You will hear many organizations, politicians, and pundits say that the public option for health insurance would destroy the industry. There are claims from a research group funded by Unitedhealth Group that 100 million people would switch from their current health care plan to the public option, thus destroying the industry.

According to the Congressional Budget Office, however, only 11 to 12 million people will switch to the public option. Obviously, this will have an impact on the insurance companies, but it will be far outweighed by the addition of the 45 million people without health insurance to their customer base.

So why is the health insurance industry so opposed to the public option? The head of their lobbying firm claims that the public option would add significantly to the costs of those who keep their private insurance.

In the airline industry, there's something called the Southwest effect. Here, when Southwest Airlines enters a market, the other carriers are forced to drop their fares in order to compete. That has the effect of driving the cost to the consumer down.

Insurance companies are afraid that the public option will do the same thing to their premiums.

And an article in Business Week shows why this can happen. Right now, according to the American Medical Association, 94 percent of the 314 metropolitan markets it reviewed are controlled by one or two insurers. In 15 states, 50 percent or more of the market is controlled by one insurer.



So, naturally, insurance companies are concerned about a new competitor. The public option, if it survives, will create competition where little exists right now. This will force the insurance companies that now dominate the market to compete, and it will force them to raise the quality of their product and/or cut their prices.

That, of course, would eat into their margins. Raising the quality of their product would likely mean they need to hire new employees. Of course, hiring more employees would help with the unemployment problem we are facing, but it would cut into margins. Lowering prices has an obvious benefit to the businesses and individuals who purchase those services, but again, it would eat into margins.

It has been said that when investigating a situation, you should follow the money. Buy and Hold Plus believes this is the case for health insurance reform. If you're wondering why insurance companies who claim to welcome competition are fighting tooth and nail to keep the public option out of any health care reform, follow the money. And if you're wondering why various politicians are fighting against it, once again, follow the money.