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Critics Say McCain Plan Would Undermine Employer-Based Health Care System

By Reed Cooley, CQ Staff

June 25, 2008 -- While an economic adviser to presidential candidate Sen. John McCain, R-Ariz., asserted Wednesday that the candidate's health care proposals would not spur drastic changes in the employer-based system, others said it's simply not yet possible to predict an outcome.

"We don't know exactly what the employers would do," said Karen Ignagni, president and CEO of America's Health Insurance Plans, during a forum on the health overhaul proposals of the presidential candidates.

Ron Pollack, executive director of Families USA, and Kavita Patel, health policy adviser to Democratic presidential candidate Sen. Barack Obama of Illinois, agreed, but also said the outcome would likely be unfavorable.

"Senator McCain's vision of change is far more radical [than Obama's], but not necessarily in a way that the American public is going," Pollack said during the event hosted by the National Journal Group.

McCain adviser Dan Crippen, former director of the Congressional Budget Office, tried to dispel the idea that the plan would spur drastic changes in the employer-based system. He explained that under the proposal, employers would be treated no differently for supplying health insurance to their employees than they are now, but that the insurance package would become a part of the individual's taxable income.

"It doesn't change incentives for employers at all," he said.

The universality of McCain's tax credit—$2,500 for individuals and $5,000 for families—would "allow people who transition a lot to have a policy that belongs to them and not to their employers," he added.

Patel cautioned that "when a $2,500 tax credit is not enough" to cover the cost of a premium, employers might begin to drop coverage. McCain's plan would "shift more people into the individual market," she said.

Pollack agreed: "It would encourage a significant number of employers to drop coverage because this would no longer be such a big benefit for their employees."

He added that eliminating the tax exemption would be a drastic change at a policy level and advocated putting a ceiling on the tax exemption and providing tax credits on a sliding scale to lower-income individuals, both provisions of Obama's proposal. "We don't have to go from 100 to zero all at once," he said.

Crippen and Ignagni both urged the discussion away from insurance coverage and premium levels. The question "who should pay" has dominated the debate so far, but "we really should ask 'what is it we're buying,'" Crippen said.

"The cost discussion has been seen almost exclusively through the prism of premium costs . . . [but] our premiums follow underlying costs," Ignagni said.

Pollack agreed that premium-levels are not the only cause for concern but emphasized that policy makers need to examine all the costs that affect consumers. "From a consumer perspective you look at all the ways that you pay: you look at premiums and deductibles and co-pays," he said.

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