Unlike most public-plan supporters, Paul Krugman has been honest about his ultimate goal, a government-run single-payer system. And that is what a public option would inevitably lead to.
A public plan, regardless of how it was structured or administered, would have an inherent advantage in the marketplace over private insurance companies because it would ultimately be subsidized by American taxpayers. It would also have an advantage since its enormous market presence would allow it to impose much lower reimbursement rates on doctors and hospitals, similar to current reimbursement practice under Medicare and Medicaid. It is estimated that privately insured patients presently pay $89 billion annually in additional insurance costs because of cost-shifting from government programs. Assuming the new public option would have similar reimbursement policies, it would result in additional cost-shifting as much as $36.4 billion annually. This would force insurers to raise their premiums, making them even less competitive with the taxpayer-subsidized public plan.
With the public option squeezing private insurers from the sides, and expanded eligibility for Medicare and Medicaid pushing from the top and bottom, it is unlikely that any significant private insurance market could continue to exist. America would be firmly on the road to a single-payer health care system with all the dangers that presents.
Insurance companies, of course, want health-care reform to be about what is best for insurance companies. The government wants it to be about what is best for the government. But what health-care reform should really be about is what is best for patients. A public option is not best for patients.