John McCain (R., Ariz.) just spent a week rolling out his plan to reform how Americans purchase health insurance. Elizabeth Edwards, the wife of former presidential candidate John Edwards, claims McCain’s plan would not cover people with high-cost conditions such as cancer. Conservatives, on the other hand, fear the plan may leave some workers paying higher taxes.
Mrs. Edwards is mostly wrong and the conservatives are mostly right. But McCain could improve on his plan in a way that would address both criticisms.
The centerpiece of Sen. McCain’s plan would replace the current tax break for job-based health coverage with a broad-based health insurance tax credit. Every individual who purchases health insurance would save $2,500 on his taxes; families would save $5,000.
Conservatives are quietly grumbling that if the amount of your McCain credit is less than the tax break you currently get for your job-based coverage, your taxes would rise. Those taxes would fund what are essentially welfare payments to people whose tax liability is less than the amount of their credit.
In contrast to the existing tax break, which only works with job-based coverage, individuals and families could use McCain’s tax credit to purchase health insurance from anywhere they wish. They could continue to get health insurance through an employer. They could also purchase coverage through a church or civic organization. Or they could purchase coverage directly from an insurance company on what is called the “individual” market.
Ms. Edwards suggests that if people could purchase insurance on their own, insurers would never cover people with high-cost conditions. That is simply not true.
Researchers such as Mark Pauly of the University of Pennsylvania and Susan Marquis of the RAND Corporation have found that the individual market covers lots of people with high-cost medical conditions – so long as they purchased the insurance when they were healthy. Moreover, those high-cost patients do not pay premiums that correspond to their health risk, and their coverage does not disappear when they change jobs. Over the long term, then, McCain’s plan would provide more secure coverage of high-cost conditions than the current job-based system does.