Hope for U.S. healthcare?

It is good news for his candidacy if Mr. McCain is making space now for political creativity and policy risks. Last week he laid down an economic plan, even venturing to Democratic redoubts like Youngstown, Ohio, and New Orleans's Ninth Ward. Now he has returned to his health-care reform, based on market principles and increased consumer choice, which he first outlined during the primaries.

He contended that the health insurance and delivery system is in fact failing many Americans – but that it was failing because of market distortions mostly created by the government itself. Fixing these irrationalities would both make insurance more affordable and increase overall coverage in the bargain. Nor would it require the vast new entitlement programs Democrats are eyeing.

His major proposal would change the tax treatment of insurance. To review: Today's tax code permits businesses to deduct the cost of providing insurance to their employees, but it doesn't do the same for individuals. This creates third-party payment problems; workers aren't aware of the full, true costs of many treatment decisions, part of the reason the U.S. has double-digit health-care inflation. And it makes insurance less affordable for everyone outside the employer-based system, who must pay with after-tax dollars besides. Mr. McCain would correct this imbalance with a refundable tax credit, restoring the parity of health dollars.

As the Senator argued, coverage shouldn't be "limited by where you work" and said that "Americans need new choices beyond those offered in employment-based coverage." Focusing on equity is a canny political argument. For those who don't get insurance through their employers, the current system is patently unfair. As the private market for health insurance became revitalized, everyone else would be more liberated from their bosses' system. A significant portion of the uninsured population at any given point is people who left or lost employment; but portable individual policies would follow them from job to job.

That's a broader political and economic argument than the exclusive liberal concentration on the uninsured. Mr. McCain is saying that the health-care system isn't working as it should, or delivering the quality it should, for the large majority of Americans. "The real reform," he noted, "is to restore control over our health-care system to the patients themselves," introducing more competition on price into the system.

It's true that individual subsidies might be required for some people with severe chronic illnesses who might have a harder time finding private insurance in this kind of world. So Mr. McCain sharpened his proposal for high-risk pools to cover "uninsurables," building on current insurance experiments in about two dozen states. Such provisions are crucial to a functioning market but also blunt a political liability that Democrats were eager to exploit in the fall's debates, suggesting that Mr. McCain is preparing to frontally assault liberal health-care assumptions.

If Mr. McCain's plan is short of ideal, the innovative portions outweigh its false lunges. It also energizes the intellectual progress conservatives have made in recent years in their health-care thinking. Not least, it marks significant progress for Mr. McCain, who often hasn't seemed as engaged with domestic policy as he ought to be. Fortunately, it looks as though the curtain is rising for a necessary debate about the role of government in health care.