McCain would pay for his planned healthcare tax credits – the cornerstone of his reform plan — with savings from Medicare and Medicaid, said Douglas Holtz-Eakin, McCain’s senior policy advisor, according to a report today in The Wall Street Journal. Holtz-Eakin said McCain would reform payment policies and eliminate Medicare fraud to reduce costs. “It’s about giving them the benefit package that has been promised to them by law at lower cost,” the paper quoted him as saying.

Over the weekend Obama brought health care reform back into the spotlight focusing on McCain’s plan to offer a new healthcare tax credit of $2,500 per person and $5,000 per family. McCain would also have the government tax the health insurance benefits people receive though work. The idea is for people to shop for the best coverage deals.

Until now, McCain’s campaign has repeatedly said his health care plan was budget neutral, and aides have suggested he would apply both an income and payroll tax to health benefits. But according to the WSJ report “Holtz-Eakin said the campaign never intended to apply the payroll tax to health benefits.” This new detail means that McCain’s plan would lower taxes for most people, but that he’ll have to find new revenue sources to make it budget neutral, hence the new focus on reducing Medicare and Medicaid costs.

Obama launched four television ads in key states criticizing McCain’s health care plan. He also spent the weekend attacking McCain’s plan in speeches, calling it “a shell game” that would still leave many people without insurance.