The nominees’ proposals

When it came to promoting his health insurance initiative, Sen. John McCain’s timing seemed unfortunate.

In an article in Contingencies, an actuarial journal, the Republican presidential nominee highlighted a central tenet of his plan -- deregulating the insurance industry “as we have done over the last decade in banking.”

The article appeared in the journal’s September/October issue, just as the deregulated banking industry was imploding.

That gave McCain’s Democratic rival, Sen. Barack Obama, an easy way to distinguish his own plan, which involves more regulation of health insurance at the national level -- including standardizing benefits and premiums and requiring insurers to accept all applicants.

There are similarities between the presidential nominees’ plans. Both require increased government spending. Neither explicitly calls for universal coverage. And both rely on the private insurance industry to continue to arrange and finance healthcare for most non-elderly Americans.

But they approach the problem of America’s growing uninsured and underinsured populations in dramatically different ways.

McCain would rely on market forces to expand coverage. Obama would widen public safety-net programs, subsidize coverage for the poor and make public insurance similar to that offered to federal employees (including members of Congress) available to all.

Another fundamental difference is the tax treatment of health coverage.

Under current law, the value of employer-provided health benefits is tax-exempt. But when individuals buy insurance on their own, they must pay for it with after-tax dollars. This amounts to a taxpayer subsidy for employer-sponsored insurance.

McCain proposes to level the playing field by eliminating the tax exemption for workplace-provided insurance. He would replace it with a universal tax credit of $2,500 for individuals and $5,000 for families.

At first, the credit would generously cover employee costs, according to an analysis by the Tax Policy Center, a think tank sponsored by the Urban Institute and the Brookings Institution.

For example, a taxpayer whose federal tax rate is 25% and who has a family health plan valued at $12,100 would pay an additional $3,025 in tax but receive a $5,000 credit.

Over time, that benefit would shrink even if McCain’s credit was indexed to consumer inflation. That’s because medical premiums have been rising much faster than inflation.

McCain’s plan would also allow individuals to buy insurance across state lines -- the banking-style deregulation he trumpeted in the actuarial journal. Now, consumers can buy only health insurance policies licensed by the state they live in.

The McCain campaign says his change would allow insurers to offer plans with “greater variety to match people’s needs, lower prices and portability.”

Critics say that it would foster “a race to the bottom,” with insurers offering cheap plans with minimal benefits to young, healthy buyers but confining older Americans to plans with high deductibles or premiums. In short order, critics say, companies would stop offering any plans in states with strong regulations.

As for the traditionally uninsurable, such as individuals with chronic medical conditions, McCain says the federal government would help states form and maintain high-risk pools. To date, the existing high-risk pools have been underfunded and oversubscribed, resulting in long waiting lists and high premiums.

Obama would increase regulation of the insurance market for individuals, forbidding insurance companies to reject any applicant and setting standards for policies through a National Health Insurance Exchange. He would require plans to cover preventive, maternity and mental health care -- in contrast to McCain’s proposal, which does not mandate minimum benefits.

Private insurers would have to compete with a federally sponsored national health plan that would resemble coverage currently offered to federal employees.

Obama’s proposal includes a “pay or play” mandate for employers, requiring them to contribute to “meaningful coverage” or pay a percentage of their payroll into a government fund to provide such coverage. Small businesses would receive a subsidy to cover some or all of that expense.

But the plan does not specify the magnitude of the contribution or what businesses would qualify for the government subsidy.

The Tax Policy Center projected that by 2018 the uninsured would number 66.8 million without any reform. The McCain plan would reduce that figure by 2 million, while Obama’s would cut the number by nearly 34 million, the center said.

The analysis concluded that the costs of both plans over 10 years were similar: $1.6 trillion for Obama’s and $1.3 trillion for McCain’s. But the benefits were distributed differently. The center found that Obama’s plan would provide relatively greater benefits to low- and middle-income families, while McCain’s would deliver larger financial incentives to high-income families, at least in its early years.

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michael.hiltzik@latimes.com

lisa.girion@latimes.com

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For more information

The Tax Policy Center analysis can be found at www.taxpolicycenter.org.

Click on “An Updated Analysis of the 2008 Presidential Candidates’ Tax Plans.” The healthcare section begins on Page 50.

The nonprofit Commonwealth Fund has posted an analysis of the candidates’ proposals at www.commonwealthfund .org.

Obama’s healthcare plan is at www.barackobama.com /issues.

To find McCain’s plan, go to www.johnmccain.com /Informing/issues.