During the last few days of his presidential campaign, John McCain needs to convince wavering middle-class voters that he understands the pocketbook worries that keep them up at night. One way to do that is to show that his health-care plan can help bring costs under control, put more money in people’s pockets, and give them more control over their own health insurance.

The candidates offer voters starkly different visions for health-care reform. In a nutshell, Obama’s plan is for government to double down on everything it’s already doing: issue more regulations, dole out more subsidies (including a new government health plan for the middle class), and expand existing programs like Medicaid and the State Children’s Health Insurance Program (SCHIP). Obama believes that this strategy will bring costs under control by giving the government more say over how those dollars are spent. The trouble is that government’s track record on spending is miserable. Take the federal health-care program for the elderly, Medicare. Special-interest groups like the AARP continually lobby Congress for more spending; politically, the program is untouchable. In the long term, Uncle Sam has promised seniors trillions of dollars in Medicare benefits that he doesn’t have the wherewithal to pay for.

McCain is promoting an approach long suggested by smart economists from both parties. He suggests replacing today’s unlimited employer tax deduction for health insurance with a refundable tax credit of $2,500 for individuals and $5,000 for families. (In the nongroup insurance market in 2006–07, according to the trade group America’s Health Insurance Plans, “annual premiums averaged $2,613 for single coverage and $5,799 for family plans” nationally.) This approach would put families in direct control of their own private health insurance and empower market competition. Together with some basic safety-net provisions, it would reward providers and insurers who offer cost-effective care in packages that consumers really want.

A key to successful health-care reform is reassuring middle-class voters that if they change jobs, lose their jobs, or are self-employed, they will still be able to get access to affordable health insurance. Obama’s solution is to create a national health-insurance exchange modeled on Massachusetts’s Commonwealth Connector, which offers expensive, heavily regulated private policies to the uninsured. He would add a government-run plan as an additional option. As with Medicare, Obama would be tempted to keep premiums low in order to appeal to citizens. But he would have to limit costs elsewhere, presumably by slashing reimbursements to providers. As it is, many doctors limit the number of Medicare and Medicaid patients they see; Americans buying into the government plan could wind up with insurance, but no access.

McCain’s plan relies more on competition. He would make it legal for individuals to buy insurance across state lines, which, together with the refundable tax credit, would allow them to purchase plans that best fit their needs. He would also allow unions, churches, and small business organizations to act much the way businesses do now, minus the tax deduction: they would be able to form insurance pools for their newly tax-credited members, screening plans for quality and using bargaining power to secure affordable rates. States would also be free to embrace Massachusetts’s model if they wished, or to create other mechanisms allowing individuals and small businesses to buy into group coverage.

Perhaps the biggest worry for middle-class voters is that for people seeking insurance who are already sick, insurers will charge higher premiums to cover the cost of care—making it extraordinarily expensive or even unaffordable. Obama would regulate the problem away and force insurers to charge one price (“community rating”) to all comers, regardless of health status, and not let them turn anyone away (“guaranteed issue”). But states’ experiences with these policies show that they drive up prices. McCain’s alternative is Guaranteed Access Plans—high-risk pools with which the states, with federal subsidies, could help uninsured people with preexisting conditions like cancer buy affordable coverage without distorting insurance markets.

Obama’s plan is basically the status quo plus more regulations, more money, and a Medicare-like option for everyone. It’s a recipe for exploding costs, not containing them. Over the last few weeks, he has also depicted McCain’s plan as leaving people to the mercy of greedy insurers. The truth is that under McCain’s plan, insurers would have to compete for consumers who could buy their own coverage or leave it for something better. By encouraging competition and empowering families to own their own insurance, the McCain plan could cut costs without impairing innovation, give everyone access to at least basic health insurance, and put power in families’ hands, where it belongs. For voters worried about health-care costs going up and paychecks going down, that should be a winning message.


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