McCain's Medicine
The Arizona Senator gets back in the reform business.
Friday, October 12, 2007 12:01 a.m. EDT
Riding low in the polls, it seems, has allowed John McCain to take some policy risks. At Tuesday's Republican primary debate, he talked about the need to junk the tax code to make it fairer and flatter. Then Mr. McCain followed up with a health-care reform announced in Iowa yesterday, perhaps recapturing the aura of political creativity that animated his Presidential bid in 2000.
The Senator's views are panoramic, and he's looking at a health-care landscape grounded in free-market principles. His major proposal would change the tax treatment of insurance. To rehearse: Today's tax code allows businesses to deduct the costs of providing health insurance to their employees, but it doesn't allow the same for individuals. That creates third-party payer problems for the insured and makes coverage less affordable for everyone else. Mr. McCain would offer a refundable tax credit of $2,500 for individuals, and $5,000 for families.
We'd prefer a standard deduction, which is cleaner as tax policy and causes fewer distortions, but some argue that a credit will more quickly aid lower-income families. In any case, the finer grains are at this point less important than the larger reform. Mr. McCain is climbing onboard with Republican opponents Rudy Giuliani and Mitt Romney, who have also identified tax bias as the overriding concern.
One major difference among these front runners concerns insurance regulation, and here Mr. McCain comes out on top. Part of the reason coverage costs differ so sharply among states is because some have chosen to impose multiple rules and mandates. Mr. McCain would allow people to purchase policies across state lines, which is currently prohibited. That would let people choose the coverage levels that best serve their needs, and would make insurance far more affordable for people in mandate-heavy states like New York and Massachusetts. Mr. Giuliani says he'll allow for this eventually, with some caveats, and Mr. Romney goes out of his way to trash it.
Mr. McCain takes a false regulatory lunge when he says he wants prescription drug re-importation, which could harm U.S. pharmaceutical innovation. However, he's on firmer ground when he emphasizes medical malpractice reform, coordinated preventive care, and price transparency, all of which will help control health-care costs. These are also the natural complements of tilting the health-care system toward a more market-based model.
The Senator emphasizes that reform will require "fundamental change--nothing short of a complete reform of the culture of our health system and the way we pay for it." He seems to mean it, too: He's also proposing a major change to Medicare, thus becoming the only candidate, Republican or Democrat, to confront America's runaway entitlement spending. Medicare spending grew by 11% last year.
Mr. McCain would do away with Medicare's creaking fee-for-service model, and the government would pay providers based on outcomes. While many of the details need to be worked out, partially this would act to focus doctors and hospitals on coordinated care for seniors, and partially to manage government expenditures. It would also get the government out of the business of setting reimbursement rates for thousands of individual procedures. Call it supply side medicine.
While the proposal would leave the beneficiary structure intact, we suspect that Mr. McCain is setting up an even bolder reform. Changing the payment architecture could be used as a lever to move Medicare toward a defined-contribution health-care model, where the government would pay a certain amount per individual, and private insurance would compete to insure patients. This would be a major step toward free-market spending discipline.
Mr. McCain has largely predicated his candidacy on national security, but his entrance into the health-care fray solidifies the intellectual progress conservatives have made on the issue. This isn't 1992 when Republicans had little to say. The "universal" health care ambitions of Hillary Clinton and her fellow Democrats rest on incremental steps that expand the role of government, add more mandates and taxes, and eventually create "Medicare for all." The stage seems to be set for a rousing, and much-needed, debate next year over the role of government in health care.
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