John McCain the Radical?

John Goodman, President of the National Center for Policy Analysis, had an article in the Wall Street Journal today explanation John McCain’s Health Care plan, entitled “McCain Is the Radical on Health Reform”.

Dr. Goodman is the inventor of Health Savings Accounts, which I have been a fan of for quite some time. However, McCain’s plan does not make wider use of HSAs, taking efforts to remove some of the distortions caused by employer provided plans. His plan also removes the bias of tax treatment away from higher wealth individuals and gives everyone the exact same tax treatment. Some excerpts:

Right now the federal government encourages private health insurance primarily through the tax system -- handing out more than $200 billion in tax subsidies every year. Mr. Obama would leave this system largely intact. Mr. McCain would completely replace it with a fairer, more efficient system with a much better chance of insuring the uninsured and controlling health costs at the same time.

Under the current system, every dollar in health-insurance premiums paid by an employer is excluded from employee income and payroll taxes.

But this system is extremely arbitrary. There is virtually no tax relief for people who work for the 40% of employers who do not provide insurance, for part-time workers or people not in the labor market, or for anyone else who for any reason must buy his own insurance. The self-employed get a slightly better deal: They can deduct 100% of their premiums, but they get no relief from the payroll tax.

According to the Lewin Group, a private health-care consulting firm, families earning $100,000 a year get four times as much tax relief as families earning $25,000. In other words, the biggest subsidy goes to those who least need it, and who probably would have purchased insurance anyway.

Under the McCain plan, no longer would employers be able to buy insurance with pretax dollars. These payments would be taxable to the employee, just like wages. However, every individual would get a $2,500 credit (and every family would get $5,000) to be applied dollar-for-dollar against taxes owed.

The McCain plan does not raise taxes, nor does it lower them. Instead, it takes the existing system of tax subsidies and treats everyone alike, regardless of income or job status.

Whereas Mr. Obama would continue the current practice of giving the vast bulk of federal help to the rich (through tax subsidies) and the poor (through spending programs), the McCain tax credit would give the most new tax relief to the middle class.

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There’s lots of good stuff in the article and if you want to read a succinct synopsis of his plan this is where to get it. If you have a question for Dr. Goodman his blog is located here.