It seems to me that if Palin's claim about McCain's health insurance plan is inaccurate (that it would end up costing the Treasury money because the tax credits under the plan would be greater than the lost revenue from making employer-plans tax-exempt), then it follows that Biden's claim about the plan making workers worse off would be even more incorrect.
It's difficult to score that health insurance plan anyway, because it's difficult to know exactly what would happen if employer-provided health plans were not tax exempt at the point of payroll (but up to $5000 on personal income tax.) The first approximation would, I suppose, be to compare the number of unemployed and self-employed people now taking the deduction against the well-off with expensive (currently not taxed) plans that now would only be untaxed to the first $5,000.
In any case, there's a reasonable argument that companies would respond by substituting taxed wages for the (now-taxed) benefits, which would make workers better off. The McCain health insurance plan is a very good idea, especially for the self-employed or those employed by small businesses that don't have health care. The employer deduction is a mistake. Even Jason Furman and Brad DeLong and others supported ideas like it, at least until their guy was running against someone suggesting it.
Re: your title, I actually saw someone make that claim about Yahoo's round-up of the lies each candidate told. Palin was actually lying, you see, but Biden's lies were just a form of debating.
In any case, there's a reasonable argument that companies would respond by substituting taxed wages for the (now-taxed) benefits, which would make workers better off.
In what sense? Instead of group health insurance through my employer, now I have to go out and find some non-group insurance on my own. Instead of pre-tax dollars being used to pay for my coverage, I get some sort of "credit" ("up to $5000," wow what a deal, that's kind of like the housing developer who advertises houses "starting in the 100s" when that describes about 1% of the houses) against what I wind up having to pay on my own. And even more critically, instead of an automatic payroll deduction that I don't have to manage and don't have to think about, I have to save on my own to pay my health care premiums. How many people under this regime are going to decide that they'd rather buy a new car or go to Vegas with that money? Isn't that the very definition of "moral hazard?" And then if they get cancer or something, they show up at the hospital with no insurance, what then? "Well, too bad, you decided to go to Vegas instead of buy health insurance, so you just go broke, become an indentured servant, or die."
How are workers "better off" under this plan? I don't see it.
Instead of group health insurance through my employer, now I have to go out and find some non-group insurance on my own.
I agree, we would need some way to still have the benefits of the risk pooling that employer benefits have. I haven't heard McCain speak about this at all, so my guess is that he doesn't care. He'll have his gold-plated government benefits for life, while the rest of us have to deal with insurance companies raising premiums to insane rates once we're old.
$5000 dollars a year tax credit is good for $400 a month insurance for the family.
I went through this last year. I am not going to bother going through the forms but full coverage came no where near $400 a month for an individual.
I believe one of the benefits is to actually make consumers of health services take more care about visiting the doctors office. When it comes out of your pocket, you are less likely to go see the doc because of a cough. Thereby cutting costs.
Now that the "bailout" bill has passed, maybe we should take a closer look at the Patrick Kennedy mental health insurance provisions that the Senate used to craft their "bailout" bill in the first place.
It appears to say that states (or maybe companies) have to require mental health benefits alongside physical health benefits. If so, the "cheap" health insurance available in some states (not New York, which already mandates mental health coverage) will disappear quickly.
The claim that Obama's vote wouldn't affect "families" making only $42K/yr?
Gee, why do you suppose they put scare quotes around "families"? Because a "family" of four that consisted of a gay couple and two children (which both sides deem "families" -- or a single mom or dad with three children -- making the requisite 42K/yr would certainly have been hit with a tax increase. PULLEEEAZE!
Score 1 for Palin!
The claim that McCain's health insurance tax credit would be "budget neutral" is correct. Making employer provided health insurance taxable would in fact offset the tax credit for most families (see, no scare quotes). It's also great policy (making folks pay for health insurance out of their own pockets -- and letting them buy policies across state lines (why am I limited to policies that mandate chiropractic care -- and Viagra?) will in fact bring down the costs for health care.
