McCain on Healthcare

Speaking Tuesday in Tampa, Florida, John McCain outlined his healthcare plans. He's "got the big picture right": it's mostly market-based, including fostering inter-state competition via "advances in Web technology to allow a doctor to practice across state lines." The highlight of McCain's proposal is a policy I've pushed for--ending the link between employment and the healthcare tax-break:

There are those who are convinced that the solution is to move closer to a nationalized health care system. They urge universal coverage, with all the tax increases, new mandates, and government regulation that come along with that idea. But in the end this will accomplish one thing only. We will replace the inefficiency, irrationality, and uncontrolled costs of the current system with the inefficiency, irrationality, and uncontrolled costs of a government monopoly. We'll have all the problems, and more, of private health care -- rigid rules, long waits and lack of choices, and risk degrading its great strengths and advantages including the innovation and life-saving technology that make American medicine the most advanced in the world.

The key to real reform is to restore control over our health-care system to the patients themselves. Right now, even those with access to health care often have no assurance that it is appropriate care. Too much of the system is built on getting paid just for providing services, regardless of whether those services are necessary or produce quality care and outcomes. American families should only pay for getting the right care: care that is intended to improve and safeguard their health. . .

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 is goes with you. And there is a very straightforward way to achieve this.

Under current law, the federal government gives a tax benefit when employers provide health-insurance coverage to American workers and their families. This benefit doesn't cover the total cost of the health plan, and in reality each worker and family absorbs the rest of the cost in lower wages and diminished benefits. But it provides essential support for insurance coverage. Many workers are perfectly content with this arrangement, and under my reform plan they would be able to keep that coverage. Their employer-provided health plans would be largely untouched and unchanged.

But for every American who wanted it, another option would be available: Every year, they would receive a tax credit directly, with the same cash value of the credits for employees in big companies, in a small business, or self-employed. You simply choose the insurance provider that suits you best. By mail or online, you would then inform the government of your selection. And the money to help pay for your health care would be sent straight to that insurance provider. The health plan you chose would be as good as any that an employer could choose for you. It would be yours and your family's health-care plan, and yours to keep.

The value of that credit -- 2,500 dollars for individuals, 5,000 dollars for families -- would also be enhanced by the greater competition this reform would help create among insurance companies. Millions of Americans would be making their own health-care choices again. Insurance companies could no longer take your business for granted, offering narrow plans with escalating costs. It would help change the whole dynamic of the current system, putting individuals and families back in charge, and forcing companies to respond with better service at lower cost.

I note that President Bush made a similar proposal in this year's State of the Union Address. Critics on the left--including the media--complain McCain's proposed tax break is too small and doesn't help those whose pre-existing conditions make insurance more expensive.

The political zinger in McCain's plan is forcing Democrats to choose between their low-income and trial lawyer constituencies:

Another source of needless cost and trouble in the health care system comes from the trial bar. Every patient in America must have access to legal remedies in cases of bad medical practice. But this vital principle of law and medicine is not an invitation to endless, frivolous lawsuits from trial lawyers who exploit both patients and physicians alike. We must pass medical liability reform, and those reforms should eliminate lawsuits directed at doctors who follow clinical guidelines and adhere to patient safety protocols. If Senator Obama and Senator Clinton are sincere in their conviction that health care coverage and quality is their first priority, then they will put the needs of patients before the demands of trial lawyers. They can't have it both ways.

The hole in the plan is that McCain is sticking with "drug reimportation", an anti-intellectual property, populist talking point debunked by physician and Manhattan Institute senior fellow David Gratzer in the March 21st Examiner:

McCain bemoans the high cost of pharmaceuticals and, with a heavy dose of anti-corporate rhetoric, he champions the idea of drug reimportation — allowing consumers and commercial distributors in the United States to obtain prescription drugs from Canada at lower prices.

Reimportation is politically popular; it’s also bad policy. McCain would be better served by abandoning this idea and speaking out instead in favor of reforms that will help Americans pay a fair price for prescription drugs.

Americans are concerned, even angry, about drug costs, so the appeal of reimportation is easy to understand. Most upsetting of all is the fact that Canadians and Europeans pay less than Americans for the same drugs.

But as anyone who has been to a flea market knows, sometimes a bargain isn’t such a good deal. Drug reimportation does little more than import price controls, meaning that along with Canadian-style prices, Americans would also get Canadian-style drug innovation.

And Canada — where insulin, the greatest pharmaceutical breakthrough of the first half of the 20th century, was developed and marketed — stands today as a backwater for drug development. Price controls kill profitability, eliminating the enormous capital needed to fund research and development. . .

And reimportation is not a panacea in any case: Even if all profits of the pharmaceutical industry were eliminated, the total health care savings would be small, reducing drug expenditures from 10 percent of annual spending to about 8 percent. That reduction translates to a one-time freeze in health inflation of about three months.

By targeting expanded insurance coverage via de-linking tax breaks and employment, McCain's plan plausibly can be characterized as middle of the road. That won't halt Hillary or other liberals from complaining McCain is insufficiently radical. Sadly, the worst might be first: as Megan McArdle observes, though "a terrible idea," drug reimportation "is the part of his health care plan with the highest probability of passage."

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Is it possible that the New York Times intended this headline as praise?: "McCain Health Plan Could Mean Higher Tax"

(via TimesWatch)