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McCain Relying on Tax Credits to Fuel Wider Coverage, Competition

By John Reichard and Leah Nylen

April 29, 2008 -- The health plan laid out Tuesday by presumed GOP presidential candidate John McCain takes a distinctive Republican approach to overhauling health care while throwing in a few elements that are somewhat at odds with party orthodoxy, although not dramatically so.

The biggest talking point McCain apparently will use to differentiate his approach from the Democratic candidate is that he would put "families" rather than "government" in charge of health care.

The way government handles insurance would change markedly under the McCain approach. In effect, the plan would overturn decades of tax policy that fosters employer-based coverage by allowing companies and their workers to deduct premiums they pay for health insurance from taxable income.

The linchpin of the plan is that McCain would create the option of bowing out of employer-sponsored coverage and instead taking a $5,000 tax credit in the case of families or a $2,500 tax credit in the case of individuals to buy the coverage of one's choice.

That approach would spur competition among insurance companies and at the same time allow a long-term relationship with a doctor by letting people keep their same coverage as they move from job to job, McCain said in Tuesday's speech in Tampa.

McCain's remarks were his most detailed description to date of what he would do as president to overhaul health care. Democrats responded that the plan would—in many cases—lead employers to drop coverage using the rationale that employees would still have the credits available to find coverage.

They said McCain in effect would tax remaining employer-sponsored coverage to pay for the credits, and those using the credits would have difficulty finding affordable options on the individual market, which they say is often either very costly or, if not, has high out-of-pocket costs or benefit exclusions.

People could stick with employer coverage or use the credit to "choose the insurance provider that suits you best," McCain said in his prepared remarks at the Lee Moffitt Cancer Center. "By mail or online, you would then inform the government of your selection," he said. "And the money to help pay for your health care would be sent straight to that insurance provider.

"Millions of Americans would be making their own health care choices again. The health plan you chose would be as good as any that an employer could choose for you. It would be yours and your family's health care plan, and yours to keep."

Changing the Dynamic
With the credit, "millions of Americans would be making their own health care choices again," McCain said. "Insurance companies could no longer take your business for granted, offering narrow plans with escalating costs. 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."

"When Americans speak of 'our doctor,' it will mean something again, because they won't have to change from one doctor or one network to the next every time they change employers. They'll have a medical 'home' again, dealing with doctors who know and care about them."

McCain acknowledged criticism that when the tax credit became available it would encourage people to buy coverage on the individual market while "significant weaknesses in the market remain." Critics "worry that Americans with pre-existing conditions could still be denied insurance," as they are on the individual market, McCain noted.

He responded that the Health Insurance Portability and Accountability Act (PL 104-191) provided "some" protection against such exclusions in 1996. "Even so, those without prior group coverage and those with pre-existing conditions do have the most difficulty on the individual market, and they need to get the high-quality coverage they deserve" he said. McCain said he would address the problem through a "Guaranteed Access Plan" (GAP) that states would offer coverage to those denied coverage on the individual market.

McCain suggested the plan would be based on state experiences with offering "high-risk" pools to people who are otherwise uninsurable.

"The details of a Guaranteed Access Plan will be worked out with the collaboration and consent of the states," he said. "But conceptually, federal assistance could be provided to a nonprofit GAP that operated under the direction of a board that included all stakeholder groups—legislators, insurers, business and medical community representatives, and most importantly, patients.

"The board would contract with insurers to cover patients who have been denied insurance and could join with other state plans to enlarge pools and lower overhead costs. There would be reasonable limits on premiums, and assistance would be available for Americans below a certain income level."

Breaking Down Barriers
McCain also spoke of breaking down the current system in which each state is a separate insurance market with its own regulations. "Each one has its own rules and restrictions, and often guarantees inadequate competition among insurance companies," he said. "We need to break down these barriers to competition, innovation and excellence, with the goal of establishing a national market to make the best practices and lowest prices available to every person in every state."

He also criticized what he called a skewed payment policy. "Too much of the system is built on getting paid just for providing services, regardless of whether those services are necessary or produce quality care and outcomes," he said. "American families should only pay for getting the right care: care that is intended to improve and safeguard their health."

McCain also spoke in favor of a "bundled" payment in which providers share a single payment for treating a particular illness rather than receive reimbursement separately for all the elements that go into treatment. A single payment encourages efficient coordination, he said.

"We should pay a single bill for high-quality disease care, not an endless series of bills for pre-surgical tests and visits, hospitalization and surgery, and follow-up tests, drugs and office visits. Paying for coordinated care means that every single provider is now united on being responsive to the needs of a single person: the patient." Health information technology would flourish under such a scheme of coordination, he said, suggesting that the incentives of a bundled payment to improve efficiency would create demand for the technology.

Familiar Territory
McCain's plan also includes a number of elements central to and consistent with GOP health policy in recent years.

"When families are informed about medical choices, they are more capable of making their own decisions, less likely to choose the most expensive and often unnecessary options, and are more satisfied with their choices," he said.

"We took an important step in this direction with the creation of Health Savings Accounts, tax-preferred accounts that are used to pay insurance premiums and other health costs. These accounts put the family in charge of what they pay for. And, as president, I would seek to encourage and expand the benefits of these accounts to more American families."

Americans should be able to find out what prices doctors charge and how they rate on quality and safety, he said. "Families also place a high value on quickly getting simple care, and have shown a willingness to pay cash to get it. If walk-in clinics in retail outlets are the most convenient, cost-effective way for families to safely meet simple needs, then no policies of government should stand in their way."

McCain added that Congress must pass medical liability changes to eliminate the cost of frivolous lawsuits. "Those reforms should eliminate lawsuits directed at doctors who follow clinical guidelines and adhere to patient safety protocols," he said.

Early testing and screening could lower the nation's cost of chronic care, he said, and in this arena, he favors eliminating co-payments and deductibles for such services in order to promote their use.

"We need to adopt new treatment programs and financial incentives to adopt healthy habits for those with the most common conditions such as diabetes and obesity," he said. "Watch your diet, walk 30 or so minutes a day, and take a few other simple precautions, and you won't have to worry about these afflictions. But many of us never quite get around to it."

McCain has at times criticized the health care industry and some of that emerged in his comments. "Pharmaceutical companies must worry less about squeezing additional profits from old medicines by copying the last successful drug and insisting on additional patent protections and focus more on new and innovative medicine," he said. "Insurance companies should spend more on medical care and less on 'administration.' "

He also is calling for the importation of low-cost pharmaceuticals from abroad as a way to ease access to more affordable medications, a position that puts him at odds with the drug industry.

Critiques Come In
While his stance on tax credits aligns with President Bush, funding those credits involves taxing more generous health care benefits provided by employers, not the usual GOP approach to policy.

AFL-CIO President John J. Sweeney said Tuesday that McCain "even goes so far as to tax people's employer-provided health care benefits. Under McCain, quality health care would become like limousines and mansions—something available only to the very rich."

Roger Hickey, co-director of the left-leaning Campaign for America's Future, said under McCain's plan, "Companies will stop providing health care as a benefit . . .. He does provide us a tax credit—$2,500 for individuals and $5,000 for families—but that is completely inadequate to cover the $11,000 that it costs the average family to buy a plan."

Jacob Hacker, a political science professor of political science at Yale University, said the McCain plan would widen health care disparities among minorities and would not lead to reduced costs. "It threatens to shift costs around . . . [and] doesn't have anything in it that will bring down costs overall," he said. "The really important thing is that everyone has access to high quality care. McCain's proposal doesn't deliver on it."

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