Score 1 for Palin (some hooey)!
Oh gee, only "several hundred thousand" small business owners would be affected by Obama's tax grab. Ok, Sarah used a little hyperbole, but she focussed attention on Obama's tax and spend druthers.
How many people under this regime are going to decide that they'd rather buy a new car or go to Vegas with that money? Isn't that the very definition of "moral hazard?..."Well, too bad, you decided to go to Vegas instead of buy health insurance, so you just go broke, become an indentured servant, or die."
No. That is not the definition of "moral hazard." That is quite the opposite of the definition of moral hazard. The definition of moral hazard would be, instead, if hospitals were required to provide care (or insurance companies to cover them) regardless of the decisions that people made. Providing extremely expensive insurance that means that people don't suffer the results from their choices is moral hazard.
Telling people that they are free to make whatever decisions they make, but they might have to go broke or not receive care would be exactly the opposite of moral hazard. Though, in fairness, it's also not something that would happen, since emergency rooms are required to provide emergency care.
How are workers "better off" under this plan? I don't see it.
The self-employed and those whose jobs do not provide insurance are better off. Those whose jobs provide an average level of coverage are unaffected. Those whose jobs provide extremely expensive insurance may indeed be worse off, though this is mostly workers who are well-off.
My point was the claim that exempting insurance from taxes causes people to get lower wages but more insurance than otherwise. My general belief is that this lowers welfare. Your belief is that if you let people spend money however they want, they'll do stupid things with it.
How are workers "better off" under this plan? I don't see it.
Also remember that Sen. McCain's plan is a tax credit, applied dollar-for-dollar against taxes, whereas the existing tax law is a tax deduction. People seem confused on that. It doesn't say that you get credit for up to $5,000 spent on insurance; no, you get to subtract $5,000 from your taxes.
In order for the federal tax on the insurance to be $5,000, the insurance itself has to cost considerably more than $5,000. This means that McCain's plan is more valuable for the middle-class, as in the 25% tax bracket you can get fully reimbursed for insurance worth up to $20,000/year, whereas in the 33% tax bracket you would only be reimbursed for insurance up to $15,000/year.
Under the current tax law, if a company provides benefits worth $10,000/year, then the person in the 25% tax bracket is saving $2,500 in taxes, whereas a person in the 33% tax bracket is saving $3,333/year in taxes.
For all those reasons, Sen. McCain's plan is better for the middle-class and worse for the well-off than the current plan.
For all those reasons, Sen. McCain's plan is better for the middle-class and worse for the well-off than the current plan.
Unless companies start to cut health insurance, because there is no tax favored status associated with it. The assumption is that corporations will give that money to their employees, instead of pocketing it for themselves. I would prefer not to make policy based on such an assumption.
McCain's plan is to get people paying for their own insurance, but without a plan to deal with risk pooling and pre-existing conditions this leaves us heavily at the mercy of the insurance companies. Until he addresses those specifics, his plan will likely make many people worse off.
Per JordanT, I think there are some questions that need to be addressed. My thought on this would be though that, since most people would prefer to be in the risk pool, not have to go looking for insurance, that employers would adjust compensation to reflect the new tax status and people would have a choice to react by opting out. I think what McCain is trying to do is make costs more transparent and thus something we as individuals and a nation may better make judgements on.
since most people would prefer to be in the risk pool, not have to go looking for insurance
Unless corporations decide to not provide benefits at all. One of the problems of purchasing individual insurance is losing the risk pool. One of the largest problems with individual insurance is the lack of a risk pool, and plans such as McCain's must address this head on. They can't hand wave it away, and say that companies will take care of it. I want to see out of McCain a real solution for this problem, before even considering his plan.
JordanT. Insurance is a form of compensation. Not to have insurance for your employees puts the employer typically at some disadvantage in looking for employees. That isn't going to change overnight. It should be a fairly straightforward exercise to calculate an offset to the employee's current monetary or noninsurance compensation based on the new tax law.
