McCain's Health Care plan and the tax credit

I’m not sure I understand the details of it.

Currently, I pay $300/mo in copays for coverage for me and the family through my employer.

What would happen under McCain’s plan? I understand that I would have to pay taxes on the value of my employer’s contribution, right? But, if I got a cool $5000 back at the end of the year, then that would more than offset any tax burden I might have incurred, no?

And for the working poor with no health insurance, they get $5k cash to pay for their own insurance. So two working parents would have $10k/yr essentially free to buy a family health insurance plan. Sounds okay to me. What am I missing?

As I understand it, you get the five grand so that your employer doesn’t have to provide health care. I don’t know what mine costs (single, no dependents), but I’m guessing about $6,000/year including what my employer pays and what I pay. So I’d have to use $5,000 to buy a $6,000 policy – if I could get one not being part of a group plan. One figure I’ve heard is that coverage for a family of four would cost about $25,000 per year. So with $5,000 from both parents, they will have $10,000 to buy a policy that costs $25,000. I think that if your employer still provides coverage, then you’ll pay your share of it by payroll deduction, and also be taxed on the part your employer pays.

But I have no cites, and I’m just repeating ‘stuff I’ve heard’. So I’ll watch this thread and read what more knowledgeable posters write.

Well, looking at the tax plan as on the John McCain site (and this is the part of the health plan I have a problem with), the tax credit goes to the insurance company.

The McCain site says the following:
John McCain will tax health care benefits for the first time and send the money straight to the insurance companies.
The credit goes to the insurance company that the America family chooses to get coverage from, anywhere in the nation.

Now, honestly, I don’t understand the different between the “fiction” and the “fact”. Isn’t is still going to an insurance company?

Further down, it elaborates:
Under the McCain Plan American families will not only decide where the tax credit should be directed for their coverage needs but any additional money left over after purchasing coverage will be controlled by the family in a portable health savings account.

If that’s so, it’s better, but does that health savings account roll over from year to year? If not, then the leftover money is gravy for the insurance company.

Hang on, let me click on this “Learn More” thing (which takes me here).

Doesn’t say there, either.

Anyway, it’s $2500 per year for individuals or $5000 for families, so that two-working-parent-family in your last paragraph only gets $5000, not $10,000. I don’t have my health care info with me, so I don’t know if $2500 would be a good deal for me or not, much less for you, or for that family.

Just as a point for this discussion…

I’m an employer and our fairly decent family health plan for my employee with a family costs just shy of $1000/mo. He pays $0 out of pocket to HAVE the plan but he does incur out-of-pocket expenses for treatments and medicine. I do not know how much out-of-pocket he pays in a year.

Yes, HSAs roll over every year, and the money in them is tax-deductible.

As for “additional money left over after purchasing coverage”: :rolleyes: Good luck with that.

Here’s my data point: When Mr. S was between decent jobs, we had a plan that cost us $430/month in premiums, which comes out to $5160/year. That’s a minimal plan for two reasonably healthy people, no chronic conditions or major prescriptions, and no kids. That’s also before the considerable co-pays for office visits and drugs, AND the $1500 deductible. And the month we went off the plan because Mr. S was finally eligible for health insurance at his shiny new job, I got a letter stating that the premium was about to go up to something like $475/month, or $5700/year.

Balance in the HSA from all that “leftover money”? ZERO.

In the 2004 debates, Bush was spouting about how wonderful MSAs and shopping around for your insurance are. I almost lost my lunch.

At one employer we had an option of choosing a HSA instead of what now passes for traditional insurance. The HSA was ‘use or lose’.

We have HSA’s, but they’re in addition to our better-than-Canada insurance, which is a tax-free benefit, and the HSA doesn’t roll over. You can always waste it on Tylenol or something at the end of the year (all you need it the receipt). I’m not worried about losing my lunch; I’m worried about losing my benefit due to either wealth redistribution or attempting to combat wealth distribution. They’re both losers on this account.

At my employer, we’ve got an HSA that is “use it or lose it” and what they call an “HRA” (which I think stands for Health Reimbursement Account") that rolls over from year to year. So McCain’s HSA could be either way.

When was this? In the early 90s my employer had a similar arrangement (called a “flexible spending account,” and it was either in addition to their insurance, or standalone, which is what I did because I was covered under hubby’s), but I believe the laws have changed since then. The lack of rollover was my first concern when we got our first independent MSA (which is what they were called until recently), but it turned out that by 2001 they rolled over.

Sometime before 2003.

