As we all remember from childhood, Robin Hood was the original working class hero. He, um, redistributed from the rich to help the poor. From reading Tony Pugh’s McClatchey piece on the candidates’ health care policies, you would think that John McCain is a modern-day progressive Robin Hood on health care. (I first saw the article in the print edition of the Houston Chronicle).
The article begins by describing a mother (Ms. Espinoza) who has employer-based health care for herself, but can’t afford to add her children (they remain uninsured). After Pugh describes to her the candidates’ rival health care plans, she ultimately decides that McCain’s policy sounds better. It’s outrageous and depressing, but it’s not her fault — it’s the fault of people like Pugh who need to do a better job describing the real-world consequences of these policies.
I’ll get to the policy side below, but first the politics. In one sense, McCain’s health care proposal shouldn’t be understood as policy at all — it’s merely a political weapon. It lets him say something in response to questions from the public and the press about health care. What’s troubling, though, is that the proposal may not be bad politics, assuming the public remains misinformed.
To the general public, McCain’s health care “policy” is “I’ll give your family $5000 — go knock yourself out.” And if that’s all you know, it doesn’t sound that bad. Having an extra $5000 is better than not having it (or $2500 for individuals). The problem is that McCain's tax credit shouldn't be analyzed in a vacuum. The same policy that would provide families $5000 would create enormous collateral damage — indeed, it would ultimately cause families to pay significantly more money for significantly less coverage (more on that below).
The political challenge, then, is figuring out ways to tell the truth in simple compelling terms — after all, it’s not demagoguery if it’s true and important. The public needs to understand that McCain’s policy isn’t just “here’s an extra $5000.” The promise of extra cash, though, is probably why Ms. Espinoza (depressingly) preferred McCain’s approach. True, she's only one person — but we shouldn’t overestimate the ability of people to understand complex policy issues that can be obscured through, say, lying or lazy reporting.
So that’s the politics — below is my more detailed policy gripe with Pugh’s portrayal of McCain’s proposal:
In introducing McCain’s plan, Pugh writes:
McCain's plan takes a different approach. It follows Republican orthodoxy of trying to make the private-insurance marketplace more affordable and competitive by radically altering the tax treatment of health-care benefits.
But McCain's not actually trying to make good coverage more affordable. He's trying to encourage people to buy various inferior plans that, not surprisingly, are cheaper. Simply put, McCain's plan would increase the price of good coverage. Next:
For years employers have been able to exclude the cost of health benefits from their employees' taxable incomes, but self-employed workers and those who buy private coverage don't have the same tax benefit. To level the playing field, McCain no longer would exempt employees' health benefits from income taxes. Instead, he'd provide refundable tax credits of $2,500 for individuals and $5,000 for families to help purchase private insurance.
Note the Robin Hood-esque “to level the playing field.” It’s true he’s leveling a field alright — he’s making (currently subsidized) employer-based health care as crappy as individual plans are.
The upshot is simple — people will have less and worse coverage while paying more for it. The reasons why are more complex:
First, $5000/$2500 credits don’t cover the premium costs for policies that employees currently have (roughly $12,000/$4400). So unless premiums come down by a lot, people will pay out more than they do now under employer-based plans.
Second, people wouldn't even really be getting $5000/$2500 in the first place. You have to factor in the tax hikes that will offset these credits. Because McCain would treat employer-based health care benefits as taxable income (it’s currently exempt), people’s taxes would go up. This increase will eat into the $5000/$2500 credit, and often swallow it altogether.
Third, and most critically perhaps, McCain’s plan would encourage many employers to drop coverage altogether. As Ezra Klein has explained, the types of plans that people would be encouraged to buy are cheap, high-deductible, low-quality coverage. That’s fine if you’re young and healthy, but not so good if you’re not. So, healthy people will leave employer-based plans, leaving behind the sick and expensive to drive up average costs. Over time, employers will just stop providing coverage, leaving people at the mercy of the individual market where they have less bargaining power and less information.
Fourth, the tax credit will become worth less and less through time because it’s indexed to inflation (and premiums have been rising much faster than inflation). And I haven’t even mentioned pre-existing conditions, S-CHIP, and the uninsured.
Upshot — people will have less and worse coverage while paying more for it.
Pugh does at least mention the threat to employer-based health care but goes on to add a Robin Hood line that obscures the point:
Critics say that McCain's plan will hasten the decline of the employer-based health system by steering younger, healthy people into the private market. Health economists applaud the proposal, however, because it would make the tax code more progressive by removing an exclusion that disproportionately benefits higher-income workers with more generous health plans. In fact, some higher income people with generous plans would end up with higher tax bills under McCain's proposal.
True, it makes the tax code but more progressive, but for a highly unprogressive and harmful end. Again, you can’t view this stuff in a vacuum. You must see -- and reporters must explain -- that there other consequences.
The bottom line is that McCain’s “$5000 in every pot” is good politics. Or at least, it will be until the public’s understanding is corrected and it becomes the major liability that it should be. I suspect that some wonks think McCain’s policy is so absurd that people will see through it. But Ms. Espinoza didn’t, and others won't either.