John McCain is proposing the most radical overhaul of American health-care policy in a decade and a half. Not since Bill and Hillary Clinton's failed reform attempt has a presidential candidate, or even a president, called for such sweeping changes to the way health care is delivered and health insurance is purchased.
The New York Times reported on Thursday that 71 percent of Americans now receive insurance through their place of employment, but employer-based health insurance is a historical accident, stemming from a combination of labor shortages and wage controls during World War II. It limits consumer choice by giving decisions over coverage to employers rather than employees, meaning workers who lose their jobs lose their insurance. And individuals who do not receive employer-provided insurance face a greater financial burden when they try to buy insurance on their own.
Why should that be?
McCain would move us away from such a system. He would count at least some of a worker's employer-paid insurance as taxable income. At the same time, he would provide all Americans with a $2,500 refundable tax credit for individuals and a $5,000 credit for families, regardless of how people obtain their insurance. McCain's proposal exposes him to criticism that he would put people with pre-existing conditions at a disadvantage, because they have a hard time finding affordable individual coverage. But his campaign says he is considering risk-rating the tax credit he would offer, providing more money to those who need it most. And McCain would use federal funds to subsidize state high-risk pools already covering those who have trouble buying insurance in the open market.
In addition, McCain's campaign maintains that his proposal would make insurance more affordable for everyone, including those with pre-existing conditions. In particular, by making insurance more affordable to the young and healthy, McCain's plan will attract them into the market before they develop pre-existing conditions. And McCain rightly claims that deregulation will lead to the creation of new and innovative insurance products that can help solve these problems.
Most notably, McCain would allow people to purchase health insurance across state lines, a practice now prohibited. Health insurance is largely regulated at the state level, and the different regulations and mandates in each mean prices vary widely from state to state. For example, New Jersey imposes more than 40 mandated benefits, including in-vitro fertilization, contraceptives, chiropodists, coverage of children until they reach age 25, and other regulations. As a result, according to the Commonwealth Fund, the cost of a standard health insurance policy for a healthy 25-year old man in New Jersey comes to $5,580.
However, a similar policy in Kentucky, which has far fewer mandates, would cost him only $960 per year. Unfortunately, it is illegal for that hypothetical New Jersey resident to buy the cheaper Kentucky plan. McCain would change that.
McCain would also allow people to purchase insurance through non-traditional groups. Today, three types of organizations can offer group insurance: employers, unions and trade associations. McCain would open this to other groups, notably churches and professional organizations.
Finally, McCain wants to change not only who pays for health care, but how they pay for it. McCain challenges the concept of traditional "fee for service" medicine.
"We should pay a single bill for high-quality health care," he says, "not an endless series of bills for pre-surgical tests and visits, hospitalization and surgery, and follow-up tests, drugs and office visits."
McCain also rightly calls for greater transparency for health care costs and prices.
"Families, insurance companies, the government - whoever is paying the bill - must understand exactly what their care costs are and the outcome they received."
Steve Parente, professor of finance at the University of Minnesota, estimates that the McCain plan would cut the number of uninsured Americans by roughly half. But equally important, McCain's proposal would drive down the cost of health care for everyone.
As Democrats often claim, the status quo isn't working, and that's because so many people are stuck without any good options. McCain's proposal would give people back the choices they need to get better care. And he would do it without having the government take over the health system.
That's a radical change, and the right idea.