Barack Obama is not being truthful about McCain's health care plan. McCain would provide a refundable tax credit of $5,000 to all families, and $2,500 for single workers, to be used to help buy health insurance. On October 4, Obama said in Newport News, VA, "Senator McCain would pay for his plan, in part, by taxing your health care benefits for the first time in history. And this tax would come out of your paycheck. But the new tax credit he is proposing? That wouldn't go to you. It would go directly to your insurance company -- not your bank account."
Obama here is practicing one of the Rules for Radicals he learned from the works of the openly socialist revolutionary Saul Alinsky during Obama's community organizer days: There is no need to be truthful when you are fighting for social justice. Make wild charges against your opponent and let him be stuck trying to explain the confusing details.
McCain's Middle Class Health Tax Cut
UNDER THE McCAIN PLAN, if your employer pays for your health insurance, what the employer spends would be included in your taxable income. But then your family would get the $5,000 tax credit to offset any resulting tax. Suppose you are a middle class family in the 25% income tax bracket, and your employer pays $1,000 a month for your health insurance, $12,000 for the year. The resulting tax would be only $3,000, which would be more than covered by the $5,000 tax credit. So there would be no tax coming out of your paycheck due to the McCain plan. Moreover, quite contrary to Obama's nonsense, the tax credit would not only go to you to make sure you didn't pay any additional tax, but there would be $2,000 left over in this case that you could exactly put in your bank account, a Health Savings Account in fact. You could spend that on health care as well, perhaps for deductibles or co-payments, for example, or uncovered care. So you would come out ahead.
Indeed, you wouldn't suffer payment of any additional tax unless your employer paid over $20,000 a year for your health insurance. If your employer's health plan cost $20,100 a year, you would pay $25 in taxes in the 25% middle class tax bracket. You're not going to find too many middle class people whose employers are paying over $20,000 a year for their health insurance. In fact, under the McCain plan, no one with average cost employer provided health insurance would pay any additional tax, in any tax bracket.
Now suppose your employer doesn't pay for your health insurance. Obama said in that same October 4 speech: "A $5,000 tax credit. That sounds pretty good. But what Senator McCain doesn't tell you is that the average cost of a family health care plan these days is $12,680. So where would that leave you?" It would leave you $5,000 ahead of where you are today. You would have $5,000 you could use for the purchase of health insurance you don't have today. Is the taxpayer supposed to pay for all of your health insurance, regardless of your income or wealth?
Under current law, employer provided health insurance is tax free, resulting in a large effective subsidy that goes only to those who receive employer provided coverage, benefiting higher income people in higher tax brackets more than lower income people in lower tax brackets, who are also less likely to have employer insurance at all. What McCain is trying to do by replacing this system with his tax credits is spread that subsidy out to everyone, leaving the higher income people with the most generous health plans paying more than today, but everyone else with more money for health insurance, and, therefore, more likely to get coverage, sharply reducing the uninsured.
Suppose you are a highly paid executive in the top 35% income tax bracket (applying to families making over $357,700 a year), and your company pays for a very generous health plan for you costing $24,000 a year ($2,000 a month). The resulting tax would be $8,400, which, after the $5,000 tax credit, would leave a net tax increase for this rich family of $3,400. But as discussed above, the great majority of those with employer provided insurance, particularly the middle class and working people, would come out ahead on net. And if your employer doesn't provide coverage, then, again, your family would have $5,000 to help pay for health insurance that it doesn't have today.
Reading the mythology of the highly partisan, so-called mainstream press today, you could never imagine that the Republicans are advancing a health insurance reform plan that would leave the great majority coming out ahead, at the expense of high income workers. But, then, you would never know that the result of the Reagan and Bush tax cuts has been to abolish federal income taxes on the working class, and almost abolish them on the middle class, while leaving the top 1% paying 40% of income taxes, and the top 20% paying almost all of them.
But you just can't get the actual news reading the New York Times, or the Washington Post, or the L.A. Times, or the Boston Globe, nor watching NBC, CBS, ABC, CNBC, MSNBC, or CNN.
