Public Option Could Drive Out Private Insurers

Published October 9, 2009

While Senate Majority Leader Harry Reid (D-NV) and other supporters of the proposed public option, a government-backed health care plan that would compete against private insurance plans, claim it will help keep the private insurance industry “honest,” opponents raise concerns it would set up an uneven playing field.

“Introducing a new government plan into the health insurance market would distort the market,” said Grace-Marie Turner, president of the Galen Institute in Virginia. “The government would enter the game as both a player and as the referee, with the ability to change the rules of the game in order to make sure the government comes out the winner.

“Private companies could not compete with a government plan that receives huge taxpayer subsidies in start-up funds, has the ability to set prices, and has federal policing authority,” Turner said.

Undercutting Private Industry

Turner believes having the government compete in a national insurance exchange would put private industry at a huge disadvantage.

“Private health insurers would survive in name only, with consumers offered the same government-defined benefits packages at rates the government sets,” Turner explained. “The result would be lower quality care, higher taxes, and less choice. The real loser in this scenario would be the consumer.

“If the new public plan were open to all Americans and it paid doctors and other care providers at the same rates Medicare pays them,” Turner noted, “88 million people—or more—would lose the private health insurance they have now as employers switch them into the new government-run plan.”

Private health insurers cannot survive the competition from the government plan, says Sally Pipes, president of the Pacific Research Institute, a think tank in California.

“The public option will lead to the demise of the private health insurance industry, even as polls show about 82 percent of Americans like the health coverage they have and do not want government to be their health care provider,” Pipes said.

Pipes believes the Obama administration ultimately wants the public option, a “pay or play” mandate on employers, a national insurance exchange, and a government-established Comparative Effectiveness Council—and that insurers will ultimately cooperate in getting those elements passed.

“I think the industry should be very careful about supporting proposals that place more controls on it, such as eliminating lifetime limits, price differentials based on behavior, and price differentials based on medical history,” Pipes said. “In essence, the insurance industry would become a regulated utility, which is not in the best interests of the American public and their health.”

Sarah McIntosh ([email protected]) teaches constitutional law and American politics at Wichita State University in Kansas.

For more information …

U.S. HR 3200: