Policy Analysis No. 642

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

President Obama and other leading 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 program 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 consumers 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.

Congress should reject proposals to create a new government health insurance program — not for the sake of private insurers, who would be subject to unfair competition, but for the sake of American patients, who would be subject to unnecessary morbidity and mortality.

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Michael F. Cannon is director of health policy studies at the Cato Institute and coauthor of Healthy Competition: What’s Holding Back Health Care and How to Free It.