Matthew Yglesias gives a pretty standard defense of a public health care plan:
A public option that strives to achieve public goals—quality care at an affordable price—will challenge private industry to do a better job. Then competition between plans will drive improvements in quality and efficiency. Without a public option, the risk is that private plans will compete by trying to screen out sick patients. That’s a viable root to private sector profits, but it does nothing to improve quality or control costs.
Yglesias treats “quality and efficiency” and “screening out sick patients” as mutually exclusive routes to profit. But they are not. The free market is not simply satisfied with one source of profit to the neglect of others. Firms will try to cut both kinds of costs – the costs of treating the sick and the costs of treatment in general. They make more money that way.
A public plan does not solve the dilemma of paying for sick policy holders. If the private market prices them out into the public plan, the public plan will be forced to pay for its higher average patient costs through premiums or subsidies. When the public plan raises premiums, the healthy will flee to cheaper private plans, perpetuating the cycle. When it subsidizes the treatment of the sick, it does not “control” costs (in fact, a subsidy incentivizes more consumption of health care, increasing overall costs), it justs forcibly redistributes them.
If there is truly no competition in the health care market (a possible explanation for “buried treasure” health care profits – all we have to do is start digging), the most likely culprit is the maze of state regulations that segment the national market and shackle insurers with mandates. The actual solution to this problem is to break down state barriers and reduce the number of regulations and mandates – but this answer does not lead to a redistributive system, so progressives will ignore it.