John McCain yesterday described just enough of his health care proposal to illustrate why his ideological addiction to unfettered markets cannot solve America’s health care crisis. Not only would it fail to cover everyone, his proposal could effectively strip millions of Americans of the employer-based coverage they now have without any certainty that what replaces it would work or be affordable.

McCain proposes that we replace the current employer-provided insurance system with individually acquired private insurance. It’s analogous to Bush’s plan to undermine Social Security and replace it with private retirement plans.

The proposal is premised on an ideological fantasy that competition between private insurance providers will lower costs while excluding only a few — like the millions with preexisting conditions that Elizabeth Edwards talks about (h/t JimWhite) — who McCain claims will be rescued with some still undefined plan the feds will negotiate with the states — sorta like the SCHIP that McCain opposed? (h/t cbl2)

People are not likely to switch voluntarily from an employer-based system to individual policies, so McCain would force the transition; he’d discourage employers from providing insurance by repealing the current tax deduction companies get for their contributions to employee plans. McCain hopes that many companies would then cease to contribute to such plans, because it’s just a cost with no offsetting tax incentive. McCain would then give each family a tax credit of $5,000 (half that for individuals) to help them purchase private insurance.

McCain claims this transfer would increase competition between insurance plans and thus drive down costs. But insurance companies already compete in offering plans to businesses for their employees; it’s likely that cost conscious businesses are already doing a decent job of shopping for the most attractive plans. It’s hard to see how competition for individual plans would be more effective, and we’d have to worry about scams, just as we’ve seen in the individual mortgage market.

McCain’s economic advisers also claim his approach would not significantly raise government costs, but this assumes the proposed tax credits would cost the treasury only a few billions more than the current expense deductions for businesses. However, Kaiser Foundation estimates in the NYT article suggest that the typical cost of private insurance — over $12,000 a year — would be more than double the tax credit McCain claims would be enough. So there would be no guarantee that everyone covered today by their employer plans would obtain private insurance at all, or insurance of equal value.

The current system lets 47 million uninsured people fall through the cracks, because they’re either not employed or their employer doesn’t offer/help pay for insurance, or because private insurance is too expensive, or because they’re not eligible for any of the government sponsored/Dick Cheney plans. McCain’s tax credit might enable some of these to obtain private insurance, but his credit is probably not enough to reach most of the uninsured.

Moreover, being "insured" isn’t enough, because insurance companies refuse to cover pre-existing conditions or decline payment for treatments they deem medically unnecessary or overpriced. Delays and hassles in securing payments also effectively deny coverage and discourage people from seeking needed treatment. In other words, the insurance companies ration health care and exercise market power to control their costs, while passing uncovered costs on to you. McCain essentially ignores this problem by assuming having insurance is the same as getting care.

The Republican bogeyman is that Democrats want government to control your health care system, but they neglect to mention that the current system allows profit-driven insurance companies to control it; they ration health care, deciding which treatments are covered and by how much. You have no more control over that than you would under a government sponsored program, but the insurance companies have no incentive to make sure you get health care; at least the government might be given that mandate, even if it were also assigned rationing/price setting responsibilities.

The concept that’s still missing in our non-existent health care debate is that some institution — insurance companies, government, or "the market" — must perform these rationing/price setting functions. If "the market" McCain worships did this, rich people would receive all the best care they wanted and the poor would receive little or nothing, with everyone else somewhere in between. The result is not unlike what we have today, except we subsidize the very poor and elderly and the insurance companies act as profit maximizing administrators to ration care for the rest of us.

The bottom line: McCain hasn’t even tried to achieve universal coverage, or even coverage for today’s uninsured children. His mechanisms for controlling costs are ideological fantasies. McCain’s tax changes — from business deductions to individual credits — would be a radical experiment, with no assurance it would work, serious doubts that it would be paid for, and no solution for the fundamental problems of relying on the private insurance industry to ration health care and control prices. It’s extremely unlikely Americans would be better off, but quite likely the transition would be a mess. However, the insurance companies would love it.