I have a small business with 35 employees based in Florida. I use ADP for my payroll services. My company pays for our employees insurance 100%, but does not pay for the family. Our rep at ADP (the nation's largest payroll service) and only 10% of her clients pay the full 100% of the employees health care and less the 5% contribute to the family premium. So it seems that people would be giving of the income deduction (primarily as it relates to the family portion) as described by John Thacker. Contrary to other comments above (and a good portion of employees), most business owners view health care as both a form of compensation. I can think of few reasons why a business owner would stop providing healthcare:
1. The government takes it over.
2. Business owners cost of keeping their doors open are increased because of government tax policy.
3. They close up shop because of a recession / depression caused macroeconomic factors and exacerbated by tax increase and over regulation.
Megan, I know your are not a huge fan McCain, but please try to look at both sides. Also, link to a blog that has a different point of view like http://www.thenewatlantis.com/blog/diagnosis or tell us why they are wrong.
Unless companies start to cut health insurance, because there is no tax favored status associated with it. The assumption is that corporations will give that money to their employees, instead of pocketing it for themselves. I would prefer not to make policy based on such an assumption.
McCain's plan is to get people paying for their own insurance, but without a plan to deal with risk pooling and pre-existing conditions this leaves us heavily at the mercy of the insurance companies.
Your points are self-contradictory, JordanT. To the extent that your point is true, and workers strongly prefer company-provided health insurance because of the risk pooling, then that itself is a reason for the companies to continue to provide it as compensation. They currently provide health insurance because workers prefer it, both for the risk pooling and because they prefer receiving tax-advantaged compensation to taxed compensation.
I strongly doubt that companies will drop their insurance-- however, some companies that provide particularly expensive coverage to highly compensated employees may cut back on the level of insurance. But that's generally a good thing, as the current system over subsidizes health care spending for the well-off.
Currently a $20,000/year insurance plan paid for by the employer is worth $5,000 in avoided taxes for someone in the 25% bracket but $7,000 for someone in the 35% bracket and only $3,000 for someone in the 15% bracket. Under the McCain plan, all would get a $5,000 credit. But under the current plan, companies are much more likely to provide expensive coverage to their most highly-compensated employees because it's worth more to them to do so.
There's no good reason to treat people worse off because their company doesn't provide insurance, or because they're self-employed, but current law does. There's also few good reasons to subsidize someone more for health care because they're wealthier.
1) Greatly helps people who are self-employed or whose company does not provide health insurance by creating a level playing field. This is a tax expenditure.
2) Increases taxes of people who are both in higher tax brackets and whose current coverage is particularly expensive.
Of course, the devil is in the details for people as to #2. There are several possible ways to structure and amend the program. As currently structured, someone in the 25% bracket ($33k-$79k as a single, $65k-$131k jointly filing) needs insurance worth over $20,000/year to owe more taxes under the plan, whereas someone in the 33% bracket ($164k-$358k single, $200k-$358 joint) needs insurance of over $15,000/year to owe more taxes under the plan.
My original post was noting the interesting fact that Gov. Palin's original claim, that the plan would have no effect on the Treasury, was essentially a claim agreeing with Sen. Biden's response, that a fairly high number of well-off workers with good insurance plans would be paying for it. To the degree that her claim was incorrect, so would be Biden's; the more money that the plan costs the Treasury, the fewer people are paying additional taxes to pay for it.
Actuallly $5000 a year tax credit WILL cover a fairly comprehensive health plan for many people even in San Francisco, certainly not a low cost area. A Kaiser Health Plan for a 40 year old individual is a bit over $300 per month. There are some co-pays, such as $30 per doctor visit, but for many people it will still work out to less than $5000 per year.
