The health insuranceindustry is very nervous about the reform bills making their waythrough Congress, and rightfully so, as lawmakers are getting coldfeet about requiring individuals to buy insurance, or penalizingthem if they do not.

Arguments about individual liberty aside, mandating the purchaseof coverage is a critical, make-or-break issue for carriers,because early on the industry agreed to abide by the one reformeveryone seems to support—eliminating the right to deny coverage orcharge too high a premium differential due to preexistingconditions.

This is the only way this bargain can work. If people may putoff buying coverage until they get sick, assured that no carriercan reject them or charge a considerably higher premium, it defeatsthe purpose—which is to broaden the pool as widely as possible withhealthy individuals to spread the risk and lower the cost forall.

If no individual mandate is imposed, or if fines are tooaffordable, it's the worst-case scenario for carriers, more thanoffsetting the benefit of drawing millions of more customers intothe health insurance market.

There is also concern about a public option somehow sneakinginto the final reform bill. While the Senate Commerce Committeefought off calls to include a government-run plan in its version,another Senate measure does have such a provision, and the House ofRepresentatives likely will include one as well.

That means it's possible a public option could make the finalbill coming out of the Senate, or out of a conference committeereconciling the House and Senate versions.

That, too, might prove to be the death knell for privateinsurers, which fear they cannot compete with a non-profit insurerbacked with the unlimited financial resources of the federalgovernment.

Rep. Anthony Weiner, D-N.Y. (who happens to be my representativein Congress, and who used to be my New York City Council member)has been outspoken in pushing the public option. He has thrown downthe gauntlet in numerous forums—including HBO's “Real Time WithBill Maher”—demanding to know value what, if any, health insurersbring to the market.

It's not an unfair question, especially if a reform bill ispassed precluding rejection of individuals with preexistingconditions. If insurers cannot underwrite applicants and set apremium rate accordingly, are they really an insurer anymore, orsimply a bill-paying system?

Private carriers already overlook individual medical historiesin group plans, spreading the risk among an account's insureds. Ifinsurers are also no longer allowed to “discriminate” againstindividual buyers seeking coverage based on medical history, howdoes the carrier set a “fair,” let alone “reasonable” price?

In such an environment, one must then ask, what exactly does aprivate insurer add to the equation, other than cost? Even if theyare permitted some surcharges to discourage unhealthy behavior, isthat worth the price of the private system?

When challenged by “civilians”—those outside the insurancebusiness—I have struggled to make a coherent argument about whyprivate health insurers should be preserved, no matter what thecost.

Some might argue against having “the government” control allhealth insurance, and therefore all health care (although few aresuggesting we do away with Medicare, Medicaid or VeteransAdministration hospitals). Outcries against “socialism” are alsoquite loud. But those are political and ideological arguments, noteconomic ones.

I could use your help in defending the industry. Whatare the purely economic arguments for preserving privatehealth insurance, rather than eliminating profits and frictionalcosts by going with a public option?