The Broader Health Care Challenge

The problems with Medicare echo through the nation's broader health care system, where questions about funding and rapidly escalating costs indicate it is not sustainable in its current form. The candidates' plans to address that challenge represent a fundamental difference in philosophy, according to Scott Harrington, a professor of health care systems and insurance and risk management at Wharton.

Obama's plan would substantially expand the federal government's role in the funding, design and provision of health care coverage, yet preserve the current employment-based model. But it would impose penalties on employers with earnings above $250,000 that do not offer health coverage to employees. McCain's plan, Harrington says, relies on market and tax incentives to stimulate markets for individual health insurance coverage as an alternative to the traditional employment-based model. McCain would create tax credits for coverage to provide a relatively greater subsidy to lower-paid workers than under the current system. His plan would also treat employer-paid health benefits as taxable income for workers.

"The winner should focus on how to pay for any new programs in view of the current economic mess and, looming on the horizon, projected long-term funding short-falls for Medicare and Medicaid," says Harrington.

The candidates have sparred over the impact of McCain's proposal to eliminate tax breaks for employees who receive employment-based insurance and tax the value of those benefits as individuals' income. With the new revenues, McCain proposes to provide a flat tax credit -- $2,500 for individuals and $5,000 for families to purchase health care.

Wharton health care management professor Patricia Danzon says she and many other economists support the idea of taxing employer contributions because the current system is inequitable and inefficient. Today's tax structure results in a tax subsidy which grows as income and the generosity of benefits increases, according to Danzon. However, she adds, McCain's plan falls short on addressing problems in markets for individual insurance coverage and provides no mechanism to assure that individuals get insurance. Obama, she says, builds out more ways for people to get insurance, including expansions of federal health programs such as SCHIP, the federal State Children's Health Insurance Plan and the creation of a new insurance pool for people without employer coverage.