But the most important aspect of the tax credit approach is to de-link health plans from employment. It is a major distorting factor on the job market and, of course, is unfair to the marginally employed or self employed. It is an historical happenstance that the two were linked, and in the long run a more rational healthcare system can be created only by separating health from employment. (Even a "universal" or "single-payer" approach de-links heathcare from employment.)
Historically, is lying (or mistaking the facts, whichever) correlated with the debate "winner"? Which way do you think that correlation actually goes?
It seems to me that if Palin's claim about McCain's health insurance plan is inaccurate (that it would end up costing the Treasury money because the tax credits under the plan would be greater than the lost revenue from making employer-plans tax-exempt), then it follows that Biden's claim about the plan making workers worse off would be even more incorrect.
It's difficult to score that health insurance plan anyway, because it's difficult to know exactly what would happen if employer-provided health plans were not tax exempt at the point of payroll (but up to $5000 on personal income tax.) The first approximation would, I suppose, be to compare the number of unemployed and self-employed people now taking the deduction against the well-off with expensive (currently not taxed) plans that now would only be untaxed to the first $5,000.
In any case, there's a reasonable argument that companies would respond by substituting taxed wages for the (now-taxed) benefits, which would make workers better off. The McCain health insurance plan is a very good idea, especially for the self-employed or those employed by small businesses that don't have health care. The employer deduction is a mistake. Even Jason Furman and Brad DeLong and others supported ideas like it, at least until their guy was running against someone suggesting it.
Re: your title, I actually saw someone make that claim about Yahoo's round-up of the lies each candidate told. Palin was actually lying, you see, but Biden's lies were just a form of debating.
In what sense? Instead of group health insurance through my employer, now I have to go out and find some non-group insurance on my own. Instead of pre-tax dollars being used to pay for my coverage, I get some sort of "credit" ("up to $5000," wow what a deal, that's kind of like the housing developer who advertises houses "starting in the 100s" when that describes about 1% of the houses) against what I wind up having to pay on my own. And even more critically, instead of an automatic payroll deduction that I don't have to manage and don't have to think about, I have to save on my own to pay my health care premiums. How many people under this regime are going to decide that they'd rather buy a new car or go to Vegas with that money? Isn't that the very definition of "moral hazard?" And then if they get cancer or something, they show up at the hospital with no insurance, what then? "Well, too bad, you decided to go to Vegas instead of buy health insurance, so you just go broke, become an indentured servant, or die."
How are workers "better off" under this plan? I don't see it.
Instead of group health insurance through my employer, now I have to go out and find some non-group insurance on my own.
I agree, we would need some way to still have the benefits of the risk pooling that employer benefits have. I haven't heard McCain speak about this at all, so my guess is that he doesn't care. He'll have his gold-plated government benefits for life, while the rest of us have to deal with insurance companies raising premiums to insane rates once we're old.
$5000 dollars a year tax credit is good for $400 a month insurance for the family.
I went through this last year. I am not going to bother going through the forms but full coverage came no where near $400 a month for an individual.
I believe one of the benefits is to actually make consumers of health services take more care about visiting the doctors office. When it comes out of your pocket, you are less likely to go see the doc because of a cough. Thereby cutting costs.
Now that the "bailout" bill has passed, maybe we should take a closer look at the Patrick Kennedy mental health insurance provisions that the Senate used to craft their "bailout" bill in the first place.
It appears to say that states (or maybe companies) have to require mental health benefits alongside physical health benefits. If so, the "cheap" health insurance available in some states (not New York, which already mandates mental health coverage) will disappear quickly.
Oh Please, Megan.
The claim that Obama's vote wouldn't affect "families" making only $42K/yr?
Gee, why do you suppose they put scare quotes around "families"? Because a "family" of four that consisted of a gay couple and two children (which both sides deem "families" -- or a single mom or dad with three children -- making the requisite 42K/yr would certainly have been hit with a tax increase. PULLEEEAZE!
Score 1 for Palin!
