A Stitch in Haste

To review: The problem with the way the Internal Revenue Code treats employer-provided health care benefits to employees is not that employers can deduct such benefits (most notably insurance premiums), thereby providing them tax-free (or at least tax-advantaged) to employees. The problem is that only employers can deduct the cost of such benefits (i.e., if the employer were to substitute more wage for less benefit, then the employee would be worse off net of taxes). The problem is not one of magnitude, but one of neutrality. An expense -- such as health insurance premiums -- either should or should not be tax advantaged. Who nominally pays the premium should be utterly irrelevant.

This is why I'm having so much trouble processing John McCain's proposal:

McCain's prescription would seek to lure workers away from their company health plans with a $5,000 family tax credit and a promise that, left to their own devices, they would be able to find cheaper insurance that is more tailored to their health-care needs and not tied to a particular job.

Under McCain's plan, $3.6 trillion worth of tax breaks over a decade that would have gone to businesses for coverage of their employees would be redirected to individuals, regardless of whether they are covered by a company plan.
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McCain's plan is aimed primarily at giving individuals the power to make health-care decisions by granting the same tax breaks for insurance whether workers get a policy from an employer or on their own. Aides call it a "radical" rethinking of health care that would drive costs down and give people more choice.

I'm not sure that's correct:

Under current law, the federal government gives a tax benefit when employers provide health-insurance coverage to American workers and their families. ... Many workers are perfectly content with this arrangement, and under my reform plan they would be able to keep that coverage. Their employer-provided health plans would be largely untouched and unchanged.

But for every American who wanted it, another option would be available: Every year, they would receive a tax credit directly, with the same cash value of the credits for employees in big companies, in a small business, or self-employed. You simply choose the insurance provider that suits you best.

So which is it -- true tax neutrality or the abolition of employer-based health insurance? They're not the same thing.

And is a $2,500 tax credit a true and fair equivalent of a year's worth of employer-provided health insurance? Why should there be any limit, if the policy goal is "more health insurance"? And would the credit be insulated from progressivity in the income tax?

If McCain's answers to those questions are the correct ones, then his proposal has merit. Stated differently, when McCain says employer-based benefits would be "largely untouched and unchanged," what precisely does he mean by "largely"?

(Of course, a hypothetical "President McCain" would face a not-at-all hypothetical "Democratic Congress," so this is all academic anyway.)

More thoughts from Cato's Michael Tanner, Reason's Jacob Sullum, Rolling Doughnut.

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Meanwhile, still no one discusses the modest first step of scrapping the absurd "use it or lose it rule" for flexible spending accounts. Oh well...

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Also meanwhile:

We need to adopt new treatment programs and financial incentives to adopt "health habits" for those with the most common conditions such as diabetes and obesity that will improve their quality of life and reduce the costs of their treatment.

Watch your diet, walk thirty or so minutes a day, and take a few other simple precautions, and you won't have to worry about these afflictions.

Dr. McCain's Miracle Elixir: Just walk thirty minutes a day and you'll live happily forever after!

What is it about politicians that makes it impossible for them to give a speech without making at least one asinine remark? In any case, it's rather sad to see a supposed "conservative" capitulate so abjectly on the question of anti-liberty nanny statism meant to "nudge" people into the "correct" decisions. File that under "M for Maverick" I suppose.