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McCain’s Rational Health Care Plan

You have to love the headline on the AP story about McCain’s health-care plan: “McCain’s Health Plan: a Threat to Employer Plans?” This is a bit like headlining a 1950’s health-care story: “Salk Vaccine: a Threat to Polio?”

Employer-paid health insurance has been the primary cause of the situation we are now in and the whole point of McCain’s plan would be to end it. These plans are ubiquitous (covering over half the population) only because of an accident of history. Employers, desperate for workers during World War II, couldn’t compete with higher salaries because of wage and price controls. So they began throwing in non-wage benefits, such as health insurance. After the war, the IRS moved to tax this form of income. But by that time so many people had “free” health insurance from their employers that they howled and Congress forbade the IRS to do so.

This created the economically ridiculous situation of employers paying for health insurance with pre-tax income and individuals having to buy it with after-tax income. (Only recently have long-suffering free lancers–such as the present writer–been able to deduct health insurance as a business expense.) No small part of the current health insurance mess comes from this one fact. For the history that led to that mess, see here.

McCain’s plan would give individuals a tax credit to buy health insurance, while employer-paid health insurance would become taxable as income (but not subject to the FICA payroll tax). In other words, it would move the tax deduction from the company to the individual. It would make individual insurance more affordable and much employer health insurance more expensive, causing people to drop the latter and buy the former while employers increasingly drop coverage altogether.

Individuals would then be able to buy the sort of health insurance best suited to them, instead of having no economically rational choice but to take the one-size-fits-all plan of the employer. A 25-year-old bachelor in good health is very unlikely to get seriously sick in the next year. What he needs is inexpensive catastrophic health coverage in case of very bad luck. A 55-year-old might well prefer a more comprehensive policy, given the propensity of 55-year-old bodies to have things go wrong and to develop chronic conditions that require frequent monitoring.

The McCain plan, along with a law allowing individuals to buy health insurance anywhere in the country (thus enabling them to escape the often dozens of unwanted and expensive mandates pushed through many state legislatures by special interests), would go a very long way to solving the problem of affordable health care and reducing the number of uninsured with minimal government interference.

It is clear, at least to me, that the left wants the current system to collapse altogether and so make a government-run system unavoidable. That’s why nothing has been done to rationalize the current health-care situation in the last fifteen years, since I wrote the article cited above. Barack Obama is being disingenuous, to put it mildly, when he complains that the McCain plan would “shred” the employer-based health insurance, as though he were its greatest defender.



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