The claim that McCain's health insurance tax credit would be "budget neutral" is correct. Making employer provided health insurance taxable would in fact offset the tax credit for most families (see, no scare quotes). It's also great policy (making folks pay for health insurance out of their own pockets -- and letting them buy policies across state lines (why am I limited to policies that mandate chiropractic care -- and Viagra?) will in fact bring down the costs for health care.
Score 1 for Palin (some hooey)!
Oh gee, only "several hundred thousand" small business owners would be affected by Obama's tax grab. Ok, Sarah used a little hyperbole, but she focussed attention on Obama's tax and spend druthers.
Score 1 for Palin!
Did I miss anything?
No. That is not the definition of "moral hazard." That is quite the opposite of the definition of moral hazard. The definition of moral hazard would be, instead, if hospitals were required to provide care (or insurance companies to cover them) regardless of the decisions that people made. Providing extremely expensive insurance that means that people don't suffer the results from their choices is moral hazard.
Telling people that they are free to make whatever decisions they make, but they might have to go broke or not receive care would be exactly the opposite of moral hazard. Though, in fairness, it's also not something that would happen, since emergency rooms are required to provide emergency care.
The self-employed and those whose jobs do not provide insurance are better off. Those whose jobs provide an average level of coverage are unaffected. Those whose jobs provide extremely expensive insurance may indeed be worse off, though this is mostly workers who are well-off.
My point was the claim that exempting insurance from taxes causes people to get lower wages but more insurance than otherwise. My general belief is that this lowers welfare. Your belief is that if you let people spend money however they want, they'll do stupid things with it.
Also remember that Sen. McCain's plan is a tax credit, applied dollar-for-dollar against taxes, whereas the existing tax law is a tax deduction. People seem confused on that. It doesn't say that you get credit for up to $5,000 spent on insurance; no, you get to subtract $5,000 from your taxes.
In order for the federal tax on the insurance to be $5,000, the insurance itself has to cost considerably more than $5,000. This means that McCain's plan is more valuable for the middle-class, as in the 25% tax bracket you can get fully reimbursed for insurance worth up to $20,000/year, whereas in the 33% tax bracket you would only be reimbursed for insurance up to $15,000/year.
Under the current tax law, if a company provides benefits worth $10,000/year, then the person in the 25% tax bracket is saving $2,500 in taxes, whereas a person in the 33% tax bracket is saving $3,333/year in taxes.
For all those reasons, Sen. McCain's plan is better for the middle-class and worse for the well-off than the current plan.
Here's an analysis that you can disagree with.
the existing tax law is an income deduction / nontaxable wages.
For all those reasons, Sen. McCain's plan is better for the middle-class and worse for the well-off than the current plan.
Unless companies start to cut health insurance, because there is no tax favored status associated with it. The assumption is that corporations will give that money to their employees, instead of pocketing it for themselves. I would prefer not to make policy based on such an assumption.
McCain's plan is to get people paying for their own insurance, but without a plan to deal with risk pooling and pre-existing conditions this leaves us heavily at the mercy of the insurance companies. Until he addresses those specifics, his plan will likely make many people worse off.
Per JordanT, I think there are some questions that need to be addressed. My thought on this would be though that, since most people would prefer to be in the risk pool, not have to go looking for insurance, that employers would adjust compensation to reflect the new tax status and people would have a choice to react by opting out. I think what McCain is trying to do is make costs more transparent and thus something we as individuals and a nation may better make judgements on.
since most people would prefer to be in the risk pool, not have to go looking for insurance
Unless corporations decide to not provide benefits at all. One of the problems of purchasing individual insurance is losing the risk pool. One of the largest problems with individual insurance is the lack of a risk pool, and plans such as McCain's must address this head on. They can't hand wave it away, and say that companies will take care of it. I want to see out of McCain a real solution for this problem, before even considering his plan.
