I've always found this an odd assertion: that the only way to keep the private plans running well and playing fair is to have a government-run plan. Isn't regulation a better way of keeping the private plans honest?
For Republicans and moderate or conservative Democrats, the mention of a public plan makes them nervous. There are fears that a public-plan will under cut private plans in price and effectively run those insurers out of business, leaving a defacto single-payer system in the United States.
Such a prospect is fine with liberal Democrats who have no love for the current system. The liberal base of the Democratic Party has long championed single-payer ala Canada, and Obama might be sneaking it in through the back door.
Clive Crook has a good article in the Financial Times about the prospect of a single-payer system in the US. Even though I am not a fan of single-payer, Crook does a good job of showing its benefits which are appealing:
In my view, there are worse things than Medicare for all – and the present system might be one of them. Medicare for all would give the US truly universal coverage and better control of costs. It would preserve choice of doctor and hospital, and private insurance for supplementary services could co-exist for those who wanted it. The demise of employer-provided plans would make labour more mobile and relieve workers of the worry that losing their job means losing their health insurance.
So a health care system based on Medicare could control costs, provide choice, and make health care more portable. All good things.
So, what are the down sides? Crook continues:
A less obvious objection is that a healthy private insurance market is worth preserving. The seething hatred many Democrats – and many other Americans of no fixed ideology – feel for private health insurers ignores the value they bring – and the extra value they could add if their incentives were better designed and their customers had the information they needed to make intelligent choices.
If competition is a good thing, competition among insurance providers is a good thing too. Yes, abolishing it reduces one kind of lump-sum administrative overhead, which is all some Democrats seem to care about. But it also abolishes pressures for innovation and other kinds of cost reduction. In other industries, competition pays for itself in spite of the apparent waste of marketing and other forms of duplicated effort. Healthcare is different – but not that different. At the very least, one should pause before shutting competition down.
So, a single-payer system could impede innovation which could also slow cutting costs. Not so good. Crook goes on to note that the whole "keeping them honest" line would mean that the public plan would have to play hardball: using its might to force down payments and make the market less competative.
In the end, I think that if the President want to keep the private insurers honest, then he should as Crook argues, favor a regulated private system, something I support. If they really think the government should be running the show, they should just say so and give good reasons why such a route is better.