Is McCain really willing to be as radical as his health care plan?

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Karen Tumulty declares over on Swampland that “The Great Health Care Debate of 2008 is Finally Engaged,” and she’s definitely right that the approach McCain announced yesterday is radically different from what Obama and Clinton have been talking about. It is pretty much the same as what the Bush administration has been promoting for several years (and that Ramesh Ponnuru talked up in the pages of Time a few months ago) with little result. It’s basically about forcing individuals to pay taxes on the value of the health benefits they get from employers, but then giving them a tax credit to make up for some of that. The result, Shawn Tully writes in Fortune: “The raison d’ĂȘtre for corporate health benefits would vanish.”

Now delinking health care from jobs is something that really does probably need to happen, but it’s not unique to McCain’s proposal. Democrat Ron Wyden’s much-discussed bill would do it as well, and I suspect that if either the Clinton or Obama plan were enacted, the responsibility for health insurance would slowly but inevitably migrate away from employers.

So what’s so radical about the McCain plan? For one thing, it appears to dramatically reduce the tax subsidy for health care–it would be limited to a $5,000-per-family credit, while existing corporate plans are often much more generous than that. This would put downward pressure on health care spending, which would seem to be a good thing. It would of course do so by giving people less money to spend on health care, which isn’t going to be popular. But if universal health care is going to keep costs in check then it too would have to include limits on spending.

The really big difference between McCain’s plan and that of the Democrats is that McCain envisions an atomized market full of individuals making their own health care decisions. This the way most of the rest of the U.S. economy functions, so why shouldn’t it work for health care? Well, there are lots of reasons. Commenter Crust lists a few:

1. Individuals have less bargaining power and sophistication than employers.
2. Negative selection.
3. Greater frictional costs from advertising to individuals, etc.

There are parts of the health care business that work really well as conventional free markets–elective laser eye surgery is a particular favorite of libertarian health wonks. But many health-care purchasing decisions would seem to be better made by experts. And if insurers are left to their own devices in a market composed purely of individual customers, they’ll end up offering their services mostly to those who don’t really need them. The upshot is that in many, perhaps most, cases health-care consumers are better served by banding together (not necessarily as employees of a single firm; health insurance purchasing cooperatives can serve the same function).

McCain does propose the creation of what he calls a Guaranteed Access Plan for “those without prior group coverage and those with pre-existing conditions.” But it’s not clear to me why creating such a state-supported black hole is preferable to requiring some kind of community rating by health insurers. And it signals that McCain perhaps doesn’t really believe that free-market health care solves everything.