The Wonk Room

WSJ Is Wrong: McCain’s Health Care Plan Increases Costs And Abandons Uninsured»

An editorial in today’s Wall Street Journal argues that rather than reducing costs, the 2006 universal health care reform in Massachusetts has led to run-away public spending and an over reliance on the publicly-subsidized health care option. The Journal complains that “the ‘connector’ that was supposed to link individuals to private insurance options has barely been used” and proposes that “the real problem in health care is the way the tax code and third-party payment system distort incentives“:

That’s where John McCain has been focusing his reform efforts – because that really does have the potential to reduce costs while covering more of the uninsured – and Republicans ought to follow his lead.

Ironically McCain’s efforts to reform the tax code, create — rather than eliminate– a “real problem.” His plan increases costs across the board because it eliminates the tax incentives for employer-based insurance programs and pushes individuals out of diversified employer-based health pools and into the individual insurance market.

McCain replaces the employer health tax credit with a one-size fits all tax credit of $5,000 per family ($2,500 tax credit for individuals) for the first year. And while this credit may assist a limited number of families who currently lack any kind of health insurance, workers who receive a higher tax subsidy through employer-based plans would experience a tax increase; Americans with pre-existing medical conditions would either be locked-out of the system by the prohibitive costs of insurance in the individual market or fail to find insurance that covers their conditions.

Insurance costs would increase for the individual consumer and the insurance company. While insurance firms would have to spend more money “marketing and processing individual plans,” the individual consumer would have to stretch McCain’s tax credit to cover the ever-growing costs of medical premiums. This is because McCain indexes the growth of his initial $5,000 offering to inflation, not premiums. And, since premiums grow at a higher rate than inflation, McCain’s proposal imposes $3.6 trillion tax increase on the consumer.

Far from “reducing costs” and “covering more of the uninsured,” McCain’s Bush-like health care proposal increases personal health care costs and administrative costs and leaves more people un-insured and underinsured.