The McCain Prescription
WHEN IT comes to health care, the way policymakers define the problem determines the answer they produce. Democratic presidential candidates tend to focus on the uninsured, Republicans on rising costs. Both are important: The unaffordability of health insurance won't be addressed without tackling health-care costs, but reducing cost growth alone won't solve the insurance problem. In this debate, Sen. John McCain of Arizona has introduced a health-care plan that is the most detailed and thoughtful of the Republican proposals. Mr. McCain does not put enough emphasis on dealing with the uninsured, but his suggestions for constraining costs and reforming the irrational tax treatment of health insurance merit serious consideration by whoever is elected.
The centerpiece of Mr. McCain's plan is a refundable tax credit of $2,500 per individual and $5,000 per family to purchase health insurance; he would pay for this by eliminating the existing tax preference for employer-sponsored health insurance, in which workers don't have to pay tax on the value of the insurance they receive. The McCain plan represents an important improvement on a dead-on-arrival proposal from President Bush earlier this year. Getting rid of the tax preference would be a good step toward achieving a more rational system, one that does not favor some purchasers of health insurance over others and does not encourage spending on gold-plated health-care plans. In addition, it is fairer to structure the benefit as a credit, of equal value to all taxpayers, rather than as a deduction; a refundable credit would benefit even those who do not owe income taxes.
Mr. McCain acknowledges that his proposed credit would not mean much without other, major changes that would make insurance more affordable. Of these, the most intriguing is his proposal to change the way government health-care programs compensate providers. Currently, Medicare pays providers for every procedure, an incentive to provide unnecessary care; Mr. McCain would reward "coordinated care," reimbursing doctors and hospitals for treating overall conditions, not performing individual tests and treatments. This is a promising approach, but the results on such programs have been mixed, at best; an assessment of Medicare pilot programs found little "convincing evidence" that they cut costs or improved care. Overall, Mr. McCain puts too much emphasis on the ability of consumers, once they are aware of and responsible for health-care costs, to drive down prices. This is important, but many health-care costs involve catastrophic illnesses in which consumers have little control over costs.
Mr. McCain's plan is weakest on the underlying problem with the health-insurance market, in which insurers have every incentive to cherry-pick the healthiest purchasers. "We should give additional help to those who face particularly expensive care. If it is done right and the additional money is there, insurance companies will compete for these patients -- not turn them away," Mr. McCain says. He acknowledges that it is "a challenge to develop techniques that allocate the right amount to each of these families" but proposes only that states should be allowed to "work on whatever method they find most promising," with federal help thrown in. That's not enough of a guarantee that insurance will be available and affordable. Preferable would be to prohibit insurers from cherry-picking and require all individuals to have insurance.
For more editorials in this series, click here.