Making a public option available with tax credits for the poor has some advantages, namely that many uninsured people will now have coverage. But as a cost control mechanism it's not going to work in the long term.
To understand why, you have to understand how the economics of health care costs work. It is true that a private health insurance market will have higher administrative costs than a single payer model, as well as slightly less bargaining power, depending on the portion of the market they control. But a single payer model is not on the table, so we have to look at what we have.
If you're wondering why you're health premiums have doubled this decade you're barking up the wrong tree to blame it on executive salaries and high overhead. Simply put, there is tremendous downward pressure on administrative costs to remain competitive with other major players in the market. While that leaves room for some obscene salaries, those numbers are cumulatively a drop in the health care bucket. Plus, think about it, admin expenses represent say, 10% of the health premium. Even if they were to increase 10% per year, an exorbitantly high number, that would add 1% to the annual premium.
No, costs increase for two reasons. Providers demand more per service, and customers demand and providers provide, more services. The vast, and I do mean vast, majority of the skyrocketing health costs have gone into the pockets of docs and hospitals. This provides a huge market for technical innovation, since there's always more money for the hospital to buy the latest gadget, but is also crippling our economy.
The problem here is the fee-for-service reimbursement scheme, which provides all the wrong incentives to docs, who are only human, and hospitals, which are large businesses. Until you change this scheme, or control it, you are going to let the runaway costs bankrupt us. The public option does nothing to address this issue.
Here's the other problem. Yes, there are markets where a company has 80% of the insureds. But ironically, that provides the insurer with much greater leverage in negotiating fees close to Medicare fees. And this ignores the real driver of fee levels, which is access. There is one dominant hospital system in Vermont and their fees are exorbitantly high because THE HOSPITAL HAS NO COMPETITION, NOT THE INSURER! Now you may not want to add layers of redundant hospitals to the system, but one has to acknowledge that this is where the dollars end up and where the change has to occur.
The public option is a nice start, but a minor chink in the armor of controlling costs, and one might make a convincing argument that it might be provide even greater upward pressure on fees paid by private insurance carriers as Medicare does today. This is called cost shifting, and the public option may actually make it worse, causing private premiums to continue to skyrocket.