Examining McCain's Proposed Health Care Tax Credits

Jonathan Cohn has a very interesting article up on CBS News. In it, he examines a recently released paper from the Center for American Progress which dissects Sen. McCain's proposed tax credits -- tax credits that are supposed to fix our broken health care system.

Under our current system, group health premiums (e.g., insurance you get through your job) are exempt from both income tax and payroll tax. Sen. McCain has suggested doing away with that exemption and replacing it with a tax credit ($2,500 for individuals, $5,000 for families) tied to the purchase of individual insurance.

Via Mr. Cohn's article:

McCain's advisers say that the credit would grow at the rate of inflation -- that is, it'd get more expensive at approximately the rate of other goods (or, at least, how the government measures the price increases of other goods). Health care expenses, of course, keep going up faster than other expenses, mostly because of medical technology and the (largely unrestrained) demand for it. So if people kept paying for the same level of insurance, the tax credit would quickly fall behind: They'd end up paying more in taxes. According to the report, "In 2009, the credit will cover 36 percent of an average employer-provided family policy (based upon CBO projections). By 2018, however, the credit will cover only 24 percent of the cost of the same policy."

(This is all in addition to the fact that, for many families, the credit will not be enough to buy a policy — even now — because health care for families costs a lot more than $5,000 a year.)

Now, to its proponents, this feature of the tax credit — the fact that it increases so slowly — is a feature, not a bug. It's designed to encourage people to be more thrifty in their purchase of insurance. Ideally, they'll go for less generous policies — ones that don't subsidize so much wasteful care.

Mr. Cohn points out the crude nature of this approach to cost control, noting that it puts the entire weight of the problem on the backs of consumers while providing no guarantee that adequate health care will be forthcoming. No guarantee of available coverage, much less for pre-existing conditions. No limits on the amount of cost out-of-pocket for consumers.

One reason I enjoy Mr. Cohn's work is that he does embrace transparency in his writing. In the beginning of the article he notes that he has not yet had the opportunity to vet the report in full and that these are initial conclusions only. He closes with a reminder:

OK, and now to that caveat I promised at the beginning. Unlike Barack Obama, McCain hasn't been clear about exactly how he proposes to change the tax treatment of health insurance. And there are rumors around that they might not get rid of the existing deduction entirely, preserving it at least for payroll taxes. It's not clear how that'd affect the paper's conclusions, since the paper assumes the entire deduction goes away. But, of course, if McCain keeps some of the existing tax break, then either his plan won't have as dramatic effect period — or it will run up a higher deficit.

All in all, well worth reading, if for no other reason than to remind yourself that in the convoluted discourse on American health care it pays to dig below the surface on all claims and proposals.

SOURCE: "McCain’s Fuzzy-Math Health Care Plan" 07/05/08
photo courtesy of SoggyDan, used under its Creative Commons license

Clinton Campaign Behind on Staff Health Care Benefits

Today, we are going to take a look at an aspect of the ongoing debate about health care amongst the U.S. Presidential candidates that is, for a change, new.

Politico's Kenneth P. Vogel broke this news:

Among the debts reported this month by Hillary Rodham Clinton’s struggling presidential campaign, the $292,000 in unpaid health insurance premiums for her campaign staff stands out.

Since health care reform is a major plank in Senator Clinton's campaign, this news has great potential to damage her efforts and credibility on that front.

Clinton campaign spokesman Jay Carson assured Politico that there was no interruption in staff benefits as a result of this situation. He also stated that Aetna Healthcare and Blue Cross Blue Shield, the health care providers for campaign staff, had been paid in full this month.

“Sometimes invoices are not paid immediately because we need additional information for our records, or to verify expenses,” Carson said in a statement e-mailed to Politico. “Sometimes invoices arrive at the very end of the month at the cutoff of the reporting period, which means that we are required to report them as a debt on the current FEC report, even where they are paid in regular course during the next month.”

But the unpaid bills to Aetna were at least two months old, according to FEC filings.

They show the campaign ended last year owing Aetna more than $213,000 for “employee benefits.”

During the first two months of the year, the campaign did not pay down any of that debt. In fact, it accrued another $16,000 in unpaid bills last month, and it finished the month owing Aetna $229,000.

Just like any other business, the Clinton Campaign faces employee benefits as one of their most major expenditures. Also just like other businesses, it is not uncommon to carry an unpaid balance from month to month. Carson emphasized that the campaign follows normal business practices in dealing with their bills, which are paid "regularly."

By contrast, Senator McCain had no unpaid health provider bills as of the end of February, and Senator Obama had a balance of $908 owed to AIG American International Group for "insurance." The contrast is already being touted across media and internet sources.

In a race that involves the issue of universal health care as a fundamental component, this news has potential to upset the political apple cart in fairly short order.

SOURCE: "Clinton didn't pay health insurance bills" 03/31/08
photo courtesy of Center for American Progress Action Fund , used under this Creative Commons license

VEBA in Spotlight of Health Care Reform

The fallout from the UAW-GM agreement shifting retiree health care benefits into a VEBA (Voluntary Employee Beneficiary Association) keeps coming.

In a quick, penetrating article, BusinessWeek reporters David Welch and Nanette Byrnes enlighten readers about how many VEBAs are already around (about 12,000 nationwide), who's using them (employers with large, unionized workforces), and how well they are holding up:

In 1998, the equipment giant [Caterpillar ] set up a similar type of health-care trust to defray increases in retiree medical costs. By October, 2004, it ran dry, and retirees saw as much as $281 extra taken from their monthly pension checks. Now the retirees, union, and company are in litigation.

The article quickly explains the benefits of VEBAs to both business and labor:

For employers with aging workers and lots of retirees, a VEBA may be the only way, short of an elusive national health-care plan, to strip crushing liabilities from their books... For unions, a trust can provide an opportunity to safeguard members from losing benefits in the event of a corporate bankruptcy.

Meanwhile, New York Post reporter Paul Tharp is taking a more jaundiced, historical look at VEBAs:

General Motors is saving its financial neck and ending a surprise strike by using a century-old shelter device originally invented to quell the labor riots of the 1920s... VEBAs were created as tax shelters for giant coal and steel companies at the turn of the century to help pay for worker injuries and widows' benefits.

One thing is certain, you'll be hearing a lot more about VEBAs on this blog and in the U.S. Presidential Election campaign in the months ahead.

SOURCE: "Is GM's Health Plan Contagious?" by David Welch and Nanette Byrnes, BusinessWeek, September 27, 2007.
SOURCE: "GM's $nazzy New Model: VEBA," by Paul Tharp, New York Post, September 27, 2007.
photo courtesy of Abandoned In Place at Flickr