Tuesday, October 07, 2008

McCain's Health Care Plan

As I said yesterday, both the McCain camp and the Obama camp seem to have adopted a policy of distorting their opponent's views to score political points. Today, voters are not getting anything in the way of truth. If you see a campaign advertisement, you might as well simply tag it as a lie (and the politician who says "I endorse this message" as a liar) and move on.

Yesterday I wrote about McCain's distortion of Obama’s view on Iraq – by classifying 'redeployment' as 'surrender'. Today, I am going to write about Obama’s mischaracterization of McCain’s health care system.

Several organizations that measure the truth of political advertisements have attacked Obama’s statement. See, for example the write-up on PolitiFact.com .

McCain's health insurance plan gives $2,500 to individuals and $5,000 to families for a tax credit to apply to health insurance. As the Obama advertisement points out, this goes to entirely to the insurance companies – as if it is a bad thing. Of course it goes entirely to the insurance companies. It's supposed to be spent on insurance. Would you expect money spent on insurance to go to a bakery?

Think of it this way. A company tells an employee that she can spend up to $50 per day on meals. On this particular day, the employee spends $41.59 on meals. So, the employee files an expense report with her employer, and the employer covers the $41.59.

The whole $41.59 ultimately goes to the restaurant that served the meal. Of course it does. It's supposed to. If the company gives money to an employee to cover meals, and the money goes to cover meals, is this supposed to be odd?

Now, let's alter the company’s meal plan a bit. Let's say that the company tells its employees, "You have a choice. You can either sign up for the Macaroni Grill meal plan, or the Outback Steakhouse meal plan. Whichever plan you choose, you will have to buy all your meals from that restaurant. We will pay half the cost of the meal. You pay the other half. However, your share of the cost of the meal will be tax deductable."

So, the employee buys all of his meals at the same restaurant. If he runs up a $50 tab at a particular restaurant, then his company will pay $25, he will pay the other $25 out of his pocket, but be able to deduct the expense off of his taxes. If the employee is in a 20% tax bracket, she will pay $25 for the meal and save $5 on her taxes, for a total cost of $20.

The company then gets bought out by McCain, Inc., which alters the meal plan. The company than says, "We will give you $2,500 per year for meals. You can eat wherever you want. If you end up spending less than $2,500, then we will cover all of your expenses. However, if you end up spending more than $2,500, then you pay for everything over that amount. We will not subsidize that portion."

Obama objects to this plan and says that it will increase costs for the employees who travel.

Actually, that depends on the employee.

If the employee spends less than $2,500 on meals, then his expenses will drop from $1,250 in pre-tax dollars (or $1,000 in after-tax dollars if we assume a 20% tax rate), to spending nothing. The agitator who is trying to get the employees to reject the plan by saying, "This will cost you more money!" would be lying – manipulating his fellow employees through a campaign of deception.

If, for example, the employee decides to spend $3,000 on meals, then he will still be getting $2,500 of that free, and spend $500 out of her pocket for the rest. Her after-tax expense would be $500. Under the old meal plan, she would have paid half of the total price for those meals but gotten a tax break of 20% (or $300), leaving a total cost of $1,200.

However, if the employee buys more or more expensive meals, If she spends $5,000 on meals, then, on the old plan, she would have had to cover $2,500 in expenses in pre-tax money, meaning an out-of-pocket after-tax cost of $2,000. Under the new plan, she pays for the whole cost of everything over $2,500 or $2,500 in after-tax expense.

In short, the plan provides three significant advantages over the current system.

(1) Choice: People get to eat at whatever restaurant they want rather than with one of the restaurants that the company has selected.

(2) Price elasticity: Buyers are more sensitive to price. This gives buyers an incentive to look for less expensive options – which gives companies an incentive to lower costs and to offer less expensive options.

(3) Freedom:

One area where the analogy above breaks down is that I have compared a company-offered plan with a government-supported plan. The advantage of the government supported plan is that the employee can take it with her.

