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The case for the McCain health care plan

David Gratzer and Paul Howard
The Dallas Morning News
May 19, 2008

Sen. John McCain proposes separating health insurance from employment by giving American families a tax credit to purchase their own health plans. Elizabeth Edwards, wife of the former Sen. John Edwards, attacks Mr. McCain's idea, suggesting that people with cancer (like her) or a history of cancer (like him) would be shut out. Call it the Edwards Test.

But Mr. McCain is fundamentally right: Health insurance shouldn't be linked to employment. Rooted in World War II–era wage and price controls, today's tax code allows employers, but not families, to pay premiums in pre–tax dollars. That worked when blue–chip companies promised lifetime employment, but it doesn't fit today's mobile labor force. Mr. McCain's plan would create portable coverage that puts families, not employers, in charge. And with a bit of creativity, it's possible to pass the Edwards Test.

First, millions of Americans would still get health insurance through their employers. Mr. McCain simply allows them to opt out. How many? That's difficult to tell, but some tax experts suggest roughly 10 percent initially; the rest would pass the Edwards Test. Mr. McCain's plan also allows people to enroll in health insurance through their churches, unions or professional associations. He also would encourage similar intermediaries for health insurance, pooling risk and reducing cost.

But some would still buy individual health insurance—and the individual market isn't perfect. In New Jersey, the monthly cost of a family plan rivals the lease of a Mercedes. And the media is rich with stories about people with pre—existing conditions without affordable coverage.

But New Jersey is so expensive because of numerous state regulations; Mr. McCain's plan deals with this by allowing people to buy across state lines. As for pre–existing conditions, the individual market in many states is better than people assume.

In the prestigious journal Health Affairs, professor Mark Pauly of the Wharton School and Bradley Herring of Emory University examined data measuring insurance and health expenditures and concluded that the individual insurance market is quite functional. As well, they noted: "Actual premiums paid for individual insurance are much less than proportional to risk, and risk levels have a small effect on obtaining coverage." Translation: People with less than pristine health are finding coverage in the individual market, and are not paying much more than their healthy cohorts.

Still, insurance works well against low–risk events; for Elizabeth Edwards, in active cancer treatment, there is no risk, only reality. Here, people need government assistance.

And that's exactly what happens in states like Minnesota. The Minnesota Comprehensive Health Association helps insure the uninsurable. About 30,000 Minnesotans find coverage with this program—people like Elizabeth Edwards and John McCain. Premiums are capped and the state subsidizes the program. (Texas offers a similar service through its Health Insurance Risk Pool.)

Mr. McCain can build on this example by strengthening health savings accounts for the chronically ill, reducing health costs through increased competition and tort reform and establishing regional health programs for the uninsurable.

Mr. McCain's plan can work for everyone. It is also the last, best hope for avoiding government–run care. For all its flaws, American health care provides the world's best care for cancer patients. Mrs. Edwards wonders if she can get insurance under Mr. McCain's plan. He should ask if she will be able to get quality care under its alternative.

David Gratzer, a physician, is a senior fellow at the Manhattan Institute. His latest book is The Cure: How Capitalism Can Save American Health Care. Paul Howard is a senior fellow at the Manhattan Institute and the managing editor of Their e-mail is
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