A brief article on the history of why the healthcare system got to where it is, and why the McCain plan is actually the only one of the two (between his and Obama’s) that can truly accomplish anything: by putting more control back in the hands of the consumer instead of simply shifting control from EVIL Insurance companies to the ALL-LOVING Federal Government.
Mr. Jacoby is very explicit in explaining the history of the problem:
During World War II, federal wage controls barred employers from raising their workers’ salaries, but said nothing about fringe benefits. So firms competing for employees at government-restricted wages began offering medical insurance to sweeten employment offers. Even sweeter was that employers could deduct those benefits as business expenses, yet employees didn’t have to report them as taxable income. For a while the IRS resisted that interpretation, but Congress eventually enshrined the tax-exempt status of employer-based medical insurance in law.
Result: a radical shift in the way Americans paid for medical care. With health benefits tax-free if they were employer-supplied, tens of millions of Americans were soon signing up for medical insurance through work. As tax rates rose, so did the incentive to keep expanding health benefits. No longer was medical insurance reserved for major expenditures like surgery or hospitalization. Americans who would never think of using auto insurance to cover tune-ups and oil changes grew accustomed to having their medical insurer pay for yearly physicals, prescriptions, and other routine expenses.
Now, I actually don’t agree with the part of McCain’s proposal that taxes employer-based coverage. I’m more interested in parity (making sure that individuals get the same tax cut), than I am a punitive approach. But it at least cuts at the core of the problem: the individual has been left out of the process for far too long. It’s actually just a little too harsh.
I preferred the plan that President Bush proposed in a State of the Union address a few years ago (seems like so long ago), and that was a tax-credit (and a pretty sizable one, if I recall) for those participating in Consumer-Driven (High-Deductible) Health Plans. That would have accomplished a lot as far as getting more control of costs back in the hands of the consumer without giving a Democratic contender ammunition to call the Republican contender a tax-hiker.
(Mirrored on gcfin.com.)