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The health care reform plans so far proposed by presidential candidates John McCain and Barack Obama take significantly different approaches to employer-provided health care plans. Following is an overview of the major features of the candidates' proposals and how they would affect employer-provided benefits.
The McCain approach. John McCain would concentrate on changing the tax incentives available by increasing them for individuals and decreasing them for employer-provided plans. Individuals with health insurance would receive a $2,500 individual and $5,000 family tax credit.
Under the McCain proposal, the current income tax exclusion for employer-provided premiums would be eliminated. Reportedly, the individual tax exclusion for employer-provided premiums would apply only to income tax and not to payroll taxes; in addition, the McCain campaign has indicated that the credit will be indexed to the Consumer Price Index.
The income tax exclusion has been projected to reduce federal revenues by an estimated $152 billion in fiscal year 2008. The accompanying cost of providing the tax credit is difficult to estimate, especially because it is unclear what percentage of the population would be covered under the McCain proposal. Even if the percentage of individuals covered remained static, the tax credit cost could exceed $420 billion. If all taxpayers were covered, the tax credit cost would exceed $500 billion.
Thus, subtracting out the $152 billion that the government would gain from eliminating the health insurance tax exclusion, the net cost of providing the tax credit could be in the range of $268 billion to $348 billion or more.
Because there is no employer mandate and because employers still could deduct their premium contributions, the McCain tax approach would have little direct cost effect on employers: those that provide coverage still would get a deduction and those that do not provide coverage could continue as before.
The McCain approach clearly is intended to move health care coverage incentives from the employer to the individual --whether and how much this would increase health care coverage overall and whether and how much this would push employers to drop their premium contributions entirely is unclear. Most, but not all, benefits analysts predict some erosion of employer-provided benefits. The primary worry is that as more healthy individuals move to individual coverage, employer plans would increasingly cover sicker workers, which would drive up their costs and make employer coverage less and less attractive.
The Obama plan. While the McCain plan is directed primarily at resolving inequities in the tax system, Barack Obama's health care reform proposal is more directly aimed at increasing the number of individuals covered by health insurance. Thus, the Obama plan concentrates on a mixture of private and public group insurance programs that include an employer mandate and an individual mandate for children.
Under the Obama plan, employers that do not offer or make a meaningful contribution to the cost of quality health care coverage for their employees would be required to contribute a percentage of payroll toward the costs of a national plan. What this percentage might be is not specified.
The Obama plan would provide small employers with a refundable tax credit of up to 50 percent of premiums paid on behalf of their employees. A small employer is not defined, although the Obama campaign does use figures from the Small Business Administration, which in general defines a small business as an entity with fewer than 500 employees.
The costs for employers that provide health care coverage now would not be directly affected. Employers that do not provide coverage or that fall under the "meaningful" threshold would pay an additional percentage of payroll.
The Obama approach largely would leave intact the employer-based system. Whether more employers would adopt coverage or would simply pay toward the national plan is unclear and likely would depend on the level of required payment.
For more information For further information about the candidates' health care reform proposals:
Employers react. Those who design and administer employer-sponsored health care plans have concerns with both presidential candidates' health care proposals; however, the McCain plan provoked greater worry among benefits professionals surveyed than the Obama proposal.
Seventy-four percent of respondents said that McCain's repeal of the employee tax exclusion for employer-sponsored health coverage would have a strong negative impact on their workforce. Respondents clearly rejected the assertion that altering the tax exclusion for employer-provided health care coverage would not affect employer sponsorship of plans. A smaller percentage of respondents, 46 percent, said that Obama's plan to require employers to "pay or play" would have a strong negative affect on their workforce.
"Rather than taxing workers' health benefits and compelling employers to provide coverage they can't afford, candidates should focus on initiatives to control costs and promote top quality care," said James A. Klein, president of the American Benefits Council.
The results appeared in the 2008 Corporate Health Care Policy Forecast Survey, released by Miller & Chevalier Chartered and the American Benefits Council on September 15. The survey of 187 corporate benefits executives from a broad cross-section of small and large US companies measured the current perspectives and attitudes of benefit professionals on the direction of health care policy in the coming year.
For more information on this and other topics, consult CCH Employment Practices Guide or CCH Labor Relations.
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