One of the most widely accepted arguments against a government medical plan for the middle class is that it would quash competition – just what private insurers seem to be doing themselves in many parts of the U.S.
Several studies show that in lots of places, one or two companies dominate the market. Critics say monopolistic conditions drive up premiums paid by employers and individuals.
For Democrats, the answer is a public plan that would compete with private insurers. Republicans see that as a government power grab. President Barack Obama looks to be trapped in the middle of an argument that could sink his effort to overhaul the health care system.
Even lawmakers opposed to a government plan have problems with the growing clout of the big private companies.
"There is a serious problem with the lack of competition among insurers," said Republican Sen. Olympia Snowe of Maine, one of the highest-cost states. "The impact on the consumer is significant."
Wellpoint Inc. accounted for 71 percent of the Maine market, while runner-up Aetna had a 12 percent share, according to a 2008 report by the American Medical Association.
Proponents of a government plan say it could restore a competitive balance and lead to lower costs. For one thing, it wouldn't have to turn a profit.
A study by the Urban Institute public policy center estimated that a public plan could save taxpayers from $224 billion to $400 billion over 10 years by lowering the cost of proposed subsidies for the uninsured, while preserving private coverage for most people.
"Right now, there's no incentive for insurers or big hospital groups to negotiate with each other, because they can pass higher payments on through premiums," said economist Linda Blumberg, co-author of the report. "A public plan would have the leverage to set lower payment rates and get providers to participate at those rates."
"The private plans would come back to the providers and say, 'If you don't negotiate with me, you're going to be left with only the public plan.'" Blumberg continued. "Suddenly, you have a very strong economic incentive for them to negotiate."
Insurers contend their industry is extremely competitive, and a public plan is unnecessary. About 1,300 carriers operate across the country, although many only have a small share of the market in their states.
"You can have a very competitive market and still have companies with a high market share," said Alissa Fox, a top Washington lobbyist for the Blue Cross Blue Shield Association.
Fox points to the federal employee health program, which also covers members of Congress. It offers a total of more than 260 options and 10 nationwide plans. Despite all the choices, about 60 percent of federal workers pick a Blue Cross plan.
"Insurers need to be of a significant size to best serve their customers and make sure that people get the best value," Fox said.
Nonetheless, lawmakers are concerned. Big insurers are getting bigger. Small businesses in particular have fewer and fewer options for getting coverage.
Congressional investigators this year looked at insurers catering to small employers around the country. The Government Accountability Office found that the median _or midpoint – market share of the largest carrier increased to 47 percent in 2008 from 33 percent in 2002.
There's widespread recognition among lawmakers that a health care overhaul should foster more competition among insurers. The debate is over how far to go.
The basic framework lawmakers are looking at would encourage competition, even without a government plan. It calls for setting up a big insurance purchasing pool called an exchange. It would be open, at least initially, to individuals and small businesses. The government would offer subsidies to make premiums more affordable.
Consumers would find it much easier to shop for a plan through the exchange. For one thing, they would be able to readily compare benefits and premiums in different plans. Also, participating insurers would have to take all applicants and not charge higher premiums to those in poor health.
Offering the option of a public plan would supercharge the competition, supporters say.
Blumberg envisions a plan that pays medical providers more than Medicare, but less than private insurance. Her study estimated it could grow to 47 million members, leaving 161 million with private insurance. Even so, that would make the new public plan one of the largest insurers in the country, rivaling Medicare, Medicaid and big private companies such as Wellpoint and UnitedHealthcare.
It's a scenario that gives pause even to traditional adversaries of the insurance companies.
"The fear and concern is that the public plan could become the market-dominant plan," said Dr. James Rohack, president of the American Medical Association. "When you've got the federal government involved, it can infuse money into a plan to keep it solvent even if the premiums are lower than its actual costs."
Snowe, among the few Republican senators still trying to come up with a bipartisan compromise, wants to hold back on creating a public plan for now and give insurers one last chance to show if they can keep costs in check.
That's doesn't go far enough for liberals, who are loath to give the insurance industry tens of millions of new customers supported by taxpayer subsidies.
"It would give the industry a windfall without any countervailing force to require them to lower their costs," said Richard Kirsch, national campaign manager for the advocacy group Health Care for America Now. "The insurance companies could continue to jack up premiums while getting a whole new market."