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"Public Option Will Kill Off Competition" by Rep. Ed Royce

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Washington, July 14, 2009 | comments

The following op-ed by Rep. Ed Royce appeared in today's Investor's Business Daily.

Over the past year we have seen a fundamental shift in our economy. With the government holding a significant stake in many of our banks, insurance and auto companies and looking to extend its reach into our energy sector through ill-conceived cap-and-tax legislation, it appears we are entering unchartered waters.

Considering the precedent that has been set, it should come as no surprise that those behind this shift toward a politically controlled economy have set their sights on our health care system.

One proposed "solution" to the palpable problems in the health care sector aims at injecting Washington directly into the market through a government-backed insurance alternative. According to the advocates of this approach, it will "encourage greater competition" in the market and "drive down costs" throughout the system.

However, recent history suggests nothing could be further from the truth. A government-backed insurance provider will kill competition within the health care sector; it will quash the great progress made in our medical industry and inevitably lead to taxpayers paying down the road.

It was not long ago that we were talking about the manipulation of the mortgage market by government-sponsored enterprises Fannie Mae and Freddie Mac.

For years their perceived government backing let Fannie and Freddie borrow at rates reserved only for branches of the federal government.

This government backing eventually led to the formation of a duopoly in the secondary mortgage market and prevented other (fully private) firms from entering Fannie and Freddie's territory. This failed public-private experiment, with the resulting arbitrage and overleveraging of 100-to-1, was at the heart of our mortgage meltdown and the ensuing economic downturn.

Another compelling illustration of what happens when government competes in a private market can be found in Florida's homeowners' insurance market. In 2002, the state formed Citizens Insurance to offer homeowners' coverage to residents that "fell through the cracks" in the existing market. After a few years in business, Citizens — created to be the state's insurer of last resort — quickly became that of first resort.

Today Citizens is the largest provider of homeowners' insurance in Florida, dominating the little competition that remains by charging below-market rates that fail to reflect the given risk. It should be no surprise that Citizens is not actuarially sound and if (when) it runs into financial trouble, the taxpayers will be asked to pay for their mistakes.

Fannie, Freddie and Citizens Insurance have taught us a resounding lesson: Government-backed competition in a private market undoubtedly distorts markets, drives out competition and often leads to taxpayer assistance down the road.

Should a "public option" be inserted into the health care market and perform like other government programs, 120 million Americans would lose their current coverage, according to actuaries at the nonpartisan Lewin Group. It's not hard to foresee employers dumping their private provider in search of less expensive, government-subsidized coverage.

Certainly problems must be addressed throughout our health care system. Paralleling the rising prices in the sector are skyrocketing costs for professional liability insurance faced by hospitals and physicians. Addressing medical liability reform would be a good first step toward lower prices.

Additionally, the uninsured weigh heavily on our infrastructure and are a significant contributor to the escalating cost of coverage. Tax incentives and market enhancements, which will lead to greater consumer choice, will encourage millions of the uninsured to get coverage for themselves and their families.

Further, improving the operation of tax-exempt health savings accounts and flexible spending accounts will increase access to everyday medical expenses and lower costs across the broader system.

But for all of its flaws, our health care system is still the finest in the world. From birth to death, we value and care for life.

As a former president of the American Medical Association, Dr. Donald Palmisano, eloquently noted, surgeons today can perform lifesaving heart surgery on a child that is still in utero, and end-of-life specialists can provide compassionate palliative care to seniors to ensure their last days are spent in comfort. This system did not magically occur, but it can certainly vanish.

To reorient the health care sector toward Washington and away from a market-based system would be a grave mistake. Government does not compete in private markets; it dominates by undercutting everyone else.

Instead of empowering bureaucrats, we should empower doctors and patients through market-based changes to our existing system that will enhance consumer choice and encourage greater competition.

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