One of the most controversial topics of the President’s proposals for health care reform is “the public option.”  While this blog is not a forum for personal or institutional opinion for or against the reform proposals, I do want to point out that, in the insurance industry, there are abundant examples of public options that work well.  While my experience is in the property-casualty side of the world, I can’t see why these examples would not extend to health insurance.

Consider personal automobile insurance.  Auto insurance is viewed by many as being a social right.  Every state where I’ve done business has a state-sponsored “assigned risk pool” that provides insurance for all but the most dangerous drivers—usually those whose licenses have been revoked.  Premiums are high and based on driving records, but the depth of availability proves that it is “affordable.”  Private insurers peacefully co-exist with these pools, and often issue and service the policies on behalf of the governmental department that runs the program.  So, administratively, it works.

Consider homeowner’s insurance in coastal states.  Protection from hurricanes is viewed as a social right by these states’ citizens and legislators.  Some insurance companies provide “wind coverage,” while most rely on state-run FAIR plans or state-sponsored insurance companies to serve folks who own homes or condos in the wind zones.  In some cases, insurance companies issue and service policies on behalf of the plans; in other cases, the state-run insurers do the job.  In a few cases, the private companies actually compete with the state-run companies.  Once again, a “public option” system works.

And in my home state of California, we have perhaps the best example of a working “public option.”  Workers’ comp is not only a social right; it is legally required for employers. California’s State Compensation Insurance Fund has operated for decades as a backstop insurer of workers’ compensation.   Over time, the State Fund has expanded to be a very large enterprise and often competes with insurance companies in a state whose work comp market is larger than the next five states and the federal work comp program combined.  Here, corporate insurers coexist with the State Fund in good years and lean; and employers stay or switch insurers based on a variety of factors including service, convenience, financial solidity and price.  As employers and agents and brokers participate in the WC market in California and discuss provider options, State Fund is mentioned as often and as unremarkably as Travelers, Zenith, Liberty Mutual, and all the other insurance companies who voluntarily compete in the marketplace.  In this example, the “public option” works very well.  (Dean Calbreath, a staff writer for the San Diego Union Tribune, has a great article on this subject in that newspaper’s August 16 edition.)

So the health care debate rages on, and who knows where it will all come out.  But care should be taken about dismissing the “public option”—in many cases public options serve a great and useful purpose to free enterprise and society.