Joining the Battle on Health Care

At long last the Obama campaign is trying to get some attention for John McCain’s health care proposals — proposals that are much more radical than they seem at first glance. The crux of the matter is that McCain wants to eliminate the tax-favored treatment of employer-provided health insurance, substantially undue regulatory minimums about what insurance plans must cover, and over time phase out any form of tax preference for health insurance whatsoever. The vision, at the end of the day, is to create a situation where most Americans have much less comprehensive insurance coverage. The theory is that with higher out-of-pocket costs and less insurance, people will become more discerning consumers and health care quality and/or cost effectiveness will rise.

The part of this that’s most vulnerable to public attack, it seems, is the point that McCain wants to impose a huge new tax on employer provided health care. The McCain campaign likes to say that this will be offset by a tax credit of $2,500 for an individual or $5,000 per family to buy insurance on the open market. Obama is countering that $5,000 won’t cover the costs of an individual plan, whose average costs are around $12,000. That’s true, but a bit misleading, since it neglects the fact that if we shift away from employer-provided health care people should wind up seeing higher cash wages. The bigger problem with the $5,000 tax credit is that — by designed — it won’t keep pace with the rising cost of health care. It’s pegged to the consumer price index. But some CPI items will predictably see slower-than-average inflation (blu-ray players, etc.) while others see faster-than-average inflation, including health care.

This isn’t a design flaw in McCain’s program, it’s the point of the program. Combined with deregulating the insurance industry it’s supposed to produce a world in which, over time, people are less-and-less insured. This is in keeping with the basic conservative philosophy about our health care problems — that they’re driven by too many people having cushy insurance plans — but it’s pretty strongly at odds with how most people would define the problem.