—the amount of the tax credit/rebate is $2,500 per individual and up to $5,000 for families. I received some quotes from various on-line health insurance providers, and the results are telling. I only selected plans that had deductibles less than $2,500, copays less than $50, and coinsurance (the percentage of total medical costs the policy holder is responsible for after the deductible is paid) of less than 15%. This nominal coverage costs around $434 per month ($5,208 per year). The tax credit covers the premium only; remember that every office visit will cost you $35-$45, the insurer won’t cover a dime until you spend the deductible amount, and you will be paying 10 – 15% of total expenses after you shell out $2,500 for the deductible.

But this isn’t even the worst part, really. In order to get the tax rebate, you have to purchase a plan—for low and middle income people, just having that extra $434 per month is insurmountable. Take a family of four making $30,000; after state and federal income tax withholding, the net pay per month is $2,062. The $434 per month to even buy into the tax credit system is 21% of monthly take home pay. How many low and middle income people can afford to spend the 21% to buy in to the system?

If we do the math for a single parent making $7.50 an hour, the problems with McCain’s plan become even more clear. There are nearly no options for a single parent with one child to get less than 20% coinsurance (I’m not sure why this is…), so I selected for plans at 20% coinsurance, less than $50 office visits, and $2,500 deductibles. These plans average (generously) around $225 per month. Take home pay for the parent would be $988, making the $225 a month 23% of net monthly income.

How many single parents do you know that can wait a full year to get their $5,000 rebate? How many middle class families can afford to put away $434 a month to pay for health insurance until that rebate check arrives? My guess is those premiums would sit on credit cards all year until the rebate arrived, amounting in $592 of finance charges (assuming a 21% APR credit card).

Certainly, in most states, the child in the single parent situation would be covered by Medicaid's CHIP program. But how long until the tax rebate becomes an argument for dismantling the program? We've already seen the hard line the Bush Administration has taken with respect to CHIP; much like employer provided insurance, this tax rebate plan would likely usher in major cutbacks in state and federal health care spending.

At the risk of repeating myself, the amounts shown above are for basic coverage only-- the insured party in these scenarios will have huge amounts of medical expenses. If the family has a toddler with a high fever in the middle of the night and has to take her to the emergency room, the insurance doesn't even kick in until they rack up $2,500 in charges. After that, the family will still be paying 15% of the accrued costs. My guess is that most families and individuals will elect to not pay for coverage, gambling that their out of pocket medical expenses will be less than $2,708 per year (annual premium plus deductible. minus the tax credit), or realizing up front that no matter the forseen cost of healthcare, the 20+% of their income required to buy insurance is untenable. Which, of course, leaves us in the same position we are now, and possibly worse.

We can quibble about mandates and numerical games in the Clinton and Obama plans while still pining for a single-payer system, but either plan is a significant improvement over the current system or McCain’s laissez-faire fantasy.