An American Health Care Safety Net
OBAMA TALKS AS IF there is no health care aid in America for people of modest means, saying in that same October 4 speech, "I know the outrage we all feel about the 45 million Americans who don't have health insurance -- kids who can't see a doctor when they are sick, parents cutting their pills and praying for the best, folks who wind up in the emergency room in the middle of the night because they've got nowhere else to turn." But we already have a huge program to pay for health care for the poor, Medicaid, already spending close to $350 billion per year. Moreover, this is one of the big entitlement programs projected to explode in future years, already likely to double as a percent of GDP by 2050. That will be like spending $700 billion on the program today.
America must have a safety net to pay for essential health care when people can't pay for it on their own. The public will not accept people suffering or even dying solely because they can't afford essential care. Besides Medicaid, all hospital emergency rooms are required by law to provide essential care regardless of ability to pay. We also spend $400 billion per year on Medicare to pay for health care for seniors.
But people can still fall through the cracks. We need a better structured safety net. Obama and his socialist cronies want to use this as an excuse for a complete government takeover of health care, with hundreds of billions each year in additional taxes and spending. But none of that is remotely necessary, and would end up hurting rather than helping most Americans, as discussed below.
We need to start by reforming Medicaid, which is failing to do its job, despite hundreds of billions in spending each year. The federal government needs to cede complete authority over this program to each state to reform it into a more sturdy safety net. The federal share of spending should be sent to each state in a block grant targeted to health care for the poor, with each state to determine how that money and its own Medicaid funds could be best spent to provide a better safety net in the state. Neither candidate has seriously focused on Medicaid reform to date.
But there is an additional idea that can fill the remaining gap. McCain has proposed the Guaranteed Access Plan, or GAP, which would build on the uninsurable risk pools already in existence in 34 states. Those who do not have health insurance who become uninsurable because they have contracted a costly illness would be able to obtain coverage from their state's risk pool. They would be charged a premium adjusted based on their ability to pay, and the state would finance the rest. Only about 1-2% become truly uninsurable through private insurance. They can obtain coverage from their state's risk pool without government taking over health insurance or care for everyone. Current risk pools already provide coverage for about 200,000 Americans. McCain's GAP initiative would provide assistance and financing to help every state establish a sound uninsurable risk pool.
Obama's Socialized Medicine
IN SHARP CONTRAST, everything in Obama's health proposal involves higher government taxes, higher government spending, and more government regulation. It begins with a new payroll tax, estimated at around 7%, that employers would have to pay, unless they paid 75% of the premiums for an employee health plan specified by the government.
As economist John Goodman of the National Center for Policy Analysis points out, the cost of this payroll tax will be almost completely borne by workers in the form of lower wages. To the extent it is not and employers bear the cost, then the tax would make employment more expensive. This added cost, as Goodman also points out, "encourages employers to hire fewer workers, adopt labor saving technology, employ part-time workers, and outsource labor to independent contractors and other entities."
Then there is the endless, new government spending. Obama would establish a National Health Insurance Exchange where Americans could purchase health insurance. They could choose among private insurers that offered plans as specified and approved by the government. Obama emphasizes that these would be generous plans covering all "essential" services, including preventive, maternity and mental health care. In other words, the plans would be expensive. But not to worry, because the government is going to provide "income-based sliding scale tax credits for people and families who need it." In other words, the government, meaning taxpayers, will help to pay for the insurance, but Obama does not specify how much.
In addition, the government will offer a public, government insurance plan on this Exchange as well. The more people that sign up for this plan, the more the government will be paying directly for health care, on top of Medicare and Medicaid. This plan will undoubtedly be designed and priced to involve effectively even more government subsidies, to get more people into the trap of socialized medicine, increasing the spending burden further. As the non-partisan Cato Institute concluded, this public plan would be able "to keep its premiums artificially low…since it can turn to the U.S. Treasury to cover any shortfalls" resulting in "undercutting the private market." The same point could be made about deductibles and co-payments. The Wall Street Journal similarly concluded that the goal of the Obama plan, "like HillaryCare in the 1990s, is to displace current private coverage and switch people to the default government option."
