President Obama says a public health insurance option would give Americans "a better range of choices, make the health care market more competitive, and keep insurance companies honest." Opponents argue that offering Americans the chance to buy health insurance from a government plan will undermine competition, increase costs, and eventually crowd out private health insurance.
Over the past three years, I have researched the track record of numerous health care reform initiatives. Based on that work, I am confident a properly constructed public insurance option will not harm the private insurance industry.
Yes, a public insurance option must be carefully constructed to ensure healthy, long- lasting competition. Participation must be truly optional for both medical providers and consumers. Public and private plans must compete on a fair playing field.
Fortunately, as originally drafted, the leading congressional proposals have passed these tests. The leading bills under consideration require a public insurance option to follow the same ground rules as the private plans they'd compete against.
Most important, the proposed public insurance option will not be subsidized. Each version of the legislation requires a public insurance option to be supported by premiums, just like a private plan. Congress would provide short-term funding to pay out initial claims, but each proposal requires this funding to be paid back with dollars collected through premiums.
The draft House Tri-Committee bill specifically disallowed future government fund transfers from supporting an established program.
It is true that need-based subsidies -- financed with public dollars -- would be available to help cover public insurance option premiums. But these same subsidies would be equally available to pay for private insurance.
Opponents of a public insurance option also argue that "informal" subsidies will unfairly prop up a public offering. AHIP -- America's largest health insurer lobbying group -- notes that public programs today pay less than the private sector for medical procedures. That forces private plans to subsidize the discrepancy. They predict similar cost shifting from a public insurance option, leading to a "death spiral" where everyone moves to government-run plans.
But comparing a public insurance option to existing public programs is comparing apples to oranges.
Here's why: Choice changes everything.
Suppose a public option tries to underpay doctors or hospitals. Under each bill, there is no requirement that a provider accept patients with public insurance if its payment rates are too low.
In that case, patients with public insurance would not find a doctor or specialist to serve them. They'd quickly seek out coverage from a private plan that pays more realistic reimbursements. Who would sign up for inadequate public coverage if they had another affordable choice?
Traditional marketplace forces -- fair competition between competing business models -- will still apply to health insurance.
But suppose medical providers were to accept lower reimbursement rates offered through a public insurance option.
That would put competitive pressure on private insurers to negotiate equal or lower service rates, or find ways to save administrative costs.
On the other hand, the private insurer may choose to charge more by offering a better product, with more benefits or higher quality service.
Again, that is how competition works. In the end, it can only benefit consumers.
Small businesses in particular could benefit from competitive forces in the insurance marketplace.
According to AHIP's "Small Group Health Insurance in 2008" report, Alaska has the highest premiums of all states. The average monthly premium for single employees is $504 and the average for families is $1,329. The national average is $346 for individuals and $913 for families.
There can be little surprise, given these extremely high costs, that Alaska small businesses have been pushed out of the health insurance market. They offer health insurance to their employees at the lowest rate in the nation. Only 25 percent of Alaska businesses with under 50 employees offer coverage. The national average is 43 percent.
Those arguing against a public insurance option say that the private sector is more efficient and does a better job than the government when administering health benefits. If that's the case, they shouldn't fear proving it on a level playing field.
State Sen. Hollis French is a Democrat who represents the Turnagain/Spenard area of Anchorage.
By SEN. HOLLIS FRENCH