On the day Sen. Max Baucus begins health care hearings, the Washington Post runs what amounts to a shot across the bow from key Democratic client groups: don't punt on a public plan. What's the story behind the story? Read on.
Without dismantling the system, there are two ways to extend health insurance coverage in the near-term. One way is to create a government-sponsored plan that would be able to compete with those offered by private insurers. The government would give the plan away for free to those who can't afford any insurance, and would heavily subsidize it for those who can afford to pay something. Administratively, the government could simply expand and add money to Medicaid. The second way would be to require that insurance companies offer affordable plans and then provide direct subsidies for people to buy the private plans. There'd be a public alternative, but it wouldn't be large enough to set the market price, as it were. As President Obama regularly emphasized, Congress is likely to keep the employer-based health care system alive for a while, but, if reformers like Jacob Hacker and the Lewin Group have their way, add to it well-funded government components and alternatives that, over time, will drive down costs and provide a source of pressure and competition. A market for insurance policies would be the end-result. (Jonathan Cohn explains the different between a real public plan and a quasi public plan here.) Politically, Obama wants all stakeholders to agree on a solution. So he's been very coy about what he thinks Congress should do first -- the private insurance subsidy part or of the public plan.
I think saying Obama, "wants all stakeholders to agree on a solution" is assuming a bit much. It's simply impossible to cut costs to the extent necessary and avoid damaging the bottom line of one stakeholder or another simply by increasing the size of the insured pool. Our overpayment is someone else's profit.
I think the best solution would be a subsidy based on age/income that can go either to a public or private solution, with the public option being funded entirely by that subsidy and individual premiums, forbidding screening applicants by anything other than age, and requiring that private plans meet or exceed the federal standard of care. Also, eliminate state health insurance regulation (and preferably all state health regulation while you're at it since everyone's work is double checked by the feds anyway). Put anyone who wants to play on an equal footing with the Feds and tell them to put up or shut up on proving that the market will drive down prices.