Senator Eliot Shapleigh - El Paso, Texas

It’s obvious why Texas would benefit from healthcare reform: 1 in 4 residents is uninsured, a higher share than any state, and changes made in Washington will extend coverage to millions here.

The gains from a public option, the short name for a government-sponsored health plan, are less cut-and-dried. But they could be significant, because more Texans buy insurance on their own — and they’re more likely to be charged an outrageous premium.

When President Barack Obama addressed Congress on healthcare reform, he touted the public option as an antidote to market domination. In 34 states, he said, 75 percent of the health insurance market is controlled by five or fewer companies. He cited Alabama, because one carrier has 96 percent of the business.

"Without competition," Obama said, "the price of insurance goes up and the quality goes down."

Sounds right, but in Texas, there’s been plenty of competition — and a history of high premiums. High prices, combined with low incomes in much of the state, have put insurance out of reach for many, regardless of the providers’ market share.

The five largest carriers in Texas control just more than two-thirds of the business, according to a 2008 report by the Government Accountability Office. Only one state, Wisconsin, had a less concentrated marketplace.

What Texas needs is lower prices, not more players. Coverage has to become more affordable, so more Texans can get into the system. Presumably, a public plan would offer better rates, because it wouldn’t have to make a profit and pay dividends to shareholders.

In effect, it could keep the market honest, if it provides solid care at a lower cost.

This idea is an anathema to many in Texas, where faith in the free market trumps all. Lots of competition means lots of choice and lots of benefits for consumers — at least that’s the theory.

Except that in health insurance, the results have often been higher prices and more cherry-picking of the best customers.

"We have lots of choices, but they aren’t affordable choices," said Anne Dunkelberg, associate director of the Center for Public Policy Priorities, an Austin research group that supports reform. "Having a lot of competitors isn’t sufficient in itself."

For many years, health insurance premiums in Texas were higher than the national average, even though Texas is a low-cost state by many measures. Last year, the average premium for family coverage nationwide crept above the Texas average for the first time since 2001.

But a recent survey on healthcare costs found that Dallas-Fort Worth ranked second only to Boston among the most expensive metro areas. Texas uses a light hand on the regulatory front, consistent with its free-market ideology. While mandates for health coverage are solid, companies are generally free to set rates without oversight by regulators.

That leads to some wide price swings here. Texas is among a handful of states where rates can be up to 25 times higher for small employers, according to an insurance industry paper. A report by the Center for Public Policy Priorities found that the average maximum premium in 2006 was almost six times higher than the average premium for small employers.

In contrast, some states set average rates or "community ratings" that limit the pricing differential. The healthcare reform bills in Washington address this issue by limiting the maximum premiums to a multiple of the lowest price offered in the marketplace.

A House bill proposes a limit of two times the lowest premium; a Senate version sets the maximum at four times. This would allow insurers to charge more for sicker and older customers, without going so far that they price people out of the market.

The differential is much smaller among large employers in Texas — just 2.6 times greater than the average, according to the center report. That’s because big companies have more leverage in negotiations, so they get better prices.

Unfortunately, a lot of people in Texas don’t get insurance from large employers or from employers at all. Just under 49 percent of Texans have employer-sponsored insurance, compared with an average of 56 percent for the nation (and 88.5 percent in Hawaii).

It’s part of this group that stands to benefit from a public option. The government plan would be added to a health insurance exchange that includes private carriers and offers several tiers of coverage. The public option would be offered to individuals, as well as employees of small companies whose plans were too expensive or limited in coverage.

Most participants in a company-sponsored plan wouldn’t be eligible for the public option. Most people say they’re satisfied with their current insurance, and employers have enough clout to get good deals.

The Congressional Budget Office estimates that about 30 million people would participate in the healthcare exchange, with about 12 million choosing the public plan. That compares with about 170 million Americans who have health insurance through their employers, which is why Obama has said the public option should not be a deal-breaker.

All this may prove to be a moot point. The public option wasn’t included in the Senate Finance Committee bill but was reintroduced this week with a compromise that lets states "opt out" of the option.

It’s not clear how states would do that and whether the entire Legislature would have a say. But Gov. Rick Perry has been hostile toward Washington initiatives, and his office was skeptical of the latest wrinkle. "The bottom line is a massive government takeover of healthcare is not the solution," Katherine Cesinger, deputy press secretary, said in an e-mail statement.

Like it or not, reform is coming, and Texas stands to be one of the big winners. For people looking to the health insurance exchange — and there will be a lot of them in Texas — the public option could make it even better.