There is an encouraging – perhaps surprising – amount of agreement that health care in the United States must be reformed now. Key players in the debate, from Wal-Mart executives to labor union leaders, agree that reform should expand affordable health coverage to all, that no one should be denied insurance, and that government, employers and individuals should all share responsibility for funding health care.

Democrats and Republicans alike envision a new health-insurance marketplace for Americans who don't have coverage through their employer. However, an increasingly pitched argument about the choices consumers will have in this market threatens this harmony.

At issue is whether consumers should have the choice of a "public" insurance plan that competes with private insurance. Each side of the debate has already drawn its line in the sand. One side says all people must have access to a public program like Medicare; the other side says this would amount to "socialized medicine." Republican Sen. Charles Grassley of Iowa said recently that allowing consumers to pick a public insurance plan "is a deal-breaker for Republicans if it's in, and it's a deal-breaker for Democrats if it's not." The choice, however, is not so stark. There is another option that the country should consider.

Why Have the Choice of a Public Insurance Plan?

If private health insurers can be found in the phonebook, why should the government be in this business? Well, we used to think of health care reform as a 45 million-person problem, which was the number of uninsured in the United States, a number that rises daily as hundreds of thousands of people continue to lose their jobs. But it's becoming increasingly obvious that it is a 300 million-person problem, one that touches all of us. Even those of us who have never had serious frustrations with our health care system know family members or close friends who have lost or have been denied coverage.

This broken system is centered on employer-based insurance coverage. Large employers have begun to feel financial strain under the spiraling cost of health care, but it is the small-business owners and entrepreneurs who are in the toughest spot. Since small-business owners have little bargaining leverage, they often face a difficult choice: provide health insurance that imposes extremely high out-of-pocket costs on their workers or simply provide no coverage at all.

Private insurance companies claim they can solve these problems without additional government involvement. Their trade association, America's Health Insurance Plans, has placed a bold offer on the table to end the practice of "risk rating," or varying premiums based on people's health status. But if they are conducting their business efficiently, they will have nothing to fear from a publicly run competitor – if the playing field is level.

Creating a public plan modeled on Medicare, though, does not represent fair competition. Why? Private plans negotiate rates with doctors and hospitals. Medicare does not. Its prices are set by Congress on the recommendation of a panel of experts. Advocates of a Medicare-type public insurance plan contend that the government would not use this ability to control prices to drive its private competitors out of business. However, both the political pressures and the financial incentives for it to do so would be irresistible.

Making the Playing Field Level

But there is another way. A Medicare-type plan or no public plan at all is a false choice. Health care reform could offer Americans a choice of a public insurance plan that competes fairly with private plans.

In basic terms, this fair competition would have three critical ground rules: equality under the law, self-sufficiency and free choice. Equality under the law means that all regulations apply equally to all plans, public and private. Self-sufficiency means that all plans cover their own costs. Free choice means that those who cannot afford insurance will be given government subsidies to choose either a public or private insurance plan.

This option has been outlined by Len Nichols and John Bertko of the New America Foundation. They call it "A Modest Proposal for a Competing Public Plan." According to Nichols and Bertko, great care would have to be taken to ensure that the marketplace is governed such that no plan is granted unfair advantage. A fire wall would entirely separate the agency that sets the rates and benefits for the public insurance plan from the one that sets the rules for the marketplace in which plans compete. This would help guarantee that all plans compete fairly. And although the government would negotiate prices like any other payer, it would be prohibited from using leverage from other public programs, such as Medicare, to force doctors and hospitals to accept lower rates.

We Cannot Fear Competition

A compromise solution is unlikely to satisfy those on either side of the debate. Jacob Hacker, political sciene professor at the University of California, Berkeley, insists that "only a national public plan that has the proven advantages of Medicare – lower administrative costs, broad and equitable coverage, and the capacity to rein in costs – can provide private plans with the competitive challenge that they sorely need."

However, since the compromise solution is based on fair competition, both sides of this debate will have the chance to prove they are right.

Private insurers could show that they are actually more efficient than the government and put their public competitor out of business. If, on the other hand, public insurance advocates are right that public plans can be run with vastly lower administrative overhead, then public plans will outcompete private alternatives. The most likely outcome, though, is that these options will continue to exist side by side, constantly improving upon each others' offerings through fair and robust competition.

Real-World Successes

It turns out there are many examples of public and private insurance plans peacefully coexisting. More than 30 state governments, including California's, offer their employees a choice between traditional private health insurance products and a plan that the state insures. In Washington state, for example, the publicly insured option called the "Uniform Medical Plan" is the most popular choice, but about a third of public employees choose a private plan instead. Even the "Uniform Medical Plan," though, is effectively a public-private partnership, as Washington has contracted out much of the administration of the plan to a division of United HealthCare.

So rather than being forced into a health care plan run by government bureaucrats, state employees in Washington benefit from the choice of public and private options. On the other hand, Washington state is in the process of shifting more of the day-to-day administrative functions for their public plan to private contractors, having found that private companies perform these services at lower cost. So there is plenty of room to add private sector efficiencies to a publicly run plan.

The experience of Washington state suggests that the debate in Washington, D.C., may be unnecessarily polarized. Drawing a bright line between public sector and private industry does not reflect the facts of how these hybrid insurance marketplaces actually work.

The President and the Governor

President Barack Obama, for his part, has not taken a side in this debate. None of the seven "principles" he laid out to shape the health care reform process refers specifically to the inclusion of a public plan. Instead, at his first Health Care Forum earlier this month, he asked Congress for a bill that "protects families' financial health," "makes health coverage affordable and "aims for universality," among other characteristics. The health care proposals Obama laid out in his campaign last year were broad enough to accommodate many different versions of how a new health care marketplace would function.

Next month, Gov. Arnold Schwarzenegger will host the last of these health care forums that bring the big names in health care together with real people who have been affected by our current system. This dialogue could well serve as fertile ground for compromise among groups with very different agendas and interests but who all have a stake in moving the nation toward an affordable and functional health care system.

Can We Afford Health Care Reform?

Does the American public have the stomach for even a practical solution to our health care crisis? We are being told that due to our country's economic struggles we must postpone this effort. But making progress toward comprehensive health care reform is vital if we are to emerge from this recession with a solid foundation for global competitiveness.

American businesses – large and small – are being hamstrung by soaring health care costs that are more than twice those of foreign competitors. Self-employed entrepreneurs are finding it harder to make ends meet due to health premiums that jump as much as 30 percent each year. Small wonder that as many as half of bankruptcies in the United States are due to medical debt. But the real indictment of our current health care system is that three-fourths of these bankruptcies are declared by people who had insurance coverage when they fell ill.

Though the plight of these working families should evoke our compassion, health care reform is no longer simply a moral issue. It is an economic imperative. The high cost of our inefficient health care system is heightening the economic insecurity of families, corporations and governments alike. We are all in the same boat now. And that boat is taking on water fast.

Standing Up for Practical Solution

In light of this simple fact, how will we succeed in reforming a system that is so complicated? Falling back on easy answers in this debate is a hard temptation to resist. From one side we hear, "We should just let the free market work," from the other, "We should have a single-payer system … like Canada."

The problem with these simple slogans is that neither reflects the reality of the challenges that we must face if we are to end the health care crisis and restore the strength of our economy. We must call upon each side of this debate to work together toward a practical solution. Though it is difficult to make the voice of moderation heard, we must speak out as if our lives depended on it.

Because in the case of health care policy, they actually do.