Question about McCain's Health Care Idea

[Dan]

I'm not sure I understand all the details, hence, I'm asking here (god I hope that's not a mistake). But, McCain has suggested giving every family a $5,000 refund check for health care that they can use anywhere they want. I assume that's taxed, but not really sure and, more importantly for my question, not really sure it really matters.

 

According to the National Coalition on Health Care, "The annual premium for an employer health plan covering a family of four averaged nearly $12,100. The annual premium for single coverage averaged over $4,400." OK, so how does giving me $5,000 (or $2,500 for a single person) actually allow me and my family to be covered? What am I missing?

[YellowLinesandArmadillos]

I'm not sure I understand all the details, hence, I'm asking here (god I hope that's not a mistake). But, McCain has suggested giving every family a $5,000 refund check for health care that they can use anywhere they want. I assume that's taxed, but not really sure and, more importantly for my question, not really sure it really matters.

 

According to the National Coalition on Health Care, "The annual premium for an employer health plan covering a family of four averaged nearly $12,100. The annual premium for single coverage averaged over $4,400." OK, so how does giving me $5,000 (or $2,500 for a single person) actually allow me and my family to be covered? What am I missing?

That is the problem with his plan, it really doesn't. His plan also taxes employers who provide a group rate to their employees in order to pay for giving everyone else insurance. Unless he capped the rate that insurers could charge to participate in a health insurance plan, which won't happen because insurance companies are unlikely to go for it, this whole thing makes no sense and employer health plans would become a thing of the past.

 

I would want a lot more details before I even began to think this was feasible, let alone a good idea.

[yall]

I'm not sure I understand all the details, hence, I'm asking here (god I hope that's not a mistake). But, McCain has suggested giving every family a $5,000 refund check for health care that they can use anywhere they want. I assume that's taxed, but not really sure and, more importantly for my question, not really sure it really matters.

 

According to the National Coalition on Health Care, "The annual premium for an employer health plan covering a family of four averaged nearly $12,100. The annual premium for single coverage averaged over $4,400." OK, so how does giving me $5,000 (or $2,500 for a single person) actually allow me and my family to be covered? What am I missing?

 

You aren't missing much.

 

McCain must be hoping people hear "$5,000.00" and will ignore the rest, like the fact that for most people it will amount to a net loss in terms of real dollars.

[SDS]

It doesn't matter. Congress would never pass anything he proposed, but for purely academic reasons, here is how it would work in theory:

 

http://www.thenewatlantis.com/blog/diagnos...h-care-argument

[molson_golden2002]

You aren't missing much.

 

McCain must be hoping people hear "$5,000.00" and will ignore the rest, like the fact that for most people it will amount to a net loss in terms of real dollars.

I wonder if a "shotgun abortion" would be covered?

[Dan]

It doesn't matter. Congress would never pass anything he proposed, but for purely academic reasons, here is how it would work in theory:

 

http://www.thenewatlantis.com/blog/diagnos...h-care-argument

Thanks for the read. Sounds reasonable in my admittedly limited knowledge of taxes and health benefits. The 2 immediate concerns are (1) do I get bumped into a higher tax bracket when you add the health care money in and (2) what happens if/when insurance premiums go up each year.

[YellowLinesandArmadillos]

Thanks for the read. Sounds reasonable in my admittedly limited knowledge of taxes and health benefits. The 2 immediate concerns are (1) do I get bumped into a higher tax bracket when you add the health care money in and (2) what happens if/when insurance premiums go up each year.

 

Or more likely, your employer drops your coverage because it can't afford the taxes and knows that you can get it??? elsewhere

[SDS]

Thanks for the read. Sounds reasonable in my admittedly limited knowledge of taxes and health benefits. The 2 immediate concerns are (1) do I get bumped into a higher tax bracket when you add the health care money in and (2) what happens if/when insurance premiums go up each year.

 

Well, I can only assume....

 

1. Yes.

 

2. Good point. My gut says wages wouldn't go up as fast to keep up with the plans. Employers have a tough time doing that now when the baby is in their lap, let alone elsewhere. Of course, there is also the idea being allowed to cross state lines and having increased competition should provide some downward pressure on prices.

[Dan]

Well, I can only assume....

 

1. Yes.

 

2. Good point. My gut says wages wouldn't go up as fast to keep up with the plans. Employers have a tough time doing that now when the baby is in their lap, let alone elsewhere. Of course, there is also the idea being allowed to cross state lines and having increased competition should provide some downward pressure on prices.

