As health care issues heat up on the campaign trail, Sen. John McCain (R-AZ) can’t seem to get his plan straight. Last Sunday, the senator admitted that his health care plan would increase taxes. On Friday, the campaign inadvertently called McCain a liar. And yesterday, in an interview with a local NBC affiliate in Florida, Gov. Sarah Palin again disagreed with McCain and explained that their health care plan “doesn’t increase anyone’s taxes”:

Q: Obama campaign calls Sen. McCain’s health care plan radical. That there could be a chance your Medicare could be in dander if not taxed then in some way cut. Explain John McCai’s health care plan.

PALIN: Maybe it’s radical because we don’t want the government to control it all we want the private sector we want through competition for American families to be able to afford health care. Doesn’t cost the government anything and certainly doesn’t increase anyone’s taxes.

Listen:

Well, it either does or it doesn’t, and both McCain and the Wonk Room agree that it does.

Everyone also agrees that McCain’s health care plan is radical, and, despite Palin’s best attempts to pivot the argument in her favor, most observers aren’t buying her spin. In fact, today’s New York Times reports that numerous business groups and associations oppose McCain’s proposal to replace the current tax exemption for employer-sponsored health care benefits with a one-size-fits all tax credit.

The officials, with organizations like the “U.S. Chamber of Commerce, the Business Roundtable and the National Federation of Independent Business, predicted in recent interviews that the McCain plan, which eliminates the exclusion of health benefits from income taxes, would accelerate the erosion of employer-sponsored health insurance and do little to reduce the number of uninsured from 45 million”:

- R. Bruce Josten, Chamber of Commerce: “To some in the business community, this is very discomforting. The private marketplace, in my opinion, is ill prepared today with an infrastructure for an individual-based health insurance system…There are huge questions about the $5,000 per family being an insufficient amount in terms of being able to purchase the same coverage.”

- John J. Castellani, Business Roundtable: “One of the things we don’t want to do, is jeopardize 170 million Americans who do get insurance through their employers.”

- Helen B. Darling, National Business Group on Health: “The last thing you want to do to the average working person, especially when you’re bailing out big financial companies, is take something they hold near and dear partially away.”

Recent analyses of McCain’s health care plan suggest that 20 million Americans could lose their employer-sponsored health care coverage (while 21 million would pick up subprime health insurance plans in the individual insurance market).

UPDATE: Appearing in Jacksonville, Florida Palin said, “our health care plan will give millions of middle-class families access to better health care without costing them a dime.”

Karen Davenport and Ellen-Marie Whelan contributed to this post.

The Wonk Room has long argued that to finance his health plan, Sen. McCain would have a tax increase of $1,100 on the average family—and that absent the tax increase there would be a $1.3 trillion budget shortfall. Now, McCain has dramatically changed his proposal. As explained by McCain adviser Douglas Holtz-Eakin, the McCain plan will keep the payroll exemption for health insurance and, instead, cut $1.3 trillion from the Medicare and Medicaid programs to finance his health care plan.

Bearing a strong resemblance to the cuts that were sought by former-Speaker of the House Newt Gingrich, McCain’s call for radical cuts to Medicare and Medicaid will undermine their vital role in our health care system, putting affordable health care out of reach for millions of seniors, people with disabilities, and low-income families, and driving up the cost of health insurance for everyone else.

Assuming that the $1.3 trillion cut is taken proportionately from both Medicare and Medicaid:

- Medicare: The McCain plan will cut $882 billion from the Medicare program, roughly 13 percent of Medicare’s projected spending over a 10-year period. At this level, Medicare spending will not keep pace with inflation growth and enrollment increases – 4.5 percent compared to over 7 percent — thereby requiring cuts in benefits, eligibility or both.

- Medicaid: The McCain plan will cut $419 billion over 10 years from the Medicaid program, roughly 13 percent of Medicaid’s projected spending over this period. At this level, McCain’s Medicaid spending growth – 5.5 percent – does not keep pace with inflation growth and enrollment increases (at 6 percent), thereby requiring cuts in benefits, eligibility or both. Because federal Medicaid funds match state spending, this cut in federal funds would likely yield a parallel cut in state funding, for a total reduction in Medicaid spending of $738 billion over 10 years—more than the cost of providing benefits for all Medicaid beneficiaries for two years. These cuts could also cascade into the State Children’s Health Insurance Program, or SCHIP, the federal progam that covers millions of children who otherwise would not have access to health insurance.

- Private Insurance: As the government’s support of public programs fall, those with private insurance will end up paying more as health care providers shift costs to private payers.

Read more

In one of the more bizarre parts of Douglas Holtz-Eakin’s health care memo, the McCain senior policy adviser argues that McCain’s health care plan preserves employer coverage because “younger and healthier employees with the McCain health care tax credit will have a bigger incentive to stay with the employers“:

For example, a 25-year-old employee in the 25 percent tax bracket with a $2,500 tax credit could either purchase a policy in the individual market for the same amount or stay with his employer plan and receive a $5,000 policy with an additional $1,250 to invest in a portable health savings account. Why would people choose worse insurance and less money?

Ironically, Holtz-Eakin highlights the inefficiencies of the individual market and undermines the very rationale behind McCain’s health care plan.

For months, the McCain campaign has maintained that the senator’s health care proposal would lower costs by allowing healthier Americans to find cheaper coverage in the individual market. During the unveiling of his health care plan in April, McCain argued, “Americans need new choices beyond those offered in employment-based coverage. Americans want a system built so that wherever you go and wherever you work, your health plan goes with you.”

Free market capitalism is at the very heart of McCain’s proposal. By equalizing the tax treatment of individual and employer health care plans, McCain hopes to entice healthier workers (the only ones who could find affordable coverage in the individual market) to opt out of the employer system and invest in their own health, make their own health care decisions.

McCain surrogates have suggested that unfettered from burdensome mandates and regulations, insurance companies will develop innovative health care plans with dramatically lower premiums, and out-of-pocket expenses. Competition and a national health insurance market will rein in growing health care costs and Cadillac and caviar health care plans will become a thing of the past.

So why the flip? Well, in order to defend the McCain health proposal from critics who charge that it would undermine existing coverage, the campaign is awkwardly trying to convince Americans that healthier workers won’t flee employer-insurance pools and increase costs for those who are left behind. In the process, they’ve admitted that the individual health insurance market offers inferior coverage, conceded that workers value the employer health contribution, and have stepped all over their talking points.

All in all, it’s kind of fun to watch.