Introduction
With all of the presidential primary commotion in the news each evening, it makes sense for Jarjac to cover certain hot-button issues. Candidates focus on the issue of healthcare in the debates, and considering that about forty-seven million Americans are currently uninsured today, its no wonder this topic receives so much attention.1 The topic of healthcare could easily fill multiple volumes of text. Unfortunately, this complexity makes everyday discussion difficult. Most voters today make decisions about the candidates based off little more than a few media clips and some commentary (which ends up being more opinion than substance). A proper decision requires more information—and you deserve more. In order to engage in an informed democratic discussion on the topic, each of us should at least understand the essentials of the candidates’ policies. This understanding of how healthcare operates has implications based in the current tax code Indeed, healthcare can be complex, but it does not have to be.
Before getting to the candidates’ views, it makes sense to explain a bit about the United States Internal Revenue Code (26 U.S.C.). The Code takes up over 3,400 pages (with most of it covering income tax regulation). Do not worry, you will understand everything I explain today, my aim is to inform, not confuse.
The Tax Code
Each year, all persons receiving income, from whatever source derived, must report the amount to the Internal Revenue Service (IRS), who taxes this income (26 U.S.C. § 61). However, Congress hollowed out several exclusions, to encourage taxpayers to engage in certain behavior they consider beneficial to America. There are several types of exclusions, but most of the exclusions related to medical coverage fall under the deductions category2. Two types of deductions exist: above-the-line deductions and below-the-line deductions. 3. Under the current code, if a person owns health insurance, some aspects of this benefit can be excluded from taxes depending on how one obtains his insurance.
If an employee receives health insurance through his employer4, he can exclude the entire value of the insurance (§106) to the extent the benefits reimburse medical expenses (§105 (b)). These deductions occur above-the-line.
Taxpayers who do not receive insurance through employers, are not completely out of luck, although do not receive nearly as generous of benefits. If a taxpayer purchases health insurance on his own, he can deduct medical expenses only if, and to the extent that they exceed 7.5% of his AGI (§ 213). In most situations, taxpayers in this situation cannot make a deduction.5 Ultimately, this means that most taxpayers who purchase their own health insurance will be required to pay taxes on the value of the benefit. A small exception exists for a self-employed taxpayer who purchases health insurance for himself and his family. In such cases, he will be able to deduct this amount6.
Most of the elderly and those in low-income brackets receive health coverage through Medicare or Medicaid, both which are paid for by the government through the tax base. This leaves only those who are uninsured. Currently, about 16% of the US population are uninsured7, about 60% are insured by employers, 6% purchase their own primary insurance, and the rest are insured by the government in some form. Being uninsured is primarily a trait of those in low-income families, but uninsured indivudals are found across the entire US population. About 50% of the uninsured are white, 15% black, and 30% Hispanic. In addition, 79% are native US citizens, and only 21% are noncitizens. It is also not a trait of those without jobs. In fact, about three quarters of those uninsured work either full or part time.8. So who suffers?
Most of those who are uninsured are those individuals who do not qualify for Medicaid and whose employer does not provide insurance to its employees.
The Problems we face
Understanding how the system works is only the beginning to understanding the current issues. While it would be impossible to understand every single reason why people go uninsured, one can extrapolate several explanations through reasoning.
Why do people go uninsured?
- Taxpayer cannot afford to pay for his own medical insurance policy and does not qualify for Medicaid.
- Taxpayer can afford paying for insurance, but cannot afford the additional burdens of income tax placed upon insurance.
- Taxpayer cannot obtain medical insurance because insurance companies deny the client due to cost of insuring him or a pre-existing condition.
- Taxpayer does not want/does not think he needs medical insurance.
The Candidates
At this point in the primaries, there are five remaining main party candidates; three Republicans and two Democrats all having their own solution. Although each candidate proposed a healthcare policy, because each of them have a long way to the White House, none of their plans specify every minutiae. However, his or her generalized policies paint a fairly completed picture of what to expect from each candidate if elected into office.
The Republicans
John McCain
McCain first aims to eliminate the employer provided insurance bias (§ 106) by extending the deductibility to insurance purchased by individuals (§ 213). In addition, he aims to offer a $2,500 tax credit to offer incentive to purchase insurance9. To increase competition among insurance companies McCain will allow the consumer to purchase health insurance from insurers in any state in the union, rather than being limited to companies within his state.
