Senator John McCain (R-Ariz.), the likely Republican Presidential nominee, stayed true to GOP principles Apr. 29 when he unveiled a health-care reform proposal that leans heavily on competition rather than government intervention. He also wants to see the states take a far greater role in fostering that competition and in forming risk pools that would insure coverage for the sickest citizens.

The last of the three remaining Presidential candidates to unveil a detailed health proposal, McCain’s is also the least radical. He is against mandates, instead proposing universal coverage would emerge through the use of tax credits and a more competitive insurance marketplace. McCain wants to do away with the tax exemption on employer-provided insurance. Instead, he would give a $2,500 annual tax credit to individuals, and $5,000 to families, to purchase their own coverage.

McCain’s plan is meant to encourage individuals to purchase their insurance and free companies from the heavy cost of providing coverage. His theory is that employees would take their tax credit and flock to the open market, where they could shop around for the plan that best meets their needs. Insurance companies would have to become more competitive to win their business.

A Kaiser Family Foundation survey released last year found the average annual premium of an employer-based insurance policy is $12,000, of which employees pay about one-third.

Consumer Control?

Health care in America “should be available to all, and not limited by where you work or how much you make,” McCain said in a speech delivered in Tampa at the University of South Florida’s H. Lee Moffitt Cancer Center & Research Institute. He wants to give control over the health-care system to patients. “When families are informed about medical choices, they are more capable of making their own decisions, less likely to choose the most expensive and often unnecessary options, and are more satisfied with their choices.”

For the sickest Americans who would find it hard to buy affordable coverage in an open market, McCain wants the states to form risk pools, or what he calls Guaranteed Access Plans. He also said there would be “reasonable limits” on premiums, and federal assistance for those below a certain income level.

McCain’s campaign staff said the proposal would cost about $10 billion a year in reduced federal tax revenues and subsidized coverage for the poor. The plan’s costs would be offset, in theory, by reduced government payments through Medicare and Medicaid for emergency room use by the uninsured, increased use of information technology, and adoption of best-care practices for chronic illnesses. McCain also proposed malpractice reform.

Contrasts and Criticisms

The plan contrasts sharply with those proposed by the Democratic candidates, Senator Hillary Clinton (D-N.Y.) and Senator Barack Obama (D-Ill.). Both of them call for a national public insurance (BusinessWeek.com, 3/31/08) program that would cover everyone at the same rate regardless of their health status. Employers would either have to provide coverage for all employees or contribute to the public program. Clinton also wants a mandate that would require all Americans to get health insurance. Clinton’s plan would cost an estimated $110 billion, offset partly by rolling back Bush Administration tax cuts. Obama’s plan would cost $50 billion to $60 billion, with the same offset.

McCain dismissed the government-centered proposals of the Democratic candidates, saying that if enacted “we will replace the inefficiency, irrationality, and uncontrolled costs of the current system with the inefficiency, irrationality, and uncontrolled costs of a government monopoly.”

Both Democratic candidates were quick to criticize McCain’s proposal, with Clinton calling it a radical approach that could lead to millions losing their employer-based insurance. “While people might have a ‘choice’ of getting such coverage, employers would have no incentive to provide it,” she said in a prepared statement. Obama said in a statement that “John McCain is recycling the same failed policies that didn’t work when George Bush first proposed them, and won’t work now.”

Harvard Business School professor Regina Herzlinger, a leading proponent of consumer choice in health care, says McCain’s plan is both “not enough and too much.” That is, the tax credit is too high for healthy individuals and too low for those with chronic illnesses. She also feels the plan does little to address the high cost of health care.