Urban Institute report on the "public option"

This report argues that the virtue of a public health insurance option is that it offers a plan that can offer reasonable rates to customers because it can impose low reimbursement rates on health care providers. In other words, it uses the government's market power to offset the market power of hospitals. The authors warn that a weak public option (one that negotiates rather than imposes rates) will be in no better position to negotiate favorable rates than private plans, and therefore not achieve much by way of savings. Ditching the public option, on the other hand, will ensure that rates continue to rise at an unsustainable rate:

The outcome is likely to be that costs will continue to spiral upward. In effect, the nation would be relying on the range of promising pilot approaches to cost containment that would take some time to be successful. If they are not, we may be left with increasingly regulatory approaches, such as rate setting or utilization controls that apply to all payers. This would mean much more government involvement than giving people a choice of a low-cost public option that would be required to compete with private insurers.

Liberals might offer those who oppose the public option this alternative: either a strong public option, or treat hospitals and insurance companies like public utilities and regulate their rates directly. I think the regulatory approach would actually be more effective than the public option and would be happy to go that route.