I agree. It could lead to more competition, plus that $12,000 figure is an average cost. So, I'm sure there are cheaper options. Not sure if they're better or even adequate options, but I'm sure they're there.

 

 

Or more likely, your employer drops your coverage because it can't afford the taxes and knows that you can get it??? elsewhere

From reading that article, it seems they assume your employer will drop your coverage. But then they'll pay you the extra $12,000 that they were using to pay for your health coverage.

[YellowLinesandArmadillos]

I agree. It could lead to more competition, plus that $12,000 figure is an average cost. So, I'm sure there are cheaper options. Not sure if they're better or even adequate options, but I'm sure they're there.

 

 

 

From reading that article, it seems they assume your employer will drop your coverage. But then they'll pay you the extra $12,000 that they were using to pay for your health coverage.

Why they will still be taxed on it as income, now they aren't and if you are getting $5,000 from the Feds and you are negotiating by yourself, either way large health insurance cos will have you over a barrel, especially if you have health issues or one of you children do. This is a bad pandoras box unless there are some guarantees built in and price controls.

 

The state deal will cause all insurance cos to register themselves in the state with the least oversight, a la Delaware and banks. Then there will be no real competition between different state plans.

[finknottle]

One can argue about the net advantages and disadvantages, but I think McCain has failed to make a good enough case for the basic purpose: to get companies out of the business of providing health plans.

 

Before heads explode over the issue of group coverage, remember that health insurance has another core problem that has fallen by the wayside in recent debate: portability. There are a lot of people who are forced to stay with their company - perhaps at a lower wage or in unsatisfactory work conditions - simply because they would otherwise lose health insurance.

 

One approach (Obama) is to keep the situation the same, and hope somebody someday comes through with legislation to permit you to take your company plan with you when you leave.

 

Another approach (McCain) is to move to a individual plan environment, and hope somebody someday comes through with legislation to require insurers to offer individuals a guaranteed-acceptance plan at an affordable rate.

 

Neither addresses the daunting second task before them. My feeling is that McCains second challange is actually acheivable, while Obama's would make a convoluted relationship (between participant, insurer, and originating employer) even worse.

[ExiledInIllinois]

I'm asking here (god I hope that's not a mistake).

 

 

I think you made a mistake Dan... Turn around and go home! Save yourself!

 

[VABills]

Thanks for the read. Sounds reasonable in my admittedly limited knowledge of taxes and health benefits. The 2 immediate concerns are (1) do I get bumped into a higher tax bracket when you add the health care money in and (2) what happens if/when insurance premiums go up each year.

 

I know you probably know this, but when you get bumped to a higher tax bracket, it doesn't tax your entire income at that tax bracket. Only the amount by which you go over. So for example let's say you make 97,000 a year and your tax bracket is 25%. If the health insurance is taxed and let's say it cost 8,000. Once you hit the magical 100,000 whoch maybe put's you in the 31% tax bracket, you don't pay 31% on 105,000. You only pay 31% on the 5,000 that you go over. The initial 100,000 is at 25%.

 

Yeah I know I simplified it, but you have levels, and the income at those levels is taxed at that level. Any amount over is tax at the next level, but only the amount your over by, not your entire income.

[Max Fischer]

I know you probably know this, but when you get bumped to a higher tax bracket, it doesn't tax your entire income at that tax bracket. Only the amount by which you go over. So for example let's say you make 97,000 a year and your tax bracket is 25%. If the health insurance is taxed and let's say it cost 8,000. Once you hit the magical 100,000 whoch maybe put's you in the 31% tax bracket, you don't pay 31% on 105,000. You only pay 31% on the 5,000 that you go over. The initial 100,000 is at 25%.

 

Yeah I know I simplified it, but you have levels, and the income at those levels is taxed at that level. Any amount over is tax at the next level, but only the amount your over by, not your entire income.

 

I'm sure that will make him feel better.

[YellowLinesandArmadillos]

One can argue about the net advantages and disadvantages, but I think McCain has failed to make a good enough case for the basic purpose: to get companies out of the business of providing health plans.

 

Before heads explode over the issue of group coverage, remember that health insurance has another core problem that has fallen by the wayside in recent debate: portability. There are a lot of people who are forced to stay with their company - perhaps at a lower wage or in unsatisfactory work conditions - simply because they would otherwise lose health insurance.

 

One approach (Obama) is to keep the situation the same, and hope somebody someday comes through with legislation to permit you to take your company plan with you when you leave.

 

Another approach (McCain) is to move to a individual plan environment, and hope somebody someday comes through with legislation to require insurers to offer individuals a guaranteed-acceptance plan at an affordable rate.

