McCain's $5,000 Promise

Those with employer-sponsored coverage, however, also might want to know that under McCain's plan, they will pay taxes on the value of health care benefits they receive from their employers. It's not that families will receive a windfall of $5,000, but that the credit will more or less offset the increased taxes they'll pay.

Who saves money and who loses under the plan, depends on the tax bracket an individual or family is in and what their health coverage costs. Kenneth E. Thorpe, a former Clinton administration health expert who now is a professor at Emory University, says there would be "a lot of redistribution – a lot of winners and losers" under a McCain plan. Lower-income individuals could do better if they have health care through their employer. They'd pay a lower tax rate on those benefits than higher income workers. "Some people will pay more and some will pay less," Thorpe says.

Those who would benefit most from McCain's tax credit are those who already buy their own private plans and don't receive tax benefits. Those who are uninsured may find the tax credit provides enough financial incentive to sign up for health care policies. The average annual premium costs for a family with employer-sponsored insurance (including both the employee's and employer's contribution) was $12,106 in 2007, and it was $4,479 for a single person, according to the Kaiser Family Foundation. Annual premiums for nongroup coverage (i.e., individually purchased plans) vary widely, currently ranging from $1,163 to $5,090 for singles, and $2,325 to $9,201 for family coverage. McCain says he will work with states to set up pools to cover those who have been denied insurance. One idea he suggests is to create nonprofit entities that would contract with insurers to cover high-risk people.

Some years in the future, the tax credit may not be substantial enough to make up for the increase in taxes. "Over time, an increasing number of workers will end up paying [more] in higher taxes ... than they will receive in federal assistance through the tax credits," Thorpe told us. "This occurs because the average premiums for employer-sponsored health insurance increase much faster than the health tax credits." (The McCain campaign says the credit will be indexed to the Consumer Price Index.)

What Happens to My Health Plan?
In a speech in Tampa this week, McCain also said that those with employer-sponsored policies could keep them and that their policies "would be largely untouched and unchanged." But experts generally agree that such a plan would have a major impact on employer-sponsored health care.

The current tax system encourages companies to offer insurance, and indeed, 61 percent of the nonelderly population in the U.S. had insurance through their jobs in 2006, according to the Kaiser Family Foundation. (Only 5 percent, 13 million people, bought their own insurance.) McCain's plan to tax workers on the value of their employer-provided health care plans and provide tax credits would encourage some employers, mainly small businesses, to drop health benefits, say experts, and the proposal could eventually eliminate job-based insurance altogether.

Paul Fronstin, director of the health research and education program at the Employee Benefit Research Institute, a nonprofit organization that analyzes benefit programs, says a tax credit plan like McCain's likely would mean the end of employer-sponsored health care. "The question is how does it play out and over what period of time. ... It's not something that you would see overnight."

Fronstin, whose organization is supported largely by corporations and insurance companies, says "older, less healthy people are generally losers" as the system changes, and young and healthy people would generally be the winners. "I think what's going to happen is you're going to have insurance companies designing plans that are essentially free to people because they are below or at the tax credit," he tells FactCheck.org. "And healthy people are going to find that attractive." As those people drop their employer-sponsored coverage, "you see the beginning of the erosion of the risk pool. ... Less healthy people are left [in the employer-sponsored pool] and so the costs go up," which drives more healthy people out. Eventually, Fronstin says, employers will question why they're offering health care if most employees don't see it as a benefit. "That's what I see as the tipping point of employer-sponsored coverage."