I'm a big believer in the profit motive in 99 percent of all cases. If the government decided to open a non-profit hamburger stand, I doubt that it would compete successfully against Five Guys. If it tried to open a non-profit airline, I doubt that it could offer the same value as Jet Blue. Insert joke about General Motors and/or the Post Office here.

The point is, I think the profit motive is generally well worth it in terms of the incentives it creates to cut costs, develop new products, improve customer service, and so forth.

But health insurance is not like those things.

Insurance exists because of the decreasing marginal utility of income: most people would rather have a 100% chance of paying $300 a month than a 1% chance of paying $30,000 a month.

The profits the insurance industry is making, of course -- profits artificially boosted by an enormous backdoor tax subsidy -- don't seem to be buying the customer much of anything in terms of improved service or cost savings. On the contrary, health care costs are rising by as much as 9-10 percent per year, without any concomitant increase in the level of service. If Jet Blue were raising the cost of its fares by 10 percent per year, they'd be out of business.

The reason the insurers are staying in business, though, is because barriers to entry in the health insurance industry are in practice quite high. Insurers benefit from pooling risk. The larger the pool, the better in terms of the insurer's ability to hedge its risk and build negotiating leverage with its providers.

Insurance, in other words, is a volume business, the main requirements for which are that (1) you have a lot of money pooled together and that (2) you've been around for awhile.

There's no obvious reason that the government couldn't provide more for less. And if we are wrong, we would find out soon enough: if the public option can't deliver more bang for the buck than private insurers, it wouldn't gain much market share from them.

What the insurance industry's position reflects instead is ideology: who cares that the federal government could build a better mousetrap? They're the government and that's bad. Their argument is really no more sophisticated than that.

If a libertarian conservative wants to make this argument, more power to them, but they absolutely should not be turning around and suggesting that a public option would raise health care costs. They're saying, rather, that they're morally opposed to the cost savings that would ensue.

It's my belief that private industry is usually able to deliver more efficient outcomes to the consumer than the government could.

But usually isn't always. And health insurance, is one of those exceptions.

This is one of the rare occasions on which the health insurance industry is being honest in saying that a public insurance option would be devastating to them. Yes, it certainly would be. It would provide a chance for the market to work, wiht many small consumers making individual decisions to select the best utility for their money. As it stands now, individual healthcare consumres do not generally make the buying choice as to which insurer they use, they take the option, or at best select from a small handful of options offered by their employer. That is, if they have an option from their employer.

In our current system it is the employers who do the market evaluation and selection, not the individual consumers. The healthcare insurance industry has set up its product lines to cater to employers and other group sponsors, not to individual consumers. They know perfectly well that if consumers had an alternative public insurance option then the private insurers would have to compete by offering something of value to individuals. What a notion! That is not how their most profitable products are designed.

Each insurer has a token plan for individuals, always a great deal more costly than any of their group plans, and generally out of reach or a severe strain for the vast majority of those consumers who cannot get into a group plan. Insurers don't expect to make much money from individual sales, it is the large group plans which rake in the dough. Sure, if you can sell ten individual policies a month you might make enough to get by, but sell one corporate group plan covering 50,000 employees, and now you're talking some serious money. And since your real customer is the HR department at corporate headquarters, you don't have to deliver any real healthcare to keep the contract, just suck up to HR and compete with your fellow megagoliath health insurance companies, who are also into it for the profit, not to enable consumers to actually get any healthcare services.

Yep, a public option would definitely be devastating to private insurance companies. Bring it on!

I would argue that the "public option" is not enough. The primary reason why health care costs have skyrocketed like they have is the increase in the number of medical administrators since 1970. The proliferation of health plans and the need for more hospital billing staff since HMOs began has caused 2500% growth in the number of medical administrators since 1970 according to the BLS.

The cost of this administrative waste is amplified by adverse selection. Government cannot discriminate against unhealthy patients like private industry may. For this reason, sicker patients will join the public option plan and drive out the healthier ones with high prices. These patients will use more services and pay more of the costs of hospital administration. Therefore, I don't believe that a public option health plan competing against private insurers will automatically result in lower costs.

In order to succeed, a public option either needs single payer status or significant subsidies. The single payer option is cheaper, more efficient, and preserves doctor choice better than many HMOs for whom chosing a doctor is like chosing your own parents. Every other industrialized nation runs a single payer system to cover everyone on less money than our government spends now on health care to cover a small niche of America. That is because of administrative savings by having only one plan, negotiated prices, and simplified billing.