Yesterday, I referred to the “dishonest, but facially highly effective, ads” Barack Obama has employed against John McCain. The most persistent of these dishonest ads, at least in the Northern Virginia area, pertain to McCain’s health care plan. They follow the line taken by Lyin’ Joe Biden in his debate with Sarah Palin, where Biden claimed that McCain’s plan effectively gives Americans $5,000 and then takes away $12,000.
Yuval Levin, in the Weekly Standard, has exposed the multiple liberties Obama-Biden have taken with the truth on this subject:
Senators Obama and Biden both mentioned the taxation of health benefits in recent debates, and their campaign has run ads pointing to it as well, but all have failed to note the tax credit that more than makes up for it. The net tax burden on middle class families declines under the McCain plan, while insurance options improve. If they do mention the tax credit, they suggest it is all that families would have if they left their employer coverage–as Joe Biden put it in his debate with Sarah Palin, you would have to “replace a $12,000 plan with a $5,000 check you just give to the insurance company.” But that ignores the simple fact that employer-purchased health care is purchased with employee wages. Right now, employers pay workers less in cash wages because they pay so much in premiums. With McCain’s reform, workers who opt out of coverage will get more take home pay and a tax credit to more than make up for lost employer contributions to health care.
But perhaps the most dishonest charge concerns the prospects for the employer-based system itself. The Obama campaign has implied that McCain’s plan would unravel the system and cause workers to be dropped from their employers’ health plans. “Twenty million of you will be dropped,” Joe Biden said in the vice presidential debate. In fact, the McCain plan does not alter the basic financial incentives facing employers. Workers might choose to leave employer coverage, but the McCain plan would not force them out.
Indeed, it is Barack Obama’s health care plan that raises the prospect of masses being dropped from the employer-based insurance system, and his vulnerability on this crucial front may explain some of his intense defensiveness on health care. In the second presidential debate, Obama sought to address this concern through a brazenly misleading depiction of his own plan. “If you’ve got a health care plan that you like, you can keep it,” he said. “All I’m going to do is help you to lower the premiums on it.” But you can only keep your plan if your employer doesn’t eliminate it, and Obama’s health care proposal, unlike John McCain’s, gives your employer a powerful incentive to do just that.
Where McCain seeks to address the problems of our health insurance system by building a market for private individuals, Obama seeks to do so by building a public-insurance system. His plan would force all but the very smallest businesses to either provide insurance coverage that meets the plan’s requirements (which the Obama campaign has not specified, but would surely involve extensive particular coverage mandates like those in the federal employee health plan, which exceed what most popular employee plans provide today), or pay a tax to the government. Many employers would thus face the choice of increasing their insurance costs to comply with the new coverage requirements or dropping their workers’ coverage. Obama, meanwhile, would create a new government-run insurance program (funded by the new tax on employers who don’t offer coverage) that would compete with private companies to cover people who are not insured by employers.
In effect, the Obama plan creates an incentive to drop employees from existing plans, and then takes private insurers out of the race to cover them by using price controls to make the public option cheaper. The plan’s goal is to drive Americans into a public Medicare-like insurance system by default.
Unfortunately, Obama’s dishonest attacks on McCain’s plan are perfect for use by an unscrupulous politician in a negative ad. For although McCain’s health care plan isn’t terribly complex, it can’t be explained effectively in 30 seconds. For that reason and because, in any event, McCain lacks the resources to air the truth about his plan with anything like the frequency that Obama is able to tell falsehoods about it, the Obama attack has gone unanswered.
This disparity in the candidates’ resources points to perhaps the greatest irony of this campaign: Obama’s ability to misrepresent facts about substantive issues largely without response is predicated on another Obama falsehood — his promise that, if his opponent agreed to do the same (as McCain did), he would finance his campaign through public funding.
JOHN adds: Bob Cunningham points out that one criticism of McCain’s plan is not frivolous, and suggests a possible fix:
The critique is that there will be cherry picking and adverse selection by employees, employers and insurance companies. In other words, the old and the sick can be peeled away from the young and the healthy. Employer plans charge everyone the same (except for the “Robin Hood” plans where more highly compensated employees get charged a higher proportion of the premium than the average). The employer’s cost is an average cost of coverage for young and old and the employee’s share of the average premium is usually (but not always) constant. That’s why the usual example given is of a $12,000 policy with the employee paying $3,000 and the employer $9,000.
In reality the cost of the risk for the younger/healthier cohorts is much less than for the older/sicker cohortsâ€¦and it isnâ€™t linear. So in a well-functioning individual market one would expect that the former cohort would be able to get the same coverage for, say, only $6,000â€¦while for the latter cohort the same coverage might be, say, $18,000. The problem is precisely that proper underwriting and risk rating would incentivize older/sicker to stay in the group plan and younger/healthier to enjoy lower premiums. The group plans would necessarily then cost more, leading to less employer coverage. Old/sick are left out in the rain.
I think this, unlike the other attacks from The One, has merit. Fortunately, it can be answered, but the answer, I think, requires a tweak in the plan. The tweak is that the credit or the salary adjustment paid to a worker in lieu of in-kind health benefits, or both, must be risk-adjusted, by using an age adjustment as a proxy for actual health risk adjustment. So a very young worker might receive only a $1,000 credit and an older one $7,500, say; and/or the salary adjustment might be the actual premium cost contribution of the younger/older worker, say, $6,000 and $18,000, respectively.
By age-adjusting the parameters of the plan the problem cited by Obama and his minions can be fixed. It’s totally fair and in synch with all the beneficial free market incentives but eliminates the income effect of cherry picking and adverse selection. Each cohort would STILL be better off and the total cost/benefit for the employers and employees as a whole remains the same.
There is a basic conflict of interest between young, healthy people and older people with more medical needs. Liberals often describe the uninsured as lacking “health care,” but of course this isn’t true. Uninsured people get health care all the time. Moreover, a great many young people, knowing that they are in little danger of being seriously ill and knowing, moreover, that if they do get sick or have an accident they will be cared for whether they have insurance or not, make a rational decision not to pay for health insurance. They prefer to take their incomes in cash.
One of the main (albeit unspoken) objectives of liberal health care plans, including but not limited to socialized medicine, is to force young people to pay into the system to support the medical needs of their elders. So the conflict that Bob describes is not unique to McCain’s approach. However, it does need to be considered whenever government intervention in the health care industry is contemplated.
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