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A Project of The Annenberg Public Policy Center

Health Care Hyperbole

Obviously, Obama and McCain don’t see eye-to-eye on health care, and their plans are markedly different. But we’ve heard Obama misrepresenting some aspects of McCain’s proposal in stump speeches. On Aug. 21 in Chester, Va., he said:

Obama, Aug. 21: John McCain doesn’t have a health care plan other than to eliminate the tax deduction for employers for paying health care premiums. And in return, giving $5,000 tax credits to each individual family. Now, that sounds pretty good, getting a $5,000 tax credit to buy some health insurance. Here’s the only catch. Health insurance for the average family is going to cost $12,000, $14,000. You’re going to be $7,000 short. Meanwhile, your employer now has an incentive to get rid of their health care plan. That’s John McCain’s plan.

That’s not really John McCain’s plan. (Obama made similar claims to voters in Albuquerque a few days before and in Michigan this week.) There are a few things wrong with the statement. First, McCain’s plan doesn’t call for taking away the tax deduction for employers; it would only take away the tax benefits for employees. Under current law, employees don’t pay income taxes on the value of their health insurance; under McCain’s plan, they will.

It’s true that McCain wants to give families – no matter where they get their insurance – a tax credit of up to a $5,000. (Single folks get up to $2,500.) But no one with employer-sponsored insurance would have to pay for the full cost of their premium, as Obama suggests. They’ll only pay income taxes on that premium. And for a family with a $12,106 annual plan – the average cost of an employer-sponsored plan in 2007, according to the Kaiser Family Foundation – the tax credit is big enough to cover the cost of those taxes, no matter what tax bracket they’re in. (The credit may not fully offset taxes in the future for everyone, mainly for those in high tax brackets, as premium costs would likely rise faster than the amount of the credit – but that’s not what Obama said.)

The only people who could be “$7,000 short” are those who go out and buy insurance on their own and have a family plan that costs well above the average. (The average cost for nongroup coverage ranges from $2,325 to $9,201 for families.) And if a family didn’t have health insurance from a job before, they’re actually getting a $5,000 discount on their premium.

Experts do say some employers would stop offering health care in the long run under a plan like McCain’s, largely because some employees, namely young and healthy ones, could choose to buy their own insurance (possibly getting higher salaries as a result), leaving a pool of older, less healthy (read: expensive) people in the employer’s plan. But for those who keep employer-sponsored insurance – the group Obama was addressing – the Democratic candidate’s statement is incorrect.