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McCain Is the Real Health-Care Reformer
The right prescription for what ails our system

David Gratzer
Wall Street Journal
October 7, 2008

With less than a month to go, presidential candidate Barack Obama wants to deliver a knock-out punch by hitting John McCain on health care.

On Saturday Mr. Obama called his rival's health-care proposal "radical" and, in swing states, he is now blasting it in TV ads. Mr. Obama is also distributing mailers and organizing "Docs for Barack" meetings to rally voters.

It's good politics for Mr. Obama. But it's bad policy. Mr. McCain's proposal—to give every American the tax credit businesses get for buying health insurance—is the right prescription for what ails our health-care system.

The foundation of that system—employer provided health insurance—is crumbling. For decades, the percentage of Americans who get their health insurance at work has been shrinking. In August, the Census Bureau reported that the decline continues. Today, 59% of Americans get their health insurance through the workplace. Twenty years ago, three-quarters of us did. With costs skyrocketing—health-insurance premiums roughly doubled since 2000—the current path we are on is not sustainable.

Mr. McCain recognizes that a large part of the problem is that the tax code favors employer-funded health insurance. The system, which began as a response to FDR's wage and price controls, is built on tax breaks that allow employers to buy health insurance with pretax dollars.

Mr. McCain doesn't want to scrap employer-based insurance. He would keep part of the tax deduction in place. But he wants to fundamentally change the way the system works and instead give the self-employed and individuals a tax break for buying their own insurance. There are several advantages to this approach:

— Choice. About half of those with employer-financed health insurance have a choice of exactly one plan—and that plan is often designed to suit the needs of the employer, not the employee. In contrast, under the McCain proposal, families could opt out and join another plan—perhaps offered by their church, union or trade association—if it better suited their needs.

— Portability. Presently, changing jobs means changing health plans and, often, family doctors. It also means that if a worker loses his job, he can also lose his health insurance. Under Mr. McCain's plan, job status wouldn't necessarily affect health coverage.

— Labor mobility. By freeing workers of the need to stay in a job to keep their health insurance, Mr. McCain's plan would help create a more flexible workforce. A study by University of Wisconsin economist Scott Adams found that 20% to 30% of nonelderly men worry enough about losing their health benefits that they stay in jobs they would otherwise leave.

Mr. McCain's plan has it's flaws. Most notably, the senator has not explained how it would address the unique problems of the chronically ill, a group that Minnesota and other states have found do well under government-subsidized insurance.

But is what Mr. Obama is proposing any better? Writing in these pages last month, campaign adviser David M. Cutler (along with J. Bradford DeLong and Ann Marie Marciarille) said, "Sen. Obama's proposal will modernize our current system . . . ." His proposal is built on what we have now and aims only to improve it by regulating insurance companies, subsidizing small businesses, and growing government programs.

This sort of approach has drawn sharp criticism. A Brookings Institute economist wrote in the May/June issue of Health Affairs that "such a coverage expansion—by itself and ignoring other policies with which it might be combined—would do nothing to reduce national health spending." That economist was Jason Furman, who is now the economic policy director of Mr. Obama's campaign. (Recently, he suggested that the Obama plan does contain some cost-saving measures.) Mr. Furman has also, in the past, touted a system of tax credits similar to Mr. McCain's to replace employer-sponsored health insurance. One estimate pegs the cost of Mr. Obama's program over 10 years at more than double the $700 billion Wall Street bailout.

By being light on details, Mr. McCain has made himself an easy target. In a blog, Mr. Cutler attacked the senator by saying, "The heart of the McCain health plan is to take people who have secure, employer-based coverage (160 million of them) and throw them into the market where they buy on their own . . . ." Weary of these attacks, Mr. McCain's campaign has begun to waver and has said that his administration would first work on less controversial reforms.

That's too bad. On health reform, Mr. McCain is fundamentally right. As one prominent economist has noted, "Health insurance is not something that is made better by tying it to employment." That economist was Obama adviser David Cutler.

Dr. Gratzer, a physician, is a senior fellow at the Manhattan Institute. His most recent book, "The Cure: How Capitalism Can Save American Health Care" is now out in paperback.

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