The Guest Blog

Tony Fratto: Florida Offers Clues For A Public Health-Care Option


Writing in the Wall Street Journal this morning, Robert Reich speculates favorably on the advantages of a public option for health insurance. ("Why We Need a Public Health-Care Plan")

Speculation isn't necessary. If you're looking for clues as to the impact of a government-sponsored option for health insurance, Florida's experiment with a public option for homeowner's insurance offers some clues - and real concerns.

In the wake of devastating hurricanes in the 1990s, Florida put in place a state run homeowner's insurance program to compete with private insurers. The idea -- as in the current debate - was that a state plan would offer a low-cost option to ensure that all residents had adequate insurance coverage and spur price competition among private insurers.

How did Florida's plan compete?

By offering coverage at rates that defy models of actuarial soundness - a business model private insurers could never get away with. The state also restricts the ability of private insurers to charge sound rates.

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The results have been a disaster of the man-made kind. Because the state fund charges inadequate rates, it's now faced with a gaping hole, exposing Florida taxpayers to huge losses in the event of a future devastating hurricane.

Worse, rather than spurring price competition, many private insurers have instead been forced to exit the Florida market alltogether. State Farm, the state's largest property and casualty insurer, announced this year that it would no longer write homeowner policies in the Florida -- leaving Florida homeowners with few options but the inadequate and under-funded government-run plan.

And for those advocating a government-run plan for health insurance, maybe that's the whole point.

Tony Fratto is a CNBC on-air contributor and most recently served as Deputy Assistant to the President and Deputy Press Secretary for the Bush Administration. You can follow him on