OK, that’s interesting. According to this site (bolding added):

Could have been an MSA. It was some sort of ‘Savings Account’ anyway. Didn’t sound like such a good deal.

Nitpick - the $300 a month you are paying are “employee contributions toward premiums.” Copays refers to the $25 or whatever you pay when you use a service or fill a prescription. Coinsurance is when you pay a percentage of the cost of your service or prescription.

The chart on the McCain site is a little confusing because it doesn’t take into account employee contributions. Assuming you have the typical plan valued at $12,000, it looks to me like you would only be taxed on 8,400 (the value you get from your employer’s contribution toward premiums). So you would pay $3,600 + $2,100 in the 25% bracket. Then you’d get the $5,000. So it looks like you would essentially get most of your employee contributions covered.

The main problems I see with the McCain plan is that a) the working poor family probably can’t come up with the extra $7,000 to buy a decent insurance plan. (On the other hand, if they can just put that all into an HSA, they are $5,000 to the good from where they are now) and b) I’m not convinced he’s solved the problem of people with pre-existing conditions getting excluded or priced out of the market.

The complaint that the money goes “straight to the insurance companies” is, IMHO, as ridiculous as the McCain campaign makes it out to be. The money should go to the insurance companies–they’re the ones who will be insuring people.
Katrina relief demonstrated that if you just cut people a big check, some people will not be able to resist spending it on big-screen TVs, at the casino, or at the plastic surgeon’s. And then when all is said and done, they will still be showing up in the emergency room uninsured.

I think a few young, healthy people will be able to get insurance for less than $2,500 per year, through something like a university program for new grads. But those are usually time-limited policies.

I left at least one thing out of my post above. The $3600 you are paying now is paid with pre-tax dollars. So under the new plan you would need about $900 more dollars to make those payments.

The money your employer is paying for your health care is part of salary. It makes sense from an employer stand point because it is taxed differently. If the tax law changes it may make sense for them to pay you in money rather than health insurance. If this is the case your take home pay would rise by the amount your employer is now paying for health care. This amount plus whatever additional tax credit you receive is the correct number to use when calculating the benefits and costs of this plan.

Under the McCain plan, the employer’s contribution toward healthcare will still be tax deductible to the employer, to avoid the disincentive to provide employee health benetfits.

Thanks for the research. So it seems a guy like me, using your numbers, would get about $700 off of my taxes to compensate for my payments toward the company health plan.

But if another worker had a job where the employee paid 100% of his family’s payments, then he would get a larger tax deduction at the end of the year. (Since the tax on the benefit is less than the full credit he receives) Not to judge him, but the govt. will pay him more because he gets a better benefit at the job?

And thirdly, the slob who works for the sweatshop with no health bennies gets a full $5k back, but pays no taxes on what is no health care.

If he’s 55 with a bad heart he might as well play blackjack with that money.
If he’s 22 and in good health he might as well play blackjack with that money.

It seems as if there are only a few, strictly defined people in there that will benefit from this plan. I mean really benefit. I’ll get my $700, but I mean changing the health care system to the point where people get care they need…

Shouldn’t this also free up that $6,000 to increase your normal income, instead of being set aside by your employer to pay for your health care? So instead of receiving $X of income and $6,000 of health care, you receive $X+6,000 from your employer and $5,000 from the government, then spend $6,000+tax on health care. Unless the tax on that $6,000 plus the increased cost of not being part of a group plan adds up to over $5,000, wouldn’t you be better off?

My understanding of McCain’s plan is less than complete (which probably shows in my post). I’ll defer to others to answer that one.

Grumman, let’s say Johnny and his employer pay $3000 each of that $6000. He might expect a $3000 raise b/c employer is no longer paying toward healthcare. On the other hand, he might find that, outside of a group plan, it’s costing him $8000 per year instead of $6000, and with the $5000 break exactly even.

jtgain, I think we’re pretty much in agreement. For the worker with a full-time job and employer provided insurance, he might come out a little bit ahead or a little bit behind. The McCain plan won’t rock his world. For someone struggling in self-employment and temp work, it will be something of an improvement. Unless he has serious pre-existing conditions, he can probably buy some type of high-deductible coverage for his $5000 + some of his own money. The full time employee is only one layoff (or employer decision to drop benefits) away, of course, from becoming the second guy. I am the least convinced about the McCain plan’s provisions for those whose age or health conditions make them unattractive in the private market. His web page describes his approach to that problem as “Talk to some governors.” Well, I don’t think the governors have some magic bullet to fix that one.

We disagree about playing blackjack with the money. I think he should save it because the healthcare bills will be coming home to roost someday.