But we are not nearly done yet with the increased spending. Remember the Medicaid program, which is already spending $350 billion, eventually growing to the equivalent of $700 billion today under current law? Obama wants to expand eligibility and increase spending even further for that. The same goes for the State Children's Health Insurance Program (SCHIP). Last year, President Bush proposed to increase spending for this program by 25%. The Democrats laughed that off and wanted to double or triple it.
In addition, the Obama plan "would reimburse employer health plans for a portion of the catastrophic costs they incur above a threshold if they guarantee such savings are used to reduce the cost of workers' premiums." So the government, read taxpayers, would pay for the high costs of all employer plans above an unspecified threshold. In addition, the government would pay for 50% of the premiums paid by small business for health coverage for their employees, through a new, refundable, Small Business Health Tax Credit.
OBAMA IS SO LACKING in understanding of the concept of incentives that, for him, designing any economic policy is like a blind and deaf person driving an automobile. The Obama plan would include regulations providing for guaranteed issue, meaning that insurers would have to offer the same health coverage to anyone who shows up, no matter how sick they are. The insurers would have to cover all pre-existing conditions for whoever shows up for coverage, no matter how costly. So if a doctor tells you that you need a heart transplant costing half a million dollars, you could go down to the National Health Insurance Exchange, sign up for the health care plan of your choice, and check into the hospital the next day, with the bill to go to the insurer. Moreover, Obama's regulations would also require all plans to be community rated, meaning that everyone has to be charged the same premium, regardless of illness or costs when they first sign up.
So under these rules, why would anyone pay anything for health insurance before they are sick? Wait until you find out you have some costly disease, and then go sign up for insurance, paying no more in premiums from that day on than someone who signed up and started paying the same premiums at 21, when they were healthy, and at low cost for decades to come. These rules make private insurance impossible and unworkable, again ultimately forcing everyone into the public plan.
Moreover, the heavy subsidies for the cost of the insurance, and the competitive pressure from the public plan undoubtedly with low deductibles and co-pays would force the private insurers to offer low deductibles and co-pays as well. The same factors would drive consumers to choose the most costly plans offering the most benefits. Yet, where are the incentives in the Obama plan to control costs? There are none.
For these and other reasons, the costs of the Obama plan and its thorough subsidies would soar. The plan is already estimated to add $250 billion in new government spending each year to start. When Medicare was adopted in 1965, it was estimated to cost $9 billion a year by 1980. The actual cost for that year was 3.5 times as much. And all of this is supposed to be financed by repealing the Bush tax cuts on the top 5% of income earners. But the higher tax rates on these savers, investors, and owners with maximum economic flexibility will generate little if any revenues.
So like all government run, socialized health plans, with no market incentives to control costs, the Obama plan will soon be scrambling for cost control. And the only place to turn for significant cost savings is government rationing of health care. All of these socialized health plans start out promising broad scale freebies for everyone. But throughout history, in every country, they end up as established bureaucracies organized around the primary goal of denying health care as the only remaining means to control costs. Long waiting times to see doctors or specialists, slow adoption of new technologies and drugs, denying the effectiveness of treatments and therapies for patients, constricting the supply of doctors, specialists, and hospitals, relying on lack of knowledge by patients and their families as to what treatments are possible, these become the organizing principles for denying care.
The Obama campaign already ominously notes that "the top five percent of people with the greatest health care expenses…account for 49% of the overall health care dollar." Strictly rationing care to these sickest of patients, and letting them die off, saves big bucks, politically silencing them as well. Keeping them alive to continue to consume massive portions of health care threatens bankruptcy, and political stability. These are the people who are sacrificed to the gods of socialized medicine, so self-satisfied liberals can feel good about the fairness of "universal coverage." Under our current system, the young and healthy tend to be the most uninsured. Under the fair, moral, universal coverage system, the young and healthy are covered, but the sickest and most needy of care to save their lives find, in the end, too late, that they effectively are not.
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