Over the weekend, the liberal blogsphere had a bit of a freak-out with news that Obama seemed to be dialing back his support for the “public option” – a non-profit insurance provider which would compete with the private insurers. The industry and the Republicans were utterly opposed to this, primarily because they feared it was a stealth single-payer plan – they argued that if the government gave any subsidy to it, then that would be tantamount to an unfair competitive edge which would drive the private insurers out of business, leaving only the government as an insurance provider. Of course, Obama provided numerous assurances that he believed the public option should be a genuine entrant in the market and would not be subsidized in any way, but that was largely irrelevant because the opposition here is more ideological than practical.

Note that since Republicans are intricately (and in the case of the Senate, one might even say disproportionately) involved in the drafting of the health reform bills, they would be in a position to ensure that a public option would indeed be constrained and bound to play by the same rules as the private sector. So, if they were genuinely supportive of the public option but opposed it because of the competition concern, they could have easily made it happen by working with Democrats in bipartisan fashion. It is clear that the public option was a nonstarter with the GOP not because of concern it might cannibalize the private sector, but because they feared that the public would, when given a fair choice between for-profit and non-profit insurance, actively choose the public option themselves.

Fear of citizens’ choices. That’s the key here. For all their rhetoric about markets, Republicans are genuinely afraid of what an open market and honest competition might mean. This is why they opposed giving the government the power to negotiate drug prices when Medicare Part D was passed, and why they are so committed to insurance industry protectionism now. The reason for their fear is again, ideological – the “death panel” rhetoric from Palin was essentially an attempt to deny seniors the ability to make choices about their end of life care, because some might choose to sign DNRs rather than be kept alive indefinitely on a machine. Despite the constrant vitriolic accusations from Republicans that Democrats are the “mommy party” intent on imposing a “nanny state” upon America, it’s the GOP that has been intent on restricting consumer choice in the health care debate. They aren’t content to modify health insurance reform but they want to kill it outright, preferring the status quo – a status quo, mind you, in which health insurance is tied to employers, in which there are monopolies on insurance providers by region, and in which insurance companies are able to deny coverage or even drop coverage from paying customers as they see fit.

The reason that many liberals favored it, rather ironically, was the ideological conviction that the government plan would be superior to the private insurers, which is true if you compare it to the status quo. But what about private insurers when the industry is regulated by the proposed reform? Suddenly, if everyone can choose health insurance freely in the exchange, and choose between different private insurers at will, then the very real market forces that conservatives pledge blind fealty to and liberals pledge implacable hatred for, are genuinely relevant. With regulation of the industry done right, we don’t actually need a public option. And the other reforms we are talking about – especially denial of coverage for pre-existing conditions, or refusal to pay for claims, or the lack of agenuine minimum sandard of care in coverage – are the ones that are genuinely needed, which are far more important than an ideological commitment to a public option (which *will* be bound by the same rules as the private industry – as the President himself demands, and which the Senate would assuredly ensure).

Further, consider that an insurance company can play by the rules, but still make life difficult for its customers. Perhaps not enough to deny them the coverage they are entitled to, but enough so that the customers may “choose” to go with someone else. Recall that the insurance industry works by essentially subsidizing the cost of sick peoples’ care with the premiums from the healthy; the higher the ratio of sick/poor, the lower your profits are. Thus it is in the best interest of the insurance industry to “incentivize” sick people to go to someone else’s plan. The existence of a public option might well make it ironically easier for the industry to force consumers out and dump them on the public option. This would mean the public option would either have to raise premiums (which would hurt the formerly uninsured who flocked to it), eat the losses (requiring government bailout, ie subsidy, wich would probably be illegal in the reform bill), or (most likely) pare services down to the minimum. This would eventually evolve into a two-tier system of health care, similar to what we have today, except more expensive as the inevitable operating expense of the public option owuld become a huge budgetary drain on the public coffer (and lend plenty of ammunition to Republicans for bloated government arguments as well).

I think that there’s plenty to like about the idea of a public option, but I believe Obama was right to call it a “sliver” of the eventual much-needed reform. There isn’t a single health insurance horror story that I’ve heard yet (and believe me, arguing in favor of health reform as I do on various conservative forums, I’ve trotted out quite a few) which would have been ameliorated by the existence of a public option rather than common sense reforms and regulation of the industry as a whole.

It’s time to take the message to the public: it’s Obama who is compromising on health care reform with the Republicans, dropped the public option, and is seeking honest reform. And when the Repulicans try to obstruct further, Obama has the ability to say, “look, we dropped end of life counseling. We dropped the public option. you don’t want compromise, you want capitulation”. There’s genuine strategic value in abandoning the public option and now fighting for strict industry reform and regulation in its absence. This gives the Blue Dogs political cover to vote for potentially stronger reforms (absent the public option) and justify the cost by pointing out that without the public option, the bill gets a lot cheaper too (I am eager to see new projections of the total cost of the reform package with the public option removed. That will be great PR material.)

The perfect is the enemy of the good, and the public option wasn’t perfect by any means. It’s time to let it go and use this to the advantage of strong, robust reform and regulation of the industry.

UPDATE: Nancy Pelosi says she has the votes to threaten Obama over the public option. But Nate Silver, acknowledging that the public option is most likely dead, asks what a health reform package without the public option would look like:

Forget politics for a moment — what about from a policy standpoint? The fundamental accomplishments of a public option-less bill would be to (1) ensure that no American could be denied coverage because of a pre-existing condition or because they became sick; (2) subsidize health insurance coverage for millions of poor and middle-class Americans.

These are major, major accomplishments. Arguably, they are accomplished at too great a cost. But let’s look at it like this. The CBO estimates that the public option would save about $150 billion over the next ten years — that’s roughly $1,100 for every taxpayer. I’m certainly not thrilled to have to pay an additional $1,100 in taxes because some Blue Dog Democrats want to placate their friends in the insurance industry. But I think the good in this health care bill — the move toward universal-ish coverage, the cost-control provisions — is worth a heck of a lot more than $1,100.

There’s too much at stake here. The public option is ideology, with all due respect to Markos, not “the Democrats’ key issue.” I ask again: is there one, even a single one, example of a health care horror story which would have been uniquely solved by a public option rather than general commonsense reforms such as described above? The answer is no.