 

Neither addresses the daunting second task before them. My feeling is that McCains second challange is actually acheivable, while Obama's would make a convoluted relationship (between participant, insurer, and originating employer) even worse.

I hear what you are saying about changing the dynamics of the insurance paradigm, nice thought. But I don't think McCain's plan is actually achievable and this is not to be partisan statement. The plan does not address the idea of negotiating leverage. The only way to put an individual on the same footing would be to form insurance pools, a la they way Unions were formed as bargaining tools by laborers to address wage concerns on equal footing with big companies.

 

We all know the problem with labor union corruptness. Rules and standards would have to be established a la credit union charters maybe to do this. Then maybe the plan has a chance, but on its own, it would fail miserably. However, even in that scenario, I am still not sure it solves the problem of covering the uninsured, saving taxpayer money and creating a more efficient system. If such associations were formed, they would create a formidable political force to raise the amount of contribution from the government creating a greater entitlement program. Not sure the government could prevent these entities from being formed in the first place if McCain's plan happened. Be careful of the law of unintended consequences.

[Live&DieBillsFootball]

It doesn't matter. Congress would never pass anything he proposed, but for purely academic reasons, here is how it would work in theory:

 

http://www.thenewatlantis.com/blog/diagnos...h-care-argument

 

I just read the article and can see a ton of problems with it:

 

1. It assumes that every company would give each employee a raise of the full value it is currently paying for insurance. Good luck with that one! Companies pay different amounts to cover different employees. For example, the company might pay $5000 to cover a single employee, but might pay $7500 towards a family plan of $12000 with the employee picking up the rest. Does it give one employee a $5000 raise and the other a $7500 raise? Some companies even offer multiple plans with different costs that employees can choose from.

 

A lot of companies currently pay an employee for refusing coverage if they have coverage through a spouse. Usually a percentage of the health care costs like 25-50%. I just don't see companies offering to pay all employees the total cost of their current health care premiums.

 

2. Group coverage in most cases cover pre-existing conditions. I've never seen an individual policy that does the same. Group coverage is also cheaper and covers more than individual policies.

 

3. Even if it was a good deal in year one, the employee would now be on the hook for all future health care inflation. Does the $5000 credit go up every year to cover inflation? Probably not.

 

4. Where will the federal government come up with the $5000 for each family.

 

Most likely, it will give companies incentive to dump their group health care plans and employer paid health care will go the same way as pension plans.

[VABills]

I'm sure that will make him feel better.

But paying only 4% more on 5 grand is what 200 bucks.

 

Big difference in thinking you have to pay 4% on 105 grand, which a lot of stupid people think in this country. I don't know how many time I have to tell people that. I have seen people who knew what the tax brackets were not want pay raises because they thought they would make less money if their salary put them in a higher tax bracket.

[Max Fischer]

But paying only 4% more on 5 grand is what 200 bucks.

 

Big difference in thinking you have to pay 4% on 105 grand, which a lot of stupid people think in this country. I don't know how many time I have to tell people that. I have seen people who knew what the tax brackets were not want pay raises because they thought they would make less money if their salary put them in a higher tax bracket.

 

Agreed. Why people worry about being in a higher tax bracket is beyond me.

[Boatdrinks]

Agreed. Why people worry about being in a higher tax bracket is beyond me.

 

It's a valid concern. The way Mc's plan works is the value of your health care plan is lumped in as taxable income. Let's say it's $12,500. So your income is now $102,500 instead of $90,000. You're on the hook for about $2500 in income tax due. Now you receive a tax credit of $5000 to cover it. So you still come out ahead. Fine. But will that credit stay static, or be adjusted for inflation? We all know health care cost increases far outpace inflation. That is a concern.

[finknottle]

I hear what you are saying about changing the dynamics of the insurance paradigm, nice thought. But I don't think McCain's plan is actually achievable and this is not to be partisan statement. The plan does not address the idea of negotiating leverage. The only way to put an individual on the same footing would be to form insurance pools, a la they way Unions were formed as bargaining tools by laborers to address wage concerns on equal footing with big companies.

 

I agree that it doesn't address it - neither are talking about the problems they leave untouched.

 

But the problem could be solved if a move to individual coverage, and a move to open competition across state lines, were followed up with legislation that anybody wanting to be in the health insurance business must offer a universal no-deny plan meeting minimal coverage and affordable price terms, as set by a government oversight organization. This regulatory mandate side-steps the negotiating problem.

 

But nobody (including McCain) is discussing this, and it would take very significant will on the part of Congress to make it happen. But McCain's plan would at least get us to where it would be a viable next step.