The Healthcare Plans Explained

So Obama has been beating up McCain on healthcare policy. And as usual he has been distorting the facts in attempt to confuse the American public about what the McCain plan actually is, in order to scare them into thinking that his plan is better. Should we really be surprised? Then he makes it sounds like his plan is the same thing you have now, only with a new option. Which at first glance is what it looks like, but not when you consider human behavior, simple economics and think about what things will look like in a few years.

Now, you might say Obama isn’t trying to mislead the American people, he just doesn’t understand the McCain plan. Well that might be possible, but it seems unlikely as one of Obama’s top economic advisors ended up recommending a plan that was similar to McCain’s so he has people on his team who are very familiar with the plan. It just wasn’t close enough to the socialized medicine that Obama wants so Obama launched his own plan.

So let’s first look at the McCain plan. The big criticism of the McCain plan is that it taxes the benefits you currently receive from your employer “for the first time ever”. What the Obama ads leave out is that you get a tax credit that will more than offset the additional tax cost for almost every American. See a good policy costs around $12,000 for a family. The highest tax rate in the country right now is 35%. So if you are in the highest tax bracket you would be taxed $4,200. But you would get a tax credit back in that same amount for having health coverage so really there isn’t any real tax increase. In addition you would have an additional $800 in tax credit potentially available for other healthcare spending needs. That doesn’t sound so bad does it? Also this is if you are in the highest tax bracket. If you are in a lower tax bracket the math becomes even more compelling.

So what good is the McCain plan anyway and why is it different? Well the McCain plan allows those who have employers who don’t offer healthcare to buy the same health coverage with the dame tax benefit as those whose employer does offer coverage. Just because you can’t get coverage through your job doesn’t mean that you shouldn’t have the same tax breaks as someone that is able to. So his plan is fairer, as it allows people who are self employed, whose employers don’t offer coverage, or people who don’t like the coverage offered by their employer to get coverage elsewhere and still have the same tax breaks as everyone else. This will encourage more enrollment. In addition, if you decide to get coverage outside of your employer, you still have your same tax benefits that you currently have, except if you change jobs you don’t necessarily have to change your coverage. So if you like your coverage and hate your job, you are not as locked into your employer as you once were.

So those benefits are nice, but is there anything more that the McCain plan tries to accomplish? Well yes there is. The McCain plan is setup in a way that you get the most benefits if you enroll in a high deductible plan with a health savings account. See a high deductible plan has much lower insurance premiums, so you can take your big tax credit that you get back from the government and use that money to open up a health savings account. Once again this is only if this type of plan makes sense to you, you aren’t forced into it. But as more Americans decide they like these types of plans, you will get more people with insurance coverage that protects them if anything bad happens, but they get to direct how their money is spent for routine care. And once it is their money, consumers tend to be more careful. So as opposed to having people not care about the costs, not shop around for the best care at the best price, you will have people make better healthcare purchasing decisions. This will ring a ton of excess costs out of the system which is good for everyone. And once again, you only need to be one of these smart consumers if you choose to be, otherwise you can get the normal plans that everyone is used to.

So the McCain plan, once you examine it, really isn’t that bad or scary. You basically get what you have now, only you get the option to have your care more portable or structured in a way that is more economically friendly. So let’s take a look at the Obama plan.

Well the Obama plan sounds great at first blush. Keep your current coverage or enroll in a government option. But here is where the trouble comes in. Once it becomes cheaper for your employer to enroll you in a government plan vs the plan you are currently on, your employer will drop your coverage and switch you to the government plan. This has happened before when similar plans were offered in some States. So you thought you had a choice, but in reality you really don’t. So now you have to be in the government plan, see the doctors available in that government plan, and really don’t have any other option except to go to get insurance on the individual market which is notoriously expensive. Welcome to socialized medicine.

Now let’s look at his individual market proposals. They sound great. He wants to force insurers that offer an individual plan to take anyone who applies. What a great idea. The unfortunate thing is, if a Company has to take anyone who applies, why wouldn’t someone go without coverage until they get sick, and then enroll? If someone offered home owners insurance that you could buy after your house burnt down, would you buy it before or after? Why not just wait until you really need it?

Well even if you don’t think that way, there are a lot of people who do. So what has happened in States that have mandated that insurers offer guaranteed acceptance products? Insurers have basically left those markets, so there are really isn’t private individual insurance available anymore, or if it is available it is so expensive that it is cost prohibitive. Don’t worry there is always the government plan.

So here is where the economics as a tax payer really start to hit you. Who ends up in the government plan? It ends up being a collection of people who didn’t get coverage until they got sick and employees of firms who found it cheaper to get government subsidized coverage. So the only people who go into that program are the ones for whom insurance cost a lot more in the private market. So how is the government able to offer coverage so much cheaper? Well it has your tax dollars to spend. This thing sounds better by the minute.

So here is where his plan really breaks down. And you have seen it before once again at the State level. Once subsidized care is available and it makes economic sense to switch people do. This means more people take advantage of that subsidy and the cost of the program grows rapidly. Free money available to those that want to take it a lot of people show it. And remember it isn’t free money to those who are responsible. It is free money to those who decide to not get coverage until they are sick or free money to employers who decide not to offer healthcare coverage to their workers.

So what we have seen in previous examples at the state level, is that in the first couple of years people really like the program, the program swells and then crushes the budget of the State. The costs to the government grow out of control, and benefits and those that are covered need to get dramatically scaled back. So if you are one of the unfortunate ones in the program, your healthcare coverage is much worse and if you are an unfortunate tax payer you are indirectly footing the bill for someone who is being less responsible.

So Obama has a lot of money to throw around on advertisements to make his plan sound much better. His plan looks like the plan of choice, while McCain’s plan looks scary and confusing. But peel back the rhetoric, look at the underlying plans, and think about human behavior and basic economics. The McCain plan empowers the consumer but also allows people who are happy with the current system to experience very little change. The Obama plan will create a massive government program that will at first punish the tax payers and then later potentially punish those who are unfortunate enough to be enrolled in it.

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