McCain, Obama Health Plans Compared

Published November 1, 2008

If you listen only to presidential campaign rhetoric, you might conclude Sen. Barack Obama (D-IL), the Democratic presidential nominee, has proposed bold new changes for our health care system, while Sen. John McCain (R-AZ), his Republican counterpart, is offering only small improvements.

If so, you’re in for a surprise. Obama has released only sketchy details about his health reform plan, and most health policy analysts believe McCain is proposing the more fundamental health care reform.

Private or Public?

Right now the federal government primarily uses the tax system to encourage private health insurance, handing out more than $200 billion in tax subsidies every year. Obama would leave this system largely intact. McCain would completely replace it with a fairer, more efficient system with a much better chance of both insuring the uninsured and controlling health care costs.

Under the McCain plan, employers would no longer be able to buy insurance with pretax dollars. Instead, such payments would be taxable to the employee, just like wages. However, every individual would get a $2,500 credit ($5,000 for familes) to be applied dollar-for-dollar against taxes owed.

The McCain plan does not raise or lower taxes. Instead, it takes the existing system of tax subsidies and treats everyone alike, regardless of income or job status. All health insurance would be sold on a level playing field under the tax law, regardless of how it is purchased.

Tax Relief or Increase?

The impact would be enormous. For the first time, when purchasing health insurance low- and moderate-income families would get as much tax relief as the wealthy. People who purchase their own coverage would get the same tax relief as those who obtain it through an employer.

The Obama plan, on the other hand, would impose a “pay-or-play” mandate on all employers—taxing those who do not provide health insurance for their employees. One can assume this would be an additional tax of 7 percent on payrolls—up to $1.25 per hour per employee—imposed on employers who fail to pay at least 75 percent of their employees’ premiums for a minimum benefit package.

As the economic literature affirms, payroll taxes are almost completely borne by workers themselves. During the Democratic Party primaries, Obama criticized opponent Sen. Hillary Clinton’s (D-NY) proposal to mandate coverage by asserting she would try to force people to buy something they cannot afford and then tax them when they don’t buy it—leaving them worse off than they were. Exactly the same criticism applies to Obama’s pay-or-play mandate.

A tax on labor (or mandated labor benefits) makes employment more expensive. It encourages employers to hire fewer workers, adopt labor-saving technology, employ part-time workers, and outsource labor to independent contractors and other entities.

Middle Income, or Rich and Poor?

Were this provision enacted today, it would immediately affect the 40 percent of small employers who do not offer coverage, the 30 million people in families who have at least one worker but no health insurance, and millions of Medicaid enrollees who have some workforce connection—to say nothing of all the employers who currently pay less than 75 percent or have plans that are insufficiently generous.

While Obama would continue the current practice of giving the vast bulk of federal help to the rich (through tax subsidies) and the poor (through spending programs), the McCain tax credit would give the most new tax relief to middle-income families.

Looking at Obama’s plan, it is hard to see who will get what benefits, how they will get them, or how much they will cost, but it is a certainty the costs will be much higher than Obama’s advisors predict, and that it will be more difficult to achieve “universal coverage” than they assume.

The McCain plan will not solve all our health care problems. But it has a far better chance of positively reforming the system than any other plan that has been proposed this campaign season.


John C. Goodman ([email protected]) is president of the National Center for Policy Analysis. His health care blog is at An earlier version of this article appeared on the National Center for Policy Analysis Web site as “The John McCain Health Plan” and “The Barack Obama Health Plan” on September 5, 2008. Reprinted with permission.


For more information …

“The John McCain Health Plan,” John C. Goodman, September 5, 2008:

“The Barack Obama Health Plan,” John C. Goodman, September 5, 2008: