Since I've had this discussion on several occasions, and since it seems to be what everyone is now talking about, I thought I would comment on it here.
As I've expressed before, I support the insertion of free market principles into our health care system as much as possible, in opposition to socialized medicine, which I feel will be inefficient and lead to inferior quality. At the same time, I support the "Public Option" as a lesser solution—in other words the ability to buy the equivalent of a Medicare policy. It has largely been dismissed now from serious congressional consideration under pressure of the health insurance lobby. The reason cited is that insurance companies couldn't fairly compete against it, and so it opposes market principles.
There are (at least) two reasons why the free market does not apply to our current private health insurance system:
1. Under current statutes, Americans are coerced to buy private health insurance. This is not free market. In my case, I'm 40, my previous employer paid $500/mo., for which I had a Kaiser plan and used almost none of it except for three doctors visits for a specific condition which was mostly successfully treated. Now I did have the option to refuse any plan, but I could not have said to my employer: "I want to insure myself: please give me the $500/mo. instead." Without that option, free market principles do not apply.
2. Private insurance gets huge indirect government subsidies in the form of Medicare. Medicare is given to all Americans over 65, and all Americans with permanent disabilities. This amounts to cost-shifting health insurance onto government once people become unprofitable: either they cannot afford premiums, or they get to an age where they become statistically more likely to develop expensive conditions to treat. There was a time when healthy people were charged high premiums to offset costs for the unhealthy. Those days ended with Medicare. Now healthy people are merely gouged for high premiums, and the tax base handles the vast majority of the truly sick in this nation.
Since Medicare is capable of treating the truly sick, and for the most part they get good care under Medicare, with minor adjustments it should be able to oversee the healthy majority of Americans as well, particularly if they collect premiums in line with what health insurance companies are charging.
This talk about free markets is simply the fact that Health Insurance companies have found and unbeatable racket to extort the American public and don't want to lose it.