Responding to the concern that setting up a government-run public option insurance plan would inject politics into American health care, public option backers are saying, “Right.  And that’s a good thing.”

A recent Washington Post article reports, “Economists in this [pro-public option] camp say a public option would not under price insurers so as to drive them out of business; political pressures from medical providers would restrain Congress just as it is restrained today from limiting Medicare rates too much.”

The article adds, “And the [public] option’s pricing powers would be limited by political pressures against driving too hard a bargain on providers.”

This is a novel argument; bringing “political pressures” into the private marketplace makes the market more efficient.  I’d sure like to know the names of the economists in the public option camp who say lobbying Congress is a form of healthy market competition.

Ample real-world experience shows the opposite.  Massive government intervention distorts markets, reduces the benefits of competition, and leads to waste, inefficiency and cronyism, not lower prices and better service.

We already have an example from the world of health care.  Every year Congress experiences a political firestorm as it tries to save Medicare from bankruptcy by cutting reimbursement rates to doctors.  The American Medical Association, not surprisingly, vigorously objects and lobbies hard to preserve or increase payments to doctors.

A deal is reached and the controversy is re-scheduled for the following year.  Whether this management technique is saving Medicare or sinking it faster is an open question, but I doubt most Americans want their own health plan run this way.

The current lack of competition in health care comes from politicians, not insurers.  Health insurance is perhaps the most highly regulated economic activity in the country, with price controls, limits on products, extensive reporting rules, a ban on interstate sales, high barriers to entry, unequal tax treatment, and a host of minutely detailed federal and state regulations. 

Congress and state legislatures should

 first repeal the anti-competitive laws that they enacted, and force insurance companies to compete more against each other, before Congress sets up an insurance company of its own.

Another version of the public option idea is for the government to create nonprofit co-ops, like Group Health, but there is no particular policy advantage to health co-ops.

Group Health faces the same problems of health care mandates, malpractice lawsuits, rising inflation and Medicaid cost-shifting as every other hospital.  The only difference is all these financial strains are handled in-house, rather than billed out to a separate insurer. 

Most Group Health members get their coverage through their employers.  So on paper a Group Health member might be called a member/owner instead of a customer, but in practice it functions just like any other insurer – lose your job, you lose your Group Health coverage.

Health co-ops are not an alternative to insurers, for the simple reason that a co-op is an insurer.

The President says that under his plan if you like your current insurance coverage you can keep it.  This is simply not true.  He forgets that most of us do not own our own health coverage, we get it from our employers.

When employers find they can no longer afford to provide insurance they will drop their current plans, which in turn will force workers into the government option plan.

Even the eight million Americans covered by personally-owned Health Savings Accounts would be forced on to the public option, as Congress decides these affordable high-deductible plans do not meet the federally-mandated definition of health insurance.

Public option supporters are right about one thing.  A public option would reduce the cost of private insurance premiums.  It would reduce it to zero, as private insurers go out of business trying to compete against a federal insurance plan that can print its own money.

Paul Guppy is Vice President for Research at Washington Policy Center, a non-partisan independent policy research organization in Seattle and Olympia.  For more information contact WPC at 206-937-9691 or washingtonpolicy.org.