The McCain health plan tax increase

John McCain's plan for health care rests on the idea that if Americans abandon employer provided health care, market forces will force the insurance industry to be more competitive and drive premiums down in cost.  McCain can't provide any evidence this would occur, but it's his story and he's sticking to it.

According to the NY Times, 71% of insured Americans get their health care insurance through their employer.  The employees portion of the premium is paid with before tax dollars. This comes at a cost to the U.S. Treasury of about $212B annually of lost revenue.

As the McCain plan steers everyone to individual insurance plans (i.e., not employer provided), premium payments are paid with after tax dollars.  And for the 71% of Americans that currently get health care insurance from their employer, that's a tax increase.  And the McCain campaign finally copped to it yesterday.

Another component of the McCain plan is a yearly tax credit, $2,500 for individuals and $5,000 for a family.  So, it's math time:

Since the average premium for a family is $14,000 per year (2009 estimate), families will need to figure out how to get that extra $9,000.  Good luck to you.  I know Senator McCain hopes it works out for you.

That family, per the McCain plan, would also pay about $4,900 in taxes.  Now, the McCain folks will claim the $5,000 tax credit will make it a wash, no overall cost to the taxpayer.  But there's a rub:

(The) tax credit increases each year only by the normal inflation rate. Your premiums are going to increase way faster — probably around 6-8% per year. That means your taxes are going to go up 6-8% per year too.

If you're in a somewhat higher tax bracket than the median, the news is even worse because your marginal federal tax rate is higher. If you live in a high-tax state like California, the news is even worse because your marginal state tax rate is higher. If you have a big family, the news is even worse because your premium will be more than $14,000 and the taxes you pay on it will therefore be higher. (Link)

So, to recap: McCain's health care plan doesn't reduce the amount of uninsured Americans, it costs more, and does nothing to ensure folks with pre-existing conditions can find affordable health care.  Pretty lousy plan if you ask me.