Mike Huckabee
Similar to McCain’s proposal, Huckabee plans to change the code to allow for deductions on individually purchased plans. Low-income families would instead receive a tax credit. His plan also encourages competition in the market in order to offer the best prices to consumers, although he does not specify how this will be done. [Editor’s note: prior to publication, Huckabee dropped out of the race.]
Ron Paul
Ron Paul is unique because he supports the abolition of the IRS. This effect would eliminate income tax making health insurance more affordable for those whose reason for being uninsured relates to the tax burden.
However, Ron Paul proposes an alternative plan if he is unwilling to successfully eliminate the US Tax Code. His backup plan addresses the same areas as other Republican plans by making all medical expenses deductible, regardless of how it is purchased. In addition, he will eliminate regulation that discourages small businesses from providing coverage. To reduce costs for Americans, Paul will reform law to allow doctors to collectively bargain with insurance companies and to provide pharmacists and nurses’ additional power to perform basic health functions. He will also make Health Savings Accounts10 available to all, by eliminating the requirement of enrollment in a high-deductible insurance policy.
Democrats
Hillary Clinton
Clinton’s plan for healthcare includes a mandatory national healthcare system that would cover every individual in America. The plan offers taxpayers the ability to choose between keeping their current plan (whether public or private) and opting into one of the various national plans created. She will allow working families tax credits to offset the costs of coverage. Tax credits would also be offered to small businesses to encourage businesses to provide healthcare for its employees. Her plan suggests that insurance companies would not be able to deny consumers coverage if they have a preexisting condition.
Barack Obama
Obama’s plan also creates a national healthcare system, but it is not mandatory for anyone except for children. Obama sees the current problem with healthcare not about avoiding healthcare, but instead about not being able to afford it. Instead of making healthcare mandatory, he instead wishes to reduce costs of current plans. To do this, an income tax credit or deduction11 will be available to all and no one will be turned away from being able to purchase a plan due to a pre-existing condition. However, the most important aspect of Obama’s plan focuses on employers. Similar to the approach of several states, Obama’s plan penalizes an employer who does not provide health coverage for its employees by forcing the employer to contribute a portion of its payroll to the national plan12. Finally, Obama supports the Federalist system by allowing states to continue their current healthcare initiatives as long as it meets minimum requirements.
How they fare?
Philosophically, both parties differ in the intents of their plans. On their face, the Republican plans believe that healthcare, like most issues, can be best solved by letting the free market run its natural course. The Democrats, instead, consider healthcare to be unique in the sense that a person’s health is somehow different than most aspects, and should be considered more of a right than a benefit.
The way to decide how each candidate fares, then, is to apply each candidate’s policies to the problems identified above.
The Republicans all propose much of the same thing. All three candidates seek to bring tax deductions to citizens regardless of how they obtain their health coverage. This closes the disparity between employer-purchased plans and individual-purchased plans. This tackles not being able to afford healthcare due to the tax burden (problem number 2). In addition, McCain and Huckabee both support offering tax-credits to families to offset the cost of paying for healthcare. This addresses not being able to afford health insurance (problem number 1). All three candidates also wish to decrease the price insurance companies offer. Huckabee and McCain aim to do this by increasing competition between insurers. Paul wants to reduce healthcare costs by changing law enabling health care providers to act in ways currently unavailable to them.
While Republicans do a very good job solving these two problems, they do not address the latter two reasons why individuals do not purchase insurance, which may or may not be a good thing. Ultimately, the healthcare industry runs a business, and your feelings whether individuals with a condition that is simply too expensive to cover by a particular health insurance provider and those who do not wish to purchase coverage should be required to have coverage is a personal one. However, Republicans take the stance that healthcare is not essential, but instead a benefit that people can choose to purchase. They feel that if the government required everyone to obtain health coverage, it would make insurance more expensive for all, through additional tax collection. In addition, this requirement would change healthcare from a business, to an amenity where those in higher income brackets support those who cannot afford insurance. Since most people would buy insurance if it were affordable, this seems unfair.
Democrats offer a solution that attempts to cover the most people possible. However, Hillary Clinton and Barack Obama offer vastly different programs that are better discussed separately.
