The Bottom Line: Gov't control of health care carries too much risk to the patient

Much of the current debate on health care reform centers on the question of whether to include a government-run health insurance entity, colloquially referred to as the "public option." President Obama initially triumphed the idea (yet now has backtracked somewhat) and Speaker Nancy Pelosi and many ranking members of Congress have also expressed support for it -- claiming that it is essential to reforming health care. Although many are already claiming that the end of the public option is looming, it still remains a possibility. Such a radical and new innovation to our health care market deserves a careful assessment of the economic ramifications of its enactment. The main argument given in support of the creation of a public option is to create and provide competition in a world now dominated by private insurance companies, thus making health care more affordable for everyone. This point is well-founded considering competition among health-insurance providers can be improved and the lack of this proposed alternative is partially to blame for the exponential rise in health care costs.

However, can a public plan succeed in bolstering competition? Economists have long noted that when something can be provided by the market (the private sector), the government seems it cannot do a better job. For example, the United States Postal Service cannot keep pace with the likes of UPS or FedEx, and public schools consistently display lower performance results compared to most private schools. Economist Milton Friedman once remarked, "If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand." It is for this reason that we do not have government-run grocery stores to increase competition.

Since the potential benefits of a public option are slim to none, what risks would we take in creating one? This has everything to do with whether the public option will, first, have access to taxpayer funds, or second, properly force health care providers to accept a lower than market payment. As of now it is unclear whether it would have these features. If not, the public option will remain small and negligible. If it does have these capabilities, however, it can end private insurance for good. In any market, competition works as firms develop new ways to deliver the best quality product at the lowest price. However, a government entity can undercut competition without providing better goods or services for a lower price. As sociologist Max Weber noted, the government is the only institution in society which uses force. Whereas in a private industry, a firm must try to win over the dollar of the consumer to turn a profit.

A public option could rely on tax dollars to stay afloat. Investors operated under the assumption that Fannie Mae and Freddie Mac (government-sponsored enterprises like a public option would be) would receive public support if they faced financial trouble. Now, Fannie and Freddie are still alive in spite of their atrocious business decisions. Also, private insurers must pay the price given by health care providers but a public option could force health care providers to accept a lower-than-market payment like Medicare does. Doing so only stifles innovation and increases costs for everyone else as those providers must make up for lost revenue. These unfair advantages would only lead to a government-monopoly of the health insurance market.

If such a plan were enacted, millions of Americans would be immediately forced onto it. Health care costs employers more and more per worker each year and if a public option becomes available, then many employers would be inclined, in my opinion, to drop coverage for a significant number of people. With such unfair advantages, a government-run health insurance entity could quickly become the sole insurer for all Americans.

Such a system is desirable for many who believe health care to be an inalienable right but with economic consequences thatwould be disastrous. Monopolies fail at developing new and innovative ways to lower prices and increase quality. Instead, costs would be controlled via restricting the supply of health care. The public health insurers we do already have Medicare and Medicaid are already threatening to drown us in debt.

There are much better ways to increase competition and drive down the cost of health insurance without the creation of a public option. If Congress is serious about reform, they should instead look at ways to enhance the insurance market, not undercut it.

For example, Americans could be allowed to purchase health plans across state lines, states could decrease the number of mandates on health plans and we could cap punitive damage awards. However, a public option carries with it far too many risks that outweigh the few benefits.