McCain's $5,000 Promise

Another independent expert we consulted said that tax credits would "definitely" lead to a reduction in employer-sponsored coverage, but such benefits wouldn't disappear completely. John Sheils, senior vice president of The Lewin Group, which analyzes health care plans for both political parties, told us that the group plans offered by employers could still be cheaper than what's on the individual market – meaning not all the young and healthy people would scrap job-based plans. "I think you get an adjustment early on, and then I think it would level off," he says. An assessment The Lewin Group conducted of a similar tax credit plan found a net loss of employer-sponsored coverage for about 10 million persons, Sheils says. He has not analyzed McCain's specific proposal, however.

Emory's Thorpe told us in an e-mail that McCain's plan "would result in fewer individuals covered through employer-based plans over time. The extent of the reduction would be greater in small firms (that face administrative costs similar to those workers will find in the individual market) and lower for larger firms with higher administrative costs." He echoed Fronstin's comments that "the proposal also provides incentives for younger, healthier workers to migrate to the individual market resulting in higher premiums for older, more chronically ill workers that continue to receive coverage through their employer."

A tax expert also says credits would "tend to undermine" employer-offered coverage. Leonard E. Burman, director of the nonpartisan Tax Policy Center and head of the Treasury Department's tax policy office during the last two years of the Clinton administration, said in testimony before the House Budget Committee in October 2007 that tax-credit proposals then under consideration likely would lead to employees at smaller firms losing their benefits. "Many firms, particularly larger ones, would still offer insurance because of the combination of convenience, administrative cost savings, and pooling afforded by large groups of people subject to relatively little adverse selection," said Burman in his prepared remarks. "But firms currently near the margin between retaining and dropping insurance would be likely to drop."

The experts we consulted are making predictions, of course, and some, like McCain, argue that tax credits won't lead many employers to drop health care plans. Nina Owcharenko, an analyst at The Heritage Foundation, which has long supported tax credit proposals, says employers would still have incentive to offer health care in order to attract the best of the workforce, and people are accustomed to getting their health care through their jobs. "So it's not something that's going to die down tomorrow," she says. Owcharenko also says McCain's plan would lead to people having portable coverage they could take with them from job to job. Those with "portable" coverage would, of course, no longer be covered by their employer.

Fronstin says large employers in particular are "hesitant" about such proposals. "They're concerned about, then what happens. If you destroy the risk pool, how does the government get back into fixing what it may have destroyed? And how much is that going to cost, and how much control would we have over it?"

We make no judgments as to whether a heavily employer-sponsored system or one with more privately insured individuals is better or worse. But we do note that McCain, in his ad, neglected to tell workers how their taxes would be affected by his proposal. And his pronouncement that employer-based plans would be "largely untouched" is optimistic, at best, and at odds with what all but one health expert told us.

Republished with permission from factcheck.org

Correction, May 1: Our story originally said that under McCain's plan, employers would no longer be able to deduct as a business expense the cost of providing health insurance for their workers. That's not correct. We initially misunderstood this point from the campaign.