Hillary’s plan, in effect, socializes medicine. Her plan mandates coverage, which provides that all individuals in the United States be covered. While many countries currently socialize medicine, there are numerous pros and cons of doing so, which could fit in an article of its own. By requiring everyone to purchase insurance, you force those people who do not want to buy it13 to do exactly that. For those who want healthcare but cannot afford it, socialized medicine does not necessarily make it less expensive—the real problem with current healthcare policy. While Clinton’s plan promises to be affordable, all implementations in other countries suggest otherwise, as did her attempt in 1994, while first lady under her husband. If Medicaid is any indicator, current estimates suggest that about twenty-two percent of State budgets are spent paying for Medicaid programs.14. It will only rise after implementing Clinton’s plan, all through additional taxes collected, or reallocating current funds. Clinton does address the other reasons why people do not purchase insurance by proposing the same solutions as Republicans in addition to refusing to deny health coverage to those with pre-existing conditions.
Obama’s plan appears to be a compromise of all of the other candidates. While implementing a national healthcare system, he does not require the uninsured to subscribe except for children. He aims to provide every child in America with healthcare, to allow those who cannot yet provide for themselves to start off on an equal basis. Instead of focusing on socializing medicine, he instead focuses his resources towards employers. While proposing the same goals as Republicans, he also wishes to use employers’ bargaining power to get the most affordable and best coverage possible. Obama follows the footsteps of Massachusetts by giving employers15, the choice of either paying into the national healthcare system or offering employees insurance. This plan is strong because it gives employers incentive to offer employees medical benefits. This reduces those needing to purchase their own insurance, and additionally, gives these employees better coverage. Insurance companies eagerly attempt to win contracts with large companies, because the values of these contracts are usually in the millions. Due to this bargaining power, employers can negotiate greater coverage with a lower deductible, than an individual can achieve. In addition, Obama’s plan encourages experimentation among the states to find the best solution to the problem. Rather than a single system, as long as each state abides by minimum standards, it can propose whatever system it wishes. As a result, Obama respects those who do not wish to purchase insurance, and makes it more attractive for those currently uninsured to obtain it.
Conclusion
While I cannot tell you the candidate best for your situation, I can encourage you to develop a reason for voting based off of facts and not rhetoric. Regardless of whom you choose to support, consider the proposals of each candidate. Overall, all of the candidates do address the problems with healthcare, each in his or her way.
Disclosure: Ryan is a registered Independent. He is currently undecided, but leans towards supporting Barack Obama for President, mostly due to non-healthcare reasons (although he feels Obama’s healthcare plan is the best compromise of all plans). He is currently a law student, but in no way should anyone view any information in this article as legal advice. Please seek an attorney licensed in your jurisdiction if you have tax law concerns.
- See: http://aspe.hhs.gov/health/reports/05/uninsured-cps/index.htm ↩
- For a better understanding of deductions, see: http://www.fool.com/personal-finance/taxes/2007/03/01/your-taxes-above-and-below-the-line.aspx ↩
- Above the line deductions are more beneficial to taxpayers because they not only reduce one’s amount of taxable income and one’s adjusted gross income (AGI) (adjusted gross income is a number which other tax calculations are performed upon, AGI is determined by taking your income and subtracting above-the-line deductions, most of which are business expenses (26 U.S.C. § 62). ) ↩
- The employer can also provide coverage for the employees spouse and family (same sex couples do not receive this benefit, see § 152 (a)(9) ). ↩
- If deductions are available for taxpayers purchasing their own insurance, they are of the below-the-line variety, making them less attractive, and in cases where a taxpayer takes the standard deduction on his tax form will cancel any such deduction. ↩
- Which is considered an above the line deduction. ↩
- See: http://aspe.hhs.gov/health/reports/05/uninsured-cps/index.htm, using 2005 statistics. ↩
- See: http://aspe.hhs.gov/health/reports/05/uninsured-cps/index.htm ↩
- That is $5,000 for families, and if the taxpayer owns a multi-year policy, he can deposit the remaining credit in a health savings account. ↩
- Health Savings Accounts are tax-advantaged accounts used to save for healthcare. ↩
- This depends on your tax bracket. ↩
- An exemption is made for certain small employers. ↩
- This includes most young adults, whom, while susceptible to injury and illness, are the least likely, statistically, to suffer severe medical issues. ↩
- See: http://www.nasbo.org/Publications/PDFs/Fiscal%20Survey%20of%20the%20States%20June%202007.pdf ↩
- This is true except for small employers. ↩
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