Why are health insurers afraid of a little competition?

Poor health insurers! They can't handle a little competition. So their Congressional peons try to scare people with the idea that introducing competition into the health care market will let the government pull the plug on grandma. Fortunately, Americans are still capable of thinking for themselves -- a Washington Post poll suggests that most favor competition in the form of a health care plan with a so-called public option.

Now Congress -- which seems to respond so sensitively to poll results -- can embrace what the American people want in order to get re-elected in 2010. The irony here is tremendous. That's because 2008 Republican presidential candidate Mitt Romney helped pass a public option -- government health insurance for those who can't get private insurance -- in 2006 when he was governor of Massachusetts, where 97 percent of the public now has health insurance, according to NewsMax.

People in Massachusetts are generally happy with the plan. And the WashingtonPost poll results suggest that most Americans like the idea. According to the poll, 57 percent of all Americans now favor a public health insurance option, while 40 percent oppose it. And if the states administer that public option and make it available only to those who lack affordable private options, 76 percent favor it.

Why are the health insurers so afraid of the public option? Isn't the Republican Party, which opposes it, supposed to favor free markets? If so, it should welcome competition -- a key element of a free market. And surely, Republicans would favor repealing the anti-trust exemption that insurance companies enjoy -- which enables them to share loss information -- to make that market even more free.

But of course, Republicans don't favor the public option because the health insurance companies -- which gave $34 million to Republican candidates over the last decade, according to OpenSecrets.org -- don't want the pressure of new competitors. Instead, they try to scare Americans with the specter of socialism.

After several years with a public option in Massachusetts, however, none of our health insurance companies have been wiped out -- in fact they're large and quite profitable. Blue Cross and Blue Shield of Massachusetts (BCBSM) is prospering with 2.5 million members and Harvard Pilgrim Health Care (HPHC) has more than 800,000, according to the Boston Globe. In 2008, BCBSM generated $6.7 billion in revenues and bragged of its profitability, while HPHC's net income increased 12 percent to $48.1 million, according to the Globe.

Fortunately, the Republicans are outnumbered by those who want health insurance. It works in Massachusetts, why not in America?

Peter Cohan is a management consultant, Babson professor and author of nine books, includingCapital Rising (due in June 2010). Follow him on Twitter. He has no financial interest in the securities mentioned.

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