Business organizations concern about McCain's proposal to overhaul the health care system
07 10 08 - 11:50
Business Cool Toward McCain’s Health Coverage Plan
By KEVIN SACK - The New York Times
American business, typically a reliable Republican cheerleader, is decidedly lukewarm about Senator John McCain’s proposal to overhaul the health care system by revamping the tax treatment of health benefits, officials with leading trade groups say.
The officials, with organizations like the U.S. Chamber of Commerce, the Business Roundtable and the National Federation of Independent Business, predicted in recent interviews that the McCain plan, which eliminates the exclusion of health benefits from income taxes, would accelerate the erosion of employer-sponsored health insurance and do little to reduce the number of uninsured from 45 million.
That is largely the argument made in recent days by Mr. McCain’s opponent, Senator Barack Obama, who has revived a dormant campaign debate over health care with an intensified attack on the McCain plan. Conscious that the issue plays well with swing voters, Mr. Obama devoted a speech on Saturday to characterizing Mr. McCain’s plan as “radical” and a “Washington bait and switch,” and he has reinforced the message in four television advertisements.
That has set off a furious back-and-forth between the campaigns, with the McCain campaign countering that Mr. Obama’s plan also would undermine employer coverage by mandating that medium and large companies either provide insurance for their workers or pay a tax. The payments would help subsidize a new government health plan for low-income people, and some economists believe it would entice workers away from their employer-sponsored coverage.
Mr. Obama, the Democratic presidential nominee, opened his assault two weeks ago by telling crowds that Mr. McCain “wants to tax your health benefits.” He did not explain that Mr. McCain, the Republican nominee, would offer tax credits in exchange to cover the increased liability for many Americans.
Over the weekend, Mr. Obama more accurately characterized the McCain plan as a swap but one that would work to the detriment of millions. Middle-class families, he said, would “watch the system they rely on begin to unravel before their eyes.”
The business leaders said that was also their fear. Despite steady declines this decade, employers still provide coverage to 62 percent of Americans younger than 65. Surveys show that they want to continue doing so to attract and maintain a productive workforce.
The business leaders forecast that Mr. McCain’s free-market approach would impose particular burdens on small businesses and old-line manufacturers that are already struggling.
“To some in the business community, this is very discomforting,” said R. Bruce Josten, executive vice president for government affairs at the Chamber of Commerce. “The private marketplace, in my opinion, is ill prepared today with an infrastructure for an individual-based health insurance system.”
Health economists are ideologically divided over Mr. McCain’s plan. Analysts who support it project that it might provide coverage to 25 million people, while critics predict that the number of newly insured would peak at five million and then decline.
Though Mr. McCain says his plan would not add to federal spending, the Tax Policy Center has estimated that it will cost at least $1.3 trillion over 10 years. And while right-leaning economists emphasize that the plan would provide a tax cut for the average American, opponents respond that certain high-earners will face an increase and that some in the middle class may break even only by reducing their coverage.
The centerpiece of Mr. McCain’s plan is the elimination of the provision that has, since 1954, excluded the value of employer-sponsored health benefits from a worker’s taxable income. The exclusion can be worth thousands of dollars for some workers.
In its place, Mr. McCain would offer all Americans income tax credits of $2,500 per person or $5,000 per family for heath coverage, regardless of how they bought it.
Mr. McCain would not change the ability of companies to deduct health benefits as a business expense on their corporate income taxes. And advisers have said he would continue to exclude the value of health benefits from the payroll taxes that finance Social Security and Medicare.
The income-tax exclusion benefits 162.5 million Americans but costs the federal government $145.3 billion in foregone revenue, second only to the tax break for retirement account contributions, according to the Congressional Joint Committee on Taxation.
Still, the exclusion has encouraged the pooling of workers into large purchasing groups that tend to lower costs. And with group coverage, no one can be denied coverage, everyone pays the same rates and the healthy and wealthy essentially subsidize the sick and the poor. Consequently, it is often more expensive to buy equivalent coverage as an individual, partly because insurers pass along the administrative costs of weeding out unacceptable risks.
The exclusion has long been criticized as unfair because the 18 million people who buy health insurance on their own are not entitled to it. Critics also say that it is most valuable to those in high tax brackets with the costliest health plans, that it contributes to job-lock, and that the subsidization of group insurance encourages people to buy more coverage and consume more health care than they need, driving up health spending.
Mr. McCain and his health advisers argue that replacing the tax exclusion with tax credits for all would encourage consumers to shop more deliberately, stoking competition in the marketplace and lowering premiums. He would allow them to shop for policies across state lines.
“It will help to change the whole dynamic of the current health care system by putting individuals and families back in charge and forcing insurance companies to respond with better service at lower cost,” Mr. McCain wrote recently in The New England Journal of Medicine.
For some workers, depending on their tax bracket and insurance costs, the new tax credits would exceed the value of the tax exclusion, making the swap profitable. But with the average employer-sponsored family policy costing $12,680 this year, other workers would find the exchange a losing proposition. They would either have to spend more, reduce their coverage or persuade employers to make up the difference.
Officials with eight business trade groups contacted by The New York Times predicted the McCain plan would raise costs and force some employers to stop providing health benefits.
A recent survey of 187 corporate executives by the American Benefits Council and Miller & Chevalier, a consulting firm, found that three-fourths felt the repeal of the tax exclusion would have a “strong negative impact” on their workers. Only 4 percent said they would provide additional pay to fill any gaps.
John J. Castellani, president of the Business Roundtable, an association of leading chief executive officers, said his group instead supported extending the tax exclusion to those who bought coverage on their own.
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