Tax incentives are the problem, not the fruitless search for the correct incentive.

I still have no intention of voting for him, but Senator McCain makes the most sense offers the least bad suggestion on health insurance reform:

In a speech at a cancer research center here, McCain dismissed his rivals’ proposals for universal health care as riddled with “inefficiency, irrationality and uncontrolled costs.” He said the 47 million uninsured Americans will get coverage only when they are freed from the shackles of the current employer-dominated system.

McCain’s prescription would seek to lure workers away from their company health plans with a $5,000 family tax credit and a promise that, left to their own devices, they would be able to find cheaper insurance that is more tailored to their health-care needs and not tied to a particular job.

Under McCain’s plan, $3.6 trillion worth of tax breaks over a decade that would have gone to businesses for coverage of their employees would be redirected to individuals, regardless of whether they are covered by a company plan.

“Insurance companies could no longer take your business for granted, offering narrow plans with escalating costs,” McCain said. “It would help change the whole dynamic of the current system, putting individuals and families back in charge, and forcing companies to respond with better service at lower cost.”

Unfortunately the inaccurate 47 million uninsured number seems to now be accepted as fact. Moving on.

The details will be important. If he’s proposing that Congress remove the tax incentive from employers to provide health insurance, then he’s possibly on solid ground. I disagree with filling the tax code with incentives. The current employer-provided health insurance should be ample proof that this distorts markets. But we’re dealing with least bad, not optimal. Even though people can be expected to protect themselves when they must shoulder the risk by purchasing insurance on their own, without incentive, if there must be an incentive until some foggy date in the future when we figure out the foolishness of the political game, offer it to individuals.

If he’s proposing additional tax breaks without removing the employer incentive, I don’t see how his plan succeeds unless the individual incentive gives more free money than the employer incentive. Such a free money scheme would be stupid, but with equal competing incentives, employed individuals will be likely to let their employer’s HR department handle the task of securing an insurance plan. Nothing changes.

This calls for a little bit of research. And the answer is:

John McCain Will Reform The Tax Code To Offer More Choices Beyond Employer-Based Health Insurance Coverage. While still having the option of employer-based coverage, every family will also have the option of receiving a direct refundable tax credit – effectively cash – of $2,500 for individuals and $5,000 for families to offset the cost of insurance. Families will be able to choose the insurance provider that suits them best and the money would be sent directly to the insurance provider. Those obtaining innovative insurance that costs less than the credit can deposit the remainder in expanded Health Savings Accounts.

The devil really is in the details, no? The employer-based incentive stays in place, which I assume means the incentive. If we take away the incentive, maybe employers will still offer insurance instead of cash. I doubt it, but let them if they want and employees agree. But to subsidize it is stupid, because then it requires “effectively cash” (i.e. free money). Behold the power of the government.

I realize this has a lower chance of becoming law than the plan proposed by Senator Obama. And that doesn’t factor the likely difference in electoral chances between Senators McCain and Obama in November once Senator Clinton gets pushed over the Party cliff figures out she has no chance.

2 thoughts on “Tax incentives are the problem, not the fruitless search for the correct incentive.”

  1. I don’t have time to make a full comparison, but it seems that McCain’s current proposal is about the same as the one he announced last October. Assuming that is the case, then his proposal probably does a lot more good than harm. At the very least, he at least gets the question right (ie, “how do we lower health care costs without hurting health care quality?” vs. “how do we get everyone to have health insurance”).
    Since our current system of insurance combines the worst of socialism with the worst of capitalism, I tend to think McCain’s proposal would mark a significant improvement in health care and insurance in this country (though not nearly as significant as would be the case if he proposed to end employer subsidies altogether). Hillary-care would be even worse than our current system (which is fine by her since she is more concerned with just maximizing her own power); Obama-care would probably be no better and no worse than the current system, all things considered.

  2. I think your ranking is correct, that McCain’s plan is the best of the three and Clinton’s is the worst. If we have to have one of the three, I’ll take McCain’s, no question. But if we’re going to reform, let’s reform, not tape new ideas on the old.
    I still don’t think McCain’s plan has a chance passing if he’s elected. A Democratic Congress will never go for it. Sadly, that stalemate would still be better than the plans from Clinton or Obama.

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