Policy Documents

Fannie Med? Why a “Public Option” Is Hazardous to Your Health

July 27, 2009

In this Policy Analysis, Michael Cannon writes that President Obama and other Democrats have proposed creating a new government health insurance program as an option for Americans under the age of 65, within the context of a new, federally regulated market—typically described as a “National Health Insurance Exchange.” Supporters claim that a new government program could deliver higher-quality health care at a lower cost than private insurance, and that competition from a government pro- gram would force private insurers to improve.

A full accounting shows that government programs cost more and deliver lower-quality care than private insurance. The central problem with proposals to create a new government program, however, is not that government is less efficient than private insurers, but that government can hide its inefficiencies and draw consumers away from private insurance, despite offering an inferior product.

A health insurance “exchange,” where con- sumers choose between private health plans with artificially high premiums and a government program with artificially low premiums, would not increase competition. Instead, it would reduce competition by driving lower-cost private health plans out of business. President Obama’s vision of a health insurance exchange is not a market, but a prelude to a government takeover of the health care sector. In the process, millions of Americans would be ousted from their existing health plans.

If Congress wants to make health care more efficient and increase competition in health insurance markets, there are far better options