JordanT. Insurance is a form of compensation. Not to have insurance for your employees puts the employer typically at some disadvantage in looking for employees. That isn't going to change overnight. It should be a fairly straightforward exercise to calculate an offset to the employee's current monetary or noninsurance compensation based on the new tax law.
I have a small business with 35 employees based in Florida. I use ADP for my payroll services. My company pays for our employees insurance 100%, but does not pay for the family. Our rep at ADP (the nation's largest payroll service) and only 10% of her clients pay the full 100% of the employees health care and less the 5% contribute to the family premium. So it seems that people would be giving of the income deduction (primarily as it relates to the family portion) as described by John Thacker. Contrary to other comments above (and a good portion of employees), most business owners view health care as both a form of compensation. I can think of few reasons why a business owner would stop providing healthcare:
1. The government takes it over.
2. Business owners cost of keeping their doors open are increased because of government tax policy.
3. They close up shop because of a recession / depression caused macroeconomic factors and exacerbated by tax increase and over regulation.
Megan, I know your are not a huge fan McCain, but please try to look at both sides. Also, link to a blog that has a different point of view like http://www.thenewatlantis.com/blog/diagnosis or tell us why they are wrong.
Your points are self-contradictory, JordanT. To the extent that your point is true, and workers strongly prefer company-provided health insurance because of the risk pooling, then that itself is a reason for the companies to continue to provide it as compensation. They currently provide health insurance because workers prefer it, both for the risk pooling and because they prefer receiving tax-advantaged compensation to taxed compensation.
I strongly doubt that companies will drop their insurance-- however, some companies that provide particularly expensive coverage to highly compensated employees may cut back on the level of insurance. But that's generally a good thing, as the current system over subsidizes health care spending for the well-off.
Currently a $20,000/year insurance plan paid for by the employer is worth $5,000 in avoided taxes for someone in the 25% bracket but $7,000 for someone in the 35% bracket and only $3,000 for someone in the 15% bracket. Under the McCain plan, all would get a $5,000 credit. But under the current plan, companies are much more likely to provide expensive coverage to their most highly-compensated employees because it's worth more to them to do so.
There's no good reason to treat people worse off because their company doesn't provide insurance, or because they're self-employed, but current law does. There's also few good reasons to subsidize someone more for health care because they're wealthier.
The McCain plan in general does several things:
1) Greatly helps people who are self-employed or whose company does not provide health insurance by creating a level playing field. This is a tax expenditure.
2) Increases taxes of people who are both in higher tax brackets and whose current coverage is particularly expensive.
Of course, the devil is in the details for people as to #2. There are several possible ways to structure and amend the program. As currently structured, someone in the 25% bracket ($33k-$79k as a single, $65k-$131k jointly filing) needs insurance worth over $20,000/year to owe more taxes under the plan, whereas someone in the 33% bracket ($164k-$358k single, $200k-$358 joint) needs insurance of over $15,000/year to owe more taxes under the plan.
My original post was noting the interesting fact that Gov. Palin's original claim, that the plan would have no effect on the Treasury, was essentially a claim agreeing with Sen. Biden's response, that a fairly high number of well-off workers with good insurance plans would be paying for it. To the degree that her claim was incorrect, so would be Biden's; the more money that the plan costs the Treasury, the fewer people are paying additional taxes to pay for it.
Actuallly $5000 a year tax credit WILL cover a fairly comprehensive health plan for many people even in San Francisco, certainly not a low cost area. A Kaiser Health Plan for a 40 year old individual is a bit over $300 per month. There are some co-pays, such as $30 per doctor visit, but for many people it will still work out to less than $5000 per year.
But the most important aspect of the tax credit approach is to de-link health plans from employment. It is a major distorting factor on the job market and, of course, is unfair to the marginally employed or self employed. It is an historical happenstance that the two were linked, and in the long run a more rational healthcare system can be created only by separating health from employment. (Even a "universal" or "single-payer" approach de-links heathcare from employment.)