Vetting McCain's Health Plan

If you think that "The Market"—whatever market—always works for the best, you'll love John McCain's version of health insurance reform. It uses the tax code to shove you toward individual policies (more "choice!") and away from comprehensive, employersupported plans. The nonpartisan Tax Policy Center puts the cost of his proposed subsidies at $1.3 trillion over 10 years.

But a funny thing happens on the way to spending that much money. Almost all of the subsidy goes to people who have health insurance already, says Sherry Glied, a professor of health policy at Columbia University. The Tax Policy Center figures that, after 10 years, the plan cuts the number of uninsured by only 1 million, out of 45.7 million now. Barack Obama's $1.6 trillion plan would take 34 million off the rolls of the uninsured.

McCain's idea is pretty simple. Tax the value of employer-paid health insurance as part of your regular income (62 percent of the nonelderly are in these plans). In return, he'd give everyone a refundable tax credit—$2,500 for individuals, $5,000 for family coverage—to offset the cost of any health policy they choose. Here's how the McCain plan falls out:

Initially, most of the people in employer plans would get a bonus from the government . Their new tax credit would exceed the amount of extra taxes they owed. For the young and healthy, the bonus could be quite large. Older workers with health problems might get a minimal bonus but still do OK. Over the years, however, the value of the credit would be eroded by health-care inflation, and your tax cost would rise.

If you already buy your own health insurance, the tax credit would chop your premium cost by $2,500 or $5,000 . The self-employed lose the deduction they get for health-insurance premiums but would generally still come out ahead (again, until inflation intervened).

If you ' re uninsured, the tax credit helps you purchase coverage . The only hitch—a big one—is that you have to be able to afford the premiums up front. The tax credit comes later. The government will send it to the insurance company, which will apply it to your account.

To see how much the McCain plan helps, I asked Scott Leavitt, president of the National Association of Health Underwriters, to price typical policies for healthy singles, couples and families in the Chicago area. It appears that the credit could pretty much cover the premium in your 20s and 30s, even early 40s, making it a good deal. At 55, however, a couple might pay more than $12,000—difficult for older people with modest incomes.

The Tax Policy Center estimates that 20 million workers will leave the employer-based system, not always voluntarily . Midsize and smaller companies are likely to drop their plans and tell you to use the credit to buy a policy yourself.

It ' s a shock to move from group plans into the harsh world of individual insurance . You get "choices" (rah, rah). But the policies cost more and cover less than company plans do—especially for women, older people and those whose health is less than perfect.

That is, if you can find coverage at all. In 2006, the Commonwealth Fund studied working-age adults hunting for individual policies. One fifth were charged more or rejected for health reasons. More than half found it hard or impossible to secure a policy they could afford.

Conservatives love health plans that throw more of the costs on you. When it's hard to pay the bills, you see the doctor less. Through the "magic of the marketplace," that's supposed to slow the rate of increase in medical costs.

Friends, there's zero evidence that that works. In the long run, tax credits will raise your costs without changing the game. And we still won't have helped most of the uninsured.