McCain's Health Care Plan Is a Step in the Right Direction

by Mark Luedtke

We all know the problem: at any one time, 47 million Americans are without health insurance. Not the same 47 million over time, but many Americans who want health insurance can't afford it because of skyrocketing costs. One reason is our population is aging. In that sense, our health care system is a victim of its own success at keeping Americans alive longer.

Another major factor is that government, either directly or through subsidies and tax breaks, pays 60 percent of all health care expenditures in the US. 72 percent of Americans have their health care subsidized by government. That's like government subsidizing the cost for 72 percent of Americans to dine at the all you can eat buffet. That may appear compassionate on the surface, but imagine what would happen when Americans stampeded to the buffet. Because of increased demand, the customers would waste food, the price of the buffet would increase almost as fast as the waistlines of Americans, the price of the subsidy would go up, anybody without subsidies couldn't afford to eat there, and Americans' health would deteriorate as fast as they emptied their plates. The owners would get rich, taxpayers would get more poor and more unhealthy, and 47 million Americans wouldn't be able to afford to eat there.

When a third party, whether government or an employer, pays for your health care, health care looks like that buffet. Got a hangnail? Go to the doctor. Did you sneeze? Go to the doctor. Feeling run down? Go to the doctor. And who needs to bother with a good diet and exercise when somebody else is paying for the Lipitor and Norvasc? Third party payer systems make us more unhealthy and wasteful, driving up demand and therefore the price of health care.

John McCain's health care plan addresses the root problems of third party payer systems by shifting incentives from employer provided health insurance to individually owned health insurance plans. McCain's plan would close the income tax loophole for employer provided health care plans, instead providing a $5,000 tax credit for every family or a $2,500 tax credit for individuals who purchase health insurance, with anything left over going into a Health Savings Account (HSA), a tax free savings account for health care expenses.

Right now, if a company provides a $12,000 per year policy to its employees, that $12,000 in income isn't taxed. Recipients of employer provided health care care plans get a tax break compared to Americans who buy their own health insurance. McCain's plan would fix that by taxing the income and giving a tax credit to every individual or family. For example, if the employee was in the 25 percent tax bracket, he or she would owe $3,000 in new taxes. But assuming the employee is filing for a family, McCain's plan would give a tax credit to the employee of $5,000, effectively cutting the family's taxes by $2,000. The credit goes straight to the health insurance provider to pay for the insurance policy. If the policy costs less than $5,000, the remainder goes into an HSA.

But suppose the employee didn't want $12,000 worth of coverage. He could opt out of his employer's plan, take that $12,000 as additional salary, and buy a $10,000 plan instead. He'd still get McCain's tax credit, and he would put $2,000 in his pocket. McCain's plan creates incentives to buy insurance and to move from wasteful third party payer systems to individually owned health insurance policies.

One criticism of McCain's plan is that it would raise taxes on some people. If the example employee above was single, his tax credit would be $2,500, and he would have to pay the difference of $500 in additional taxes. However, the same individual could find a cheaper policy on the private market and more than make up the difference.

And under McCain's plan cheaper policies will be easy to find. When Americans buy products with their own money, they demand quality products at low prices. The same will be true with health insurance. Americans will demand better policies and service at lower prices, and insurance companies will supply them or be replaced. Healthy Americans purchasing private policies won't have to pay higher prices to subsidize unhealthy people.

Allowing all health care plans to be sold in all states will dramatically lower prices. Michael D. Tanner from the Cato Institute explains that because New Jersey mandates more than 40 benefits including in-vitro fertilization and chiropodists, a typical plan for a healthy 25 year old man costs $5,580. Because of far fewer mandates, a similar plan in Kentucky costs $900. Needless to say, under McCain's plan, healthy 25 year old men in New Jersey will instantly switch coverage to a Kentucky based company.

Because of that, every insurance company in New Jersey will want to move to Kentucky, taking all their jobs with them. New Jersey will have to reduce mandates to keep those jobs in the state. McCain's plan creates incentives for states to remove expensive mandates and regulations to keep jobs in their states, and consumers will be the big winners.

A mistaken criticism of McCain's plan is that seriously ill people without coverage will be left out. McCain proposes working with state governors to create a guaranteed access plan for these Americans to insure they get coverage. He proposes tort reform to reduce the embedded cost of malpractice lawsuit abuse from health care costs. McCain would allow import of drugs from other countries so competition can drive down the price of prescriptions. He proposes much needed reform for Medicare and Medicaid.

McCain's revolutionary plan to reform our health care system releases the American people from the yoke of government regulations and subsidies so they can develop innovative solutions to their individual health care needs.