WASHINGTON - John McCain's healthcare plan would bring a dramatic change to the existing system: People would get a flat tax credit worth as much as $5,000 instead of the tax break on the insurance they now get at work, allowing them more flexibility to buy insurance on their own.
But while there are benefits to such an approach - especially for some people without insurance, or for those who want to carry their policies from job to job - there is another effect that has not been much noticed: The switchover, specialists say, would provide fewer benefits to people who live in areas where health costs are more expensive, such as the Northeast, than for people in other regions of the country where healthcare costs are lower.
"For people who are in higher-cost states, that tax credit is not going to go as far," said Jonathan Oberlander, a professor of political science and health policy at the University of North Carolina at Chapel Hill. Employees who live in high-cost states, he added, will also probably pay more in taxes on their health insurance benefits because their plans are likely to be worth more.
The average premium for a family plan in New England costs more than $12,000, while the average in the five lowest-cost states is less than $10,000, according to the Kaiser Family Foundation website statehealthfacts.org. Four of the five most expensive states for family plans are New England states.
The McCain campaign says that the tax credits - $2,500 for individuals, $5,000 for families - would help many uninsured people afford insurance. The campaign also says its plan would drive down costs by adopting cost-containment strategies and by allowing people to purchase insurance across state lines, now illegal in most states.
People who live in states like New Hampshire, where insurance is heavily regulated, would be able to purchase cheaper, no-frills plans available in states that don't impose expensive rules, such as requiring insurers to cover expensive medical procedures.
"By allowing families to buy across state lines, and with rigorous insurance reform, we will ensure costs in all states come down so people in every state will have comprehensive policies they can afford with the $5,000 credit," said Jay Khosla, a health policy adviser to the McCain campaign.
Critics of McCain's plan say that is wishful thinking. Under the existing system, young, healthy people in employer health plans help subsidize the cost of medical care for their older colleagues, who generally require more healthcare. The McCain tax credit would give many young and healthy people the ability to buy cheap, high-deductible insurance on the individual market, critics say, leaving the employer-based plans stuck covering the most expensive workers. Premiums would rise over time as a result, the critics say, and that in turn would cause some employers to stop providing insurance to employees altogether, leaving the old and sick to fend for themselves on the individual market.
"There's sort of two sets of winners and losers," said Kenneth E. Thorpe, chairman of the health policy and management department at the Rollins School of Public Health at Emory University. "Geography will matter, no doubt, but the even bigger winners and losers will be by age and health status."
A healthy, 35-year-old small-business owner from New Hampshire, one of the most expensive healthcare states in the country, might benefit from the McCain plan. Armed with a $5,000 tax credit, she might be able to afford insurance for her family for the first time.
But if she developed adult-onset diabetes, her costs could shoot up dramatically, putting insurance once again out of reach.
Her 55-year-old diabetic aunt in Nevada, where health costs are relatively cheap, might see her premiums skyrocket as her healthier colleagues left the office group health plan to find cheaper rates on the individual market.
"If you're a healthy person in a low-cost area, this is a pretty good deal," said Len Nichols, a healthcare economist who directs the health policy program at the New America Foundation. "If you're a healthy person in a high-cost area, not so much. If you're an unhealthy person in a high-cost area, good luck."
To make sure these older and sicker people can afford insurance, McCain has proposed a pool funded by the states and federal government that the campaign says would provide them access to care at a "reasonable" rate. Critics say it would be either far more expensive than the $15 billion to $20 billion McCain says it would cost, or that premiums would have to be high.
Barack Obama's plan would not result in the same geographical disparities. The Obama plan would preserve the tax breaks on employer contributions to health insurance, so the value of those exemptions would remain directly related to the cost of insurance. Obama would provide tax credits for people who can't afford the full price of health insurance; those credits would also be directly related to a person's income and the price of the plan, said Neera Tanden, director of policy for the Obama campaign.
Michael Cannon, director of health policy studies at the libertarian Cato Institute, says the geographical disparities in the value of the McCain tax credit are actually an asset. Some areas of the country spend twice as much as other areas without providing better quality, he said.
"It's a virtue of McCain's tax credit that it would give everyone the same tax break," he said. "That will help reduce wasteful health spending, particularly in areas of the country where that is most prevalent."
But other health policy specialists doubt that the McCain plan would erase geographical disparities in the cost of healthcare. Health costs tend to be higher in more urban areas of the country, where there are more specialists and where the cost of living is higher, which means salaries are higher - fundamentals that the McCain tax credit is unlikely to change.
"It's going to penalize high-cost areas whether it's their fault or not," Nichols said.
Those disparities may become more painful over time. McCain's tax credit would grow with the consumer price index, rather than with health inflation, which has been growing more than twice as fast. Unless healthcare stops growing so quickly, its value would shrink for everyone, and people who live in high-cost areas may find themselves struggling to afford insurance sooner.
"It's sort of a hidden tax increase," Oberlander said. "Most people aren't going to understand the difference between indexing to [the consumer price index] versus medical inflation."
The McCain campaign says the value of its benefit will not diminish over time, however, because of McCain's strong emphasis on taming health inflation by controlling costs through things like chronic disease management, promoting coordinated care, and making the cost of care more transparent to consumers, enabling them to comparison shop. And some analysts say limiting the credit would put downward pressure on healthcare inflation, which is widely agreed to be a critical problem.
"I do believe curtailing the tax subsidy would cause a reduction in medical spending and insurance premiums, at least compared to what it would have been if you didn't," said Mark Pauly, a health economist at the University of Pennsylvania's Wharton School.