NCPA - National Center for Policy Analysis


May 2, 2008

Sen. John McCain (R-Ariz.) has emphasized a free-market approach that he says will lower health care costs and make insurance affordable.  But McCain's campaign acknowledges that the health plan he outlined would have the effect of increasing tax payments for some workers, primarily those with high incomes and expensive health plans.

  • The tax exclusion granted to employers who purchase health care for their employees costs the federal government more than $212 billion a year in income and payroll taxes, according to Congress's Joint Committee on Taxation.
  • The current tax treatment of health benefits has been criticized as both discriminatory and regressive, and some analysts believe it encourages workers to buy more coverage than they need, driving up health costs.

To end the disadvantage to those who do not buy insurance through employers:

  • McCain proposes to eliminate the exclusion of health benefits from taxable income.
  • In exchange, he would provide refundable tax credits of $2,500 to single people and of $5,000 to families.
  • The elimination of the exclusion would generate $3.6 trillion over 10 years, according to the McCain campaign, and that money would pay for the tax credits.

While the increase would primarily affect those with gold-plated insurance policies, health analysts point out that middle-income workers with conventional coverage could conceivably pay more in regions where insurance costs are high.  Over time, that might depend on how the tax credits are adjusted for inflation, says the New York Times.

Source: Kevin Sack and Michael Cooper, "McCain Health Plan Could Mean Higher Tax," New York Times, May1, 2008.

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