McCain’s proposal to eliminate the tax preference for health insurance would have dramatic consequences for the employer-based health insurance system, researchers reported in an online article of the health policy journal Health Affairs on Tuesday, September 16.

In a separate article on the Health Affairs Web site analyzing the health care plan of Democratic presidential nominee Sen. Barack Obama, researchers noted, as Workforce Management reported in its September 8 edition cover story, the plan could “undermine” employer-sponsored health insurance by driving up costs rather than using tax incentives to siphon employees from employer plans. Researchers said increasing the number of Americans with health insurance could increase costs for employers.

Researchers analyzing the McCain plan gave the first estimate of the number of employees who they believe would lose or leave employer-sponsored coverage. They said eliminating the tax preference would cause 20 million Americans to lose employer-based health insurance. Currently, 160 million Americans receive their health insurance through an employer.

“The McCain plan,” the researchers concluded, “would shift coverage toward the nongroup market, lead to reductions in the comprehensiveness of coverage in that market through deregulation, and encourage employer-based coverage to become less generous as well.”

The report on McCain’s plan looked at the three main aspects of the candidate’s policy proposal: eliminating tax preferences, issuing refundable tax credits, and allowing people to purchase health insurance across state lines by deregulated current market rules.

McCain has proposed taxing the value of a person’s health care as if it were income. Those who purchase health insurance would receive a refundable tax credit of $2,500 for individuals and $5,000 for families—enough, the McCain campaign has argued, to offset a person’s tax liability.

All told, 20 million workers could lose employer-sponsored health insurance. Yet with increases in the number of individuals able to purchase health insurance in the individual market, researchers predicted a net gain of 1 million people with health insurance.

Analysis by the Tax Policy Center also estimated that McCain would increase the total number of insured by 1 million, while Obama’s plan would increase the number of insured by 18 million by the end of 2009.

Researchers who analyzed the Obama plan said its cost could be higher than original estimates. By offering first-dollar coverage, the Obama plan does little to address the “perverse incentives” that allow patients and doctors to spend on health care without regard to cost, the researchers found.

Obama’s plan, which requires employers of a certain size to offer “meaningful” coverage, may as a result restrict the types of plans they can offer, especially high-deductible plans or certain types of cost sharing. Because it’s believed that the Obama plan will increase the number of insured, researchers predicted that overall health care costs were likely to rise unless the plan did more to curb health care spending.

—Jeremy Smerd