Wednesday, October 29, 2008

Obama Baffled By Health Policy Debate

President Obama unfortuntately doesn't get it.

He recently claimed that a statement from a McCain health policy adviser, indicating that members of employee benefit plans with health coverage through their employer group would not abandon coverage as a result of the tax plan McCain urges, somehow proved that McCain's plan was a disaster. In the last debate, Obama claimed that McCain's plan was a disaster because it would drive people out of employment-based coverage. Obama: make up your mind. The punch line is that Obama's old claim, that McCain's plan would drive people out of employer-sponsored plans, was supposed to be a disaster because it would create risk segmentation as young healthy people bought coverage with McCain's tax credit. Risk segmentation exists now due to the coverage-selectivity of insurers, and their longstanding practice of setting up can't-opt-out health plans to capture cheap risks in the form of employably healthy workers. Driving up the cost of employer-based coverage by siphoning off good risks would actually decrease the problem of poorly-regulated employer-based coverage; people buying coverage in the open market get genuine insurance instead of the watered-down "rights" conferred under plans governed exclusively by the Employee Retirement Income Security Act. Regulated insurers offer superior rights and better risk distribution. Obama's own health care advisors, interviewed on television, made plain months ago that employment-based coverage was a drag, and that Obama's plan included it only because of inertia. Obama's more recent claims that there's a reason to want employment-based coverage to continue in perpetuity are so farr off the mark that it would make a genuine policy architect weep.

Oh, well. Obama, when he speaks, is apparently no different in substance from any other politician whose lips are moving.

And like most Americans, President Obama is bad at math:
And once you're out on your own with this $5,000 credit, Sen. McCain, for the first time, is going to be taxing the health care benefits that you have from your employer.

And this is your plan, John. For the first time in history, you will be taxing people's health care benefits.

By the way, the average policy costs about $12,000. So if you've got $5,000 and it's going to cost you $12,000, that's a loss for you.

-- Barak Obama, Oct. 15 debate (transcript)
In the hands of a person in the 30% marginal tax rate, a $5,000 credit would be as large as all the tax paid on the last $16,666.67 of income, if it were all taxed at the highest rate. In the hands of a person in the 15% income tax bracket, it would be equivalent to all the tax paid on $33,333.33 -- but of course one can't make $33,333.33 within the 15% tax bracket. Obama's claim that a $5000 tax credit won't put people in a satisfactory position if their health benefits are taxed -- that is, a financial position at least as good as before the change in tax status -- is absolutely false. There is no family at any income level that would suffer from a $5,000 tax credit in exchange for taxability of health benefits, even if the price of health coverage were as high as Obama insists.

The benefit of taxing health benefits is that employers' health expenses become more transparent, and price competition becomes possible. Cherry-picking by the insurers backing plans becomes easier to detect. Substandard plans become easier to detect. Employees have a stronger reason to seek better-priced coverage, because they know the costs and can do the math. Employees have better leverage to negotiate on wages because the illusion of valuable untaxed non-cash benefits is evaporated by transparency caused by taxation.

The tax credit proposed by McCain has a valuable purpose: to level the field of competition between the old, terrible employment-based health coverage system that so long has been subsidized by the federal government through advantageous tax status, and the older system of insurance that works just fine (e.g., for automobiles, homes, and lives) because its regulation hasn't been supplanted by a cloudy haze of federal law that provides aggrieved beneficiaries no useful remedy. Let's face it: the reason the insurers who work for employee benefit plans are working to prevent universal coverage under state law because it would result in clear rights, and prevent the windfall they currently receive with ambiguous plan terms they are free (under federal law) to interpret in their own favor (which is not allowed under state law). McCain's tax-and-credit plan would allow fair price competition, loosen the death-grip of employment-based coverage, enable citizens to buy health coverage with their tax dollars instead of their post-tax earnings, and set the state for state-by-state universal coverage just like we have for drivers -- without making the health care system a one-payor federal health care monopsony as proposed by some.

President Obama just doesn't get it.

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