nurse with patient

McCain’s economic team of Holtz-BlackBerry-Eakin was quoted in a CNN story today to the effect that employees were better off staying with their employer-based health plans than buying plans on their own in the market, which McCain is trying to encourage.

Younger, healthier workers likely wouldn’t abandon their company-sponsored plans, said Douglas Holtz-Eakin, McCain’s senior economic policy adviser."Why would they leave?" said Holtz-Eakin. "What they are getting from their employer is way better than what they could get with the credit."

McCain’s hope is to displace employer plans with the equivalent of private health plans (just like private retirement accounts) purchased on the insurance market, but this admission will likely be misinterpreted. Holtz-Eakin is addressing the argument that giving folks a tax credit to purchase insurance ($2,500 per individual, $5,000 per family) might induce employees with few health problems and hence lower health costs to leave employer-based plans, thus undercutting the employer plans. Here’s that argument from todays lengthy NYT editorial, discussing the two candidates’ plans:

The great danger is that Mr. McCain’s plan will fragment the sharing of risks and costs — the bedrock of any good insurance plan — by enticing young, healthy workers to bail out of their employers’ group policies to seek cheaper insurance on their own. Their older or less healthy colleagues would be left behind, which would drive up premiums at work. The rising costs could lead many companies to drop their health coverage entirely.

Holtz-Eakin hopes to refute that, arguing that these healthy workers wouldn’t have an incentive to leave, because they’re better off staying with their employer plans. And for many workers, that’s probably true. But that misses a more important point. Employers would have incentives to end their plans even if the workers wanted to keep them:

"If companies know their employees have the tax credit, it relieves them of the burden of providing coverage," said Sara Collins, who directs a health insurance program at the Commonwealth Fund. McCain’s plan "moves people out of the employer system and to the individual market." . . . Estimates vary, but the Tax Policy Center estimates that 20 million people would lose their employer-based coverage by 2018.

That’s the problem. There would be (1) workers who got to keep their existing employer plans, (2) workers who lost their plans because their employers dropped them, and (3) workers who never had employer plans. Even if it were true that groups 1 and 3 would be better off with the tax credits (even with the increased tax on benefits for group 1), the workers in group 2 would get screwed.

For those workers, they would lose their employer plans and have to shop for individual health insurance on their own. Despite McCain’s arguments about "competition driving down costs," they’d have less bargaining power than their employer had, and they’d have trouble getting coverage for pre-existing conditions. And the McCain tax credit wouldn’t come anywhere near paying for the replacement policy they’d have to find on their own:

Value of employer plan to worker (family) = about $12,600

Cost of buying that plan on your own = at least $12,600

Tax credit from McCain = $5,000 = $7,600 less than you need.

Result: You lose. 20 million of you.