The McCain Healthcare Plan: Designed to Fail

Armen Hareyan's picture
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John McCain's proposal is to tax employer provided health insurance benefits, and use that money to give a $5,000 credit to families who buy their own insurance. It's supposedly revenue-neutral, meaning the government pays nothing out of pocket to run the program.

This health insurance program has a definite lifespan, and is doomed in the long run.

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The goal of McCain's healthcare plan is to reduce the number of people who get employer provided health insurance coverage. Here's what will happen: Younger, healthier workers will opt-out of their employer's plans and take up private policies. That will leave behind older people, and those with preexisting insurance - in other words, a higher risk insurance pool. This will inevitably cost the employer more to insure his employees and increase the incentive to stop providing insurance for his employees. This isn't a bug in McCain's plan, it's a feature.

Assuming that most employers won't increase wages to compensate for the dropped healthcare benefits, as the program matures how will the government pay for the $5,000 credit when less benefits are taxed and more people receive the credit? To use an extreme example, what if no one had employer provided healthcare anymore? Then we would all be getting the $5,000 tax credit - paid for with our own taxes.

Ultimately the program will stop being revenue-neutral, and will become a huge annual government subsidy to the health insurance companies. At that point the program will probably end. Obsolete by design.

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