Smart conservative health policy analysts have proposed a way to cut the Gordian knot — Remove the tax deduction for health insurance purchases from employers and give it to individuals. This was actually candidate John McCain’s proposal in 2008, though, as Yuval Levin (editor of National Affairs and one of those smart analysts) noted ruefully, “Nobody told John McCain.” As Levin explains, if individuals were given a $5,000 tax credit (fully refundable for those below the poverty line) for the purchase of health insurance, insurance companies would compete to provide excellent coverage for $5,000.
If, in addition, individuals were permitted to shop across state lines for insurance, those states with fewer mandates would be able to offer cheaper plans and would accordingly get more business. Replacing traditional Medicare with premium support would encourage competition in that market, as well.
Writing in National Affairs, James Capretta and Robert Moffit summarized the ideal Republican approach this way: ” … The essential common element is a move toward consumer control. Individuals would become active, cost-conscious consumers looking for value in the health care marketplace. This shift would, in turn, create tremendous incentives for those delivering medical services to find better and less expensive ways of caring for patients and keeping them well.”