The McCain Health Plan, Again

I noticed about a year ago that McCain actually had a decent health plan. It called for taxing premiums for insurance to pay for coverage for those without. The idea is that the tax-exclusion privileges wage compensation that comes in the form of health benefits, encouraging a general rise in healthcare costs. At the same time, the fact that this benefit only applies to employer-provided insurance contributes to a world in which millions of people without employer-coverage can't get health insurance. I noticed how prominent Obama economists had in fact called for exactly such a plan to reign in out-of-control healthcare spending while expanding coverage.

Obama was very opposed to the idea at the time. He denounced it as a new tax, and spent millions on ads convincing people it was a bad idea. The wonkish liberal blogosphere joined in attacking the plan. Here is Matt Yglesias:

One issue that hasn’t gotten nearly the widespread attention it deserves is that in the context of John McCain’s overall policy for steep tax cuts for high-income Americans he’s also proposing a very significant tax increase on the broad group of people who receive health insurance through their employers

As a result of that kind of fear-mongering, Democrats have found it very hard to impose any kind of tax on health care plans in current bills. The bills they plan cement the link between employment and health insurance and do little to tackle the fundamental drivers of escalating health costs. Well, here's Yglesias now:

by artificially subsidizing health care consumption by the relatively prosperous, [the tax exclusion] drives prices up for everyone, including the not-so-prosperous. And because it’s a tax-side subsidy, the subsidy does little-to-nothing for the poor.So scrapping or curbing the subsidy makes sense in general. And it especially makes sense as a way of raising money to finance progressive policy like ensuring that health care is affordable for the poor and the lower-middle class.

You can argue about whether McCain's plan for redistributing the revenue from the tax--in the form of a refundable tax credit--was the best way to expand coverage. A lot of the criticism there said something like "poor people don't pay taxes, so they won't benefit." But a refundable tax credit will effectively act as a subsidy for people who don't pay much in taxes. In fact, Wikipedia tells me that some conservatives and libertarians oppose such credits exactly for this reason.

But instead of having a debate about the particulars, we effectively shelved one of the best tools for health reform off the table about a year ago. In a world in which the financial crisis hit a few months later--say the Bush team decided to save Lehman--McCain would probably have been elected President. It's intriguing to imagine if McCain could have teamed up with Wyden-Bennett to produce a bipartisan health plan by now. One suspects not, but everyone is entitled to their own counterfactuals.