Senator John McCain (R-AZ), the Republican presidential nominee, has proposed an ambitious health care reform agenda. His plan focuses on four key objectives: making health insurance innovative, portable, and affordable; ensuring care for high-risk patients; lowering health care costs; and confront­ing long-term care challenges. These goals are meaningful, and McCain's policy measures would advance greater personal choice and control in the health care system.

The McCain health plan tackles the fundamental problem in the current system: the tax treatment of health insurance. Equalizing the tax treatment and financing of health care is the first step to realigning the incentives in the system to provide consumers with better quality care at lower cost. His plan also works to expand coverage options for Americans by promoting competition in the insurance market and partnering with states to develop solutions for those who are hard to insure.

Finally, the McCain plan focuses on improving value and lowering costs through delivery reforms. However, crucial details are missing. Such delivery reforms could prove counterproductive if they are implemented in ways that undermine personal choice or lead to more government control of per­sonal health care decisions.

Key Reforms. The McCain health plan proposes three fundamental reforms that would change the financing of health care and reform the health insur­ance market to give families more control of per­sonal health care decisions:

1. Equal tax treatment for health coverage. The Senator would replace the special tax breaks for employer-based health insurance with a univer­sal system of health care tax credits for the pur­chase of health insurance. These health care tax credits of $5,000 for a family and $2,500 for an individual would be indexed annually for infla­tion and would be available to Americans regard­less of income, employment, or tax liability. Even prominent critics concede that such a tax change is a principled and far-reaching proposal. This change alone would lay the groundwork for unprecedented consumer choice and competi­tion in the health care sector.
   
   
2. Health insurance competition on a national scale. Currently, only federal workers and retir­ees in the Federal Employees Health Benefits Program benefit from competition among pri­vate health insurance companies on a national scale. In sharp contrast with almost every other sector of the economy, competition across state lines in health insurance is virtually nonexistent. The McCain health plan would change this by allowing individuals and families to buy health plans domiciled and regulated in other states. This would both expand personal options for affordable coverage and force health insurance companies to compete directly for consumers' dollars on an unprecedented scale.
   
   
3. Federal assistance to the states to cover vul­nerable populations. The Senator envisions a large role for state innovation and experimenta­tion in health care financing and delivery, but he would provide safety-net funding to ensure cov­erage of the most vulnerable populations: the hard-to-insure and the uninsurable. McCain's Guaranteed Access Plan would provide federal assistance to the states to secure access to health insurance coverage through state high-risk pools or similar arrangements. His plan would also encourage expanding coverage options for Med­icaid enrollees and veterans.

Beyond these major reforms of health care financing and insurance, Senator McCain would also promote specific initiatives to increase the value and reduce the cost of services that individuals and families receive for their health care dollars. These initiatives include promoting the use of health infor­mation technology, care coordination and disease management for chronic diseases, transparency of price and quality information, broad application of payment reforms for doctors and hospitals in gov­ernment health programs, greater use of generic drugs, and use of alternative and less expensive medical facilities for routine care, such as walk-in clinics. He also supports enacting medical liability reform to reduce frivolous lawsuits and defensive medicine in the medical profession.

However, it is unclear exactly how these delivery reforms would be implemented and where he would draw the line between federal action and pri­vate initiative. This is a legitimate concern. These policies need to be clarified to ensure that they do not expand the role of government or discourage innovation in the private sector. Focusing on the primary goals of financing and insurance reform would go a long way toward improving value with­out additional government intervention.

Conclusion. Senator McCain's vision for health care reform is underscored by a principled commit­ment to personal freedom. He focuses on reforming the system to empower individuals and families to make health care decisions and to control their health care dollars.

At the cornerstone of his plan is reforming the tax treatment of health insurance, long a fundamen­tal obstacle to promoting a more consumer-based health care system. The McCain plan would replace the current tax exclusion for employer-based cover­age with a fairer, universal refundable tax credit that would enable Americans to purchase health care coverage of their choosing. The health care tax reform is coupled with a proposal enabling individ­uals to purchase health insurance from any state in the Union, dramatically expanding coverage options, and opening up interstate competition in health insurance. Finally, the McCain plan would establish a partnership with states to help address the insurance needs of hard-to-insure individuals.

The McCain plan also proposes a variety of deliv­ery reforms, albeit with few details. It is critical that these reform efforts not lead to greater government interference in or control of the care and services available to Americans. Such efforts could compro­mise the doctor-patient relationship and under­mine personal choice.

Robert E. Moffit, Ph.D., is Director of and Nina Owcharenko is a Senior Policy Analyst in the Center for Health Policy Studies at The Heritage Foundation.