Incendiary comments and misinformation have been flying from the left, right, and center as the congress and President Obama try to extend health insurance to those 46 million Americans who lack health care coverage, as well as improve the quality and efficiency of the health care system. Notwithstanding the ludicrous claims by some that Obama and the Democrats intend to institute a forced euthanasia program on our seniors, there are plenty of legitimate counter arguments and cautions to consider during this process. In particular, many folks (on a sliding scale between the anti-socialist paranoid and the fiscally conservative) are concerned about a public health insurance option.

One criticism of a public health insurance option is that it will force private vendors out of the health insurance marketplace. The argument here is that with a government-run health insurance option, private insurance vendors will be slowly forced out of business because they can’t compete with an insurance program that is subsidized or paid for by the taxpayers. After all, how can you compete with free (or at least, very very cheap)? While I respect that this criticism is based on a particular view of the economy and not the mad ravings of a cable news pundit, I don’t think the facts support this assertion.

For starters, a government-run, non-profit public health insurance plan will not be free to its members. People participating in the program will need to pay premiums to support it, although I would be surprised if there weren’t some kind of ‘pay what you can afford’ dimension to the public insurance option. We can assume it will be affordable to many Americans (why have one at all if it were not?), but it certainly won’t be free.

But even if the public insurance option were bankrolled at 100% by the taxpayers, the private sector competes with free or cheap government services (and effectively!) all the time. Our education system is one example. While the government provides free and/or cheap primary, secondary, and post-secondary educational opportunities for all Americans, private institutions can and do compete against public schools all the time. How? By providing a service that is in some way superior or differentiated when compared to the service provided by the government. And in so doing, those institutions have needed to improve the quality of their offerings and optimize the way they do business in order to compete with the government’s free option.

Now I should say that I am not holding up our public education system as a model of government efficiency - far from it. I am merely demonstrating one example of how the private sector continues to compete with affordable (in this case, free) public services.

The point here is that businesses in the private sector have to compete with free (and cheap) all the time, and not just with government competitors. The technology-oriented readers who are the primary audience for this blog can attest to that. Microsoft Office competes pretty well against Google Docs, I would argue. Apple happily dominates the over $1,000 laptop market as Toshiba churns out $300 Windows PCs. Scrappy little Oracle is holding its own against Sun/MySQL. It’s not exactly an apples to apples comparison, but Microsoft, Apple, and Oracle compete against vendors who provide similar products cheaply because (they would argue) they provide a better value for many customers.

If insurance companies fear the public option, it is because they aren’t prepared to increase the quality of their services or optimize their business to compete against a low-cost vendor. If they do those two things, then they will survive just fine. If they don’t… well, we’re probably better off without them.