Today, countless employees are trapped in their current job because they cannot afford to give up their company-provided health insurance. This gives a significant amount of power to the employer. In fact, where on paper it appears that the company is giving an employee a benefit in terms of paying a part of the health insurance, in fact the company makes that money back by offering less in terms of wages. The employee takes lower wages than she would accept if she had the option of leaving the company and taking her health insurance with her.

Now, if somebody does not like this option, or is making too little to take advantage of the tax credits, McCain's plan allows employees to continue to use the traditional option of signing up for company-offered health insurance (if available). If you do not like the new plan, then you can stick with the old plan. Though there would, of course, be some implications from the fact that people with lower medical bills will opt out of the current system, leaving only higher-cost patients within that system.

There are elements of the plan that Obama could honestly criticize. However, Obama opted against honest criticism in order to promote malicious representations instead.

Obama’s advertisements and statements on this matter are not only dishonest, they are harmful. Because of his deception, the American people on the whole are being made worse off than they would otherwise be. He is using lies and deception to warn people away from going down a path that may well be in our best interests, to manipulate us into going down a path of his choosing, rather than providing us with the facts and allowing us to choose for ourselves.

Much the same way that President Bush manipulated us into a war of his choosing.

Yet, Obama "approve[s] this message." Obama approves of the practice of using malicious distortions to manipulate the voting public into taking a course that he wants us to take.

That’s not a quality that I want to find in any presidential candidate and, less so, in any president. We have suffered through enough of that.


Anonymous said...

The problem with your reasoning is that the five thousand dollars going to the insurance company is far less than it would actully cost to insure a family. When I was let go from my last job I was offered the choice to pay my own insurance via the COBRA laws. It would have cost me thirteen hundred dollars per month and that was at my employers rate. You also failed to mention the McCain plan will also tax benefits you now receive. As to the money going to the insurance companies as being right may I ask WHY? If its my money I should be able to spend it any way I want. That is what is being proprosed isn't it? Choice. Now lets get to the real issue. The reality is that no one knows what kind of health problem they will encounter so it is ridiculous to try to customize your coverage.A business can only become so efficient until it has to sacrafice service and expertise. Do you really want to be treated by someone whos'primary concern is the bottom line? If and when something happens it gets paid by someone somewhere.That is why rates are so high in many instances. We are paying for those who can't and when those that don't have insurance they wait until it is too late for intervention raising costs far beyond what they would have been. We spend more than most modern societies on healthcare and receive far less results. When you hear the fear mongers warn of European healthcare somehow I don't here anyone complaining over there. In fact when studies of personal satisfaction are done its the Europeans with national healthcare and more govt programs that are far happier than we in the US. I also was fortunate enough to take a vacation this year to Nassau. While there we had a short sightseeing trip and had time to talk with the bus driver who was very open about the state run health care system. He said it costs him about thirteen dollars to see a physician and yes you might wait awhile for service but if you have a severe problem "They see you right away" .

Alonzo Fyfe said...

One of the purposes of the plan is to get people to shop for lower priced health insurance (use competition to drive down prices), which means that people cannot be given too much of an incentive.

However, even with this concern, if the issue is with the size of the contribution, this is always open to negotiation in the Congress.

One of the reasons that rates are so high is because everybody gets to use health care services as if they are free. Imagine if we had a system whereby people paid a certain monthly premium for buying groceries - and then they can go into the grocery stores and pick out whatever food they wanted. We would discover that we live in a society where the total food expenses were climbing exponentially as people got into the habit of ignoring price.

We would benefit tremendously from a system where people actually had a reason to pay attention to the cost of the medical care they consumed. This would cut a lot of needless and wasteful medical expenses - freeing up resources for those who need it, and lowering the costs for everybody of medical care that actually had a purpose.

Yes, there are other concerns as well. It would be wrong to simply let people die to save money. The system does have to focus on lowering costs by eliminating unnecessary (or relatively useless) procedures (as well as on prevention and other cost-reduction methods currently not used because insured people do not need to worry about costs).