Without a 'public option,' what will keep insurance companies honest?

Today's topic: Providing health insurance for all and subsidizing premiums for the working poor would create a huge influx of business for insurers and providers. But analysts say that a significant percentage of the local markets in the U.S. are dominated by a single insurance company or healthcare provider. Without a "public option" plan, what's to guard against windfall profits by those dominant firms?

Break local monopolies by letting insurers compete across state lines
Point: Michael F. Cannon

“Fannie Med” is all but dead. Good riddance.

President Obama's "government option" had no business being part of health reform. It was more radical than the Clinton health plan, which the American people soundly rejected. Of course the government's special advantages would drive private insurers out of business, a point that honest supporters readily admit. But the real problem is that the government plan would have increased costs and suppressed quality for all patients, publicly and privately insured.

What's more, the votes just aren't there. Somebody tell Democratic Sen. Max Baucus he can stop performing CPR. Have GOP Sen. Olympia Snowe call the time of death. And let's move on, because there are real solutions to be had.

Though misguided, the government option tapped into palpable frustrations. Private insurance doesn't provide the affordable, secure coverage that consumers want. Invariably, the problem is inane government policies that protect insurance companies from competition.

Why do insurance companies sell to employers rather than compete for every last consumer? Because unless we surrender our earnings and our coverage decisions to an employer, the federal government hits us with a major tax penalty, as we must use after-tax income to buy individual polices (as opposed to the before-tax paycheck deductions employers make to pay for coverage). The fact that most health insurance disappears at the moment we most need it -- when we lose our jobs -- is just one indication the system is rigged to serve someone other than us.

Let the workers control those earnings and choose secure health plans, and we will ruthlessly drive from the market insurers who overcharge us or shirk on their commitments to care for the sick. As the president recommends, there are reforms that can get us there gradually, with minimal disruption.

Obama says there isn’t enough competition among insurance companies. And he's right: Each state protects its domestic insurers from competition by barring entry to products licensed by other states. If you live in California, you can't buy a less-expensive policy available in Nevada.

According to one estimate, Congress could extend coverage to about a third of the uninsured simply by sweeping away those barriers to interstate competition. It wouldn't even have to raise taxes or create a single new government subsidy.

If one new competitor would “keep insurance companies honest,” imagine what dozens of new competitors would do.

Instead of holding the insurance companies' feet to the fire, however, Democrats plan to enact rules that the incumbent insurers want -- rules that would further protect them from competition.

The House and Senate legislation would make health insurance compulsory for most or all Americans, with heavy subsidies to help them afford it. Handing private insurers a guaranteed and heavily subsidized customer base would amount to an unjustified windfall for an industry that isn't exactly struggling. Regulations on pricing and benefits would further protect insurers from competition by standardizing product design.

Is it any wonder the insurance companies support compulsory health insurance?

Everyone from libertarians to single-payer advocates can agree: We should be getting more out of private insurance companies -- not putting more into them.

Michael F. Cannon is director of health policy studies at the libertarian Cato Institute and the coauthor of "Healthy Competition: What's Holding Back Health Care and How to Free It."

Tired partisan talking points on the public option
Counterpoint: Larry McNeely

The Cato Institute generally provides a thoughtful libertarian policy perspective for our nation's policy debates. That's why I'm particularly disappointed, Michael, that you began our conversation by rehearsing partisan talking points, claiming that a strong "public option" would increase costs despite reputable analysis from the Congressional Budget Office and the Lewin Group that indicates the opposite. It's this kind of repetition of opinions as facts that has coarsened the debate so far this year.

The truth is that competition in a well-regulated market can deliver lower costs and better quality, and it would break the near-monopolies by which one or two companies dominate many states' health insurance markets.

Despite the scare tactics and distortions flying around the right wing, giving consumers a public alternative to the big private insurers would increase competition, and then some. This is so because the public option plan fundamentally shifts the rules of the insurance game. It's a game-changer.

The new public health insurance plan would be structured to emphasize prevention, primary care and care coordination, all the cost-savers that today's broken insurance market has failed to encourage.

With the added competition and strong insurance market reforms, insurers wouldn't be competing based on how efficiently they can deny care to their sicker beneficiaries. Instead, they would be forced to compete for your family's premium dollars by delivering better care at a lower price.

It's discouraging, Michael, that you seem unable to get behind a sensible policy that would help lift the burden of rising costs from consumers, families, businesses and the country, but you do propose one alternative: the sale of insurance across state lines. Insurance companies might love this idea, but it really doesn't work for the rest of us.

Right now some states have banned preexisting coverage denials and other forms of discrimination. Your proposal would give out-of-state insurance companies a pass on these vital, state-level consumer protections, creating a race to the bottom in consumer protection (click here for Families USA's report on this). Americans want more protection from the insurance behemoths, not less, and your proposal would leave consumers out in the cold.

Last, there's a little fact that you and others seem to "forget" to remember: Any public option with a chance of passage would have to support itself in the same way that private plans do -- through customers' premiums. I look forward to explaining this tomorrow.

Larry McNeely is the healthcare reform advocate for the U.S. Public Interest Research group.