Opponents of health reform argue that progressive proposals would require everyone to purchase Cadillac health insurance plans and drive-up the costs of insurance. As health care crisis denier Sally Pipes pronounced during a recent Congressional hearing, “because a young man of 30 wants to get a high deductible plan, Why should he pay $12 to $15 thousand to cover my in vitro fertilization?”

Well, as the New America Foundation’s Len Nichols explained during today’s HELP committee hearing, Pipe’s in vitro fertilization (which only 13 states cover) — or other so-called benefit mandates — has little impact on the price of health care coverage:

Benefit mandates don’t really add that much to costs, the serious econometric work that is in my profession suggests three to five percent, the CBO has concluded that. The state of Texas’ Department of Insurance, not a noted left-wing organization, concluded 3 percent in the state of Texas…The reason those econometric studies find that there is very little specific next impact of specific benefit mandates because they compare the small group hubs, where those things are relevant to the large group hubs. The large group hubs are uniformly more generous,and yet they have lower costs. So let’s ask ourselves, how do they do that?

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Indeed, according to state experiences and an exhaustive study by the Congressional Budget Office, “eliminating some of the most expensive mandates — maternity, mental health, and preventive care for children — would bring” only a small reduction to health care premiums. The CBO report found that “the impact in the small group market is no more than five percent of premiums” while California’s Health Benefit Review Program “determined that eliminating all 44 of California’s mandates would reduce premiums by no more than 4.8 percent.”

“The point is this,” Nichols says, “how we pay for and manage care is far more important than the benefits that are covered.” Large employers are able to use their buying power to offer more substantive coverage and bargain for better rates. Conservatives, however, misdiagnose the cause of rising health care costs and typically propose breaking-up large purchasing pools and pushing individuals into bare bone policies on the individual market.

As Nichols explains, to lower health care costs, we need to move in the opposite direction and “extend that bargaining power and that information, that utilization potential to all of us, not just some of us.”

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Len Nichols’ “modest proposal” for a competing public health plan requires the public plan to play by the same rules as private insurers. Operating within a new framework, both plans would offer standard benefit packages, “guaranteed issue, guaranteed renewal, no pre-existing condition exclusions, modified community rating, risk adjustment.”

The public plan would also adhere to the following conditions of fair competition: it would have to be actuarially sound, would not leverage Medicare to force providers to participate or use Medicare payment rates, and would have to adhere to the same rules regarding reserve funds.

Today, during a conference call with reporters, the Heritage Foundation’s Stuart Butler — a vocal critic of the public option — agreed with Nichols’ framework in theory, but argued that government would rig the system in practice:

The design features are correct, this theoretical model of what you would have to do … but what I’m very skeptical if one sees this on a number of states whether one sees the federal government giving up control of public plan or whether they will just feel the impulse to manipulate it. I just can’t imagine [Rep. Pete] Stark and [Rep. Henry] Waxman and others giving up the option of giving up that plan. … I think they will start relaxing requirements on the public plan… maybe you don’t have to finance yourself completely like private plans do.. We’ll just start rewriting the rules there…They will start relaxing them, in the public interest.

“In my view, the right answer is to push or require the private sector on the state level to come up with some arrangement through private plans which is the functional equivalent of the public plan model,” Butler explained on the call.

But Butler’s argument — let the marketplace handle it — kind of misses the point of the public option. The marketplace has contributed to skyrocketing premiums and huge cost-shifts to families through higher deductibles and copayments. It’s what needs reforming. In fact, even if the private market somehow self-designs a framework of regulation, it would likely not lower costs as quickly as public/private completion.

This is because the whole point of allowing a public plan option to compete with private insurers is that if you reform the way Medicare and the public option reimburses for services (move away from fee-for-service and towards bundled payment, primary care, and care coordination) and if those programs become more efficient, the private insurers — who are now competing directly with the new public plan — would also have to adopt more efficient payment practices.

By using the public plan as a vehicle for reforming the private insurance market, you can dramatically lower health care costs. My fear isn’t that the government won’t be able to keep its hands off the public plan; I fear that without a public plan we won’t be able to lower our skyrocketing health care costs and address the economic crisis.