I have several suggestions on how to increase choice and competition. I’ll start with one idea for the Democrats and two for the Republicans.
For the Democrats: Don't settle for a single public option. Offer four of them, but with a twist that makes it nearly impossible to vote against. The Medicare, Medicaid, Federal Employees & Veteran Affairs health plans should each be made available to all as FFPO - For Profit Public Options. Propose a bill that offers every American a choice of each of those plans, but only at prices for which the government will on average make money. A minimum profit margin (of perhaps 5% of revenue) will be set by law, and the government actuaries will be required to calculate the prices which will (on average) provide that profit margin. The legislated profit margin can even be required to be larger than that of the health insurance industry as a whole.
It's hard to rail against the deficit and then vote against a program that will make money to offset it. Here is a way for the government to profitably introduce more competition into the market place. In a fight between public and private corporations almost all Americans will root for the latter, so any private company who can't compete with a profitable government program deserves to lose market share.
The government plans will have the advantages of brand recognition and massive purchasing power, but such are the advantages of all large corporations. Some Republicans will say that without government subsidies no one will want to buy a public option. In that case there is no reason to vote against a FFPO. Set up the program and let the American people decide for themselves. If no one buys the FFPOs it will be a repudiation of those who say the government is inherently a more cost effective provider of healthcare, for in a fair fight people preferred private insurance.
To help keep the federal government honest with its pricing, a percentage of the profits will be shared with the states, so that if the profits ever drop the states will push back and demand that prices be increased to help preserve their revenue stream.
To make it even harder to vote against, give each state the right to decide which if any of the FFPOs it wants to be allowed to be sold within it. As each state gets paid a percentage of the profits generated by the FFPOs offered within it, most will happily welcome the program. However, any state which would rather protect its local insurance companies will be allowed to do so. This allows the experimentation which we all favor. Some states will naturally allow FFPOs to be sold, while others will resist. After a few years the effects of the program will become clear, and most states will gravitate towards the ideal policy, whatever it may be.
For the Republicans: When each state writes its own healthcare regulations it fragments the market and makes it more difficult for companies to operate, thereby decreasing competition and increasing prices. However, it would be hypocritical for a party that supports states rights in most other areas to forbid a state to determine on its own what regulations are best for its citizens. No one likes when the federal government tells their state what it must do. A solution to this dilemma is to use all carrots and no stick, as was done by offering more federal highway dollars to those states that raised their drinking ages to 21.
One way to do that is with an Interstate Healthcare Association IHA. If a state becomes a member of an IHA it removes all of its own healthcare regulations, and instead accepts those of the IHA. As a member of an IHA, it has a vote on what those regulations will be. The state would not be able to put up any additional barriers to entry, so that any insurance plan which meets the requirements of the IHA could be sold in any state that is a member of it. To encourage states to ditch their own plans and accept those of an IHA, the federal government will offer subsidies to every state that joins one, perhaps in the form of subsidies for the uninsured, who can use it to buy the policy of their choice. Offering aid for the uninsured is a great way to get Democratic support for this Republican plan to reduce healthcare bureaucracy.
It may be best to start with 2 IHAs, one for those states which prefer more regulations and one for those which prefer less. A state may join whichever IHA it wants, and become a full voting member on its policies. There may even be a rule which lets states form new IHAs, as long as they have a minimum of (let’s say) 10 states in it. Reducing the number of distinct sets of healthcare regulations from 50 to a much smaller number will make it much easier for many companies to offer policies in places where they currently don’t.
For the Republicans: One of the ways to reduce healthcare costs is with special malpractice courts. However, that is a state issue, and many people would not want the federal government interfering. Once again the key is all carrot and no stick, while encouraging innovation and experimentation. The federal government can offer subsidies to the first 5 states that decide to set up special malpractice courts. The cost and effectiveness of these courts will be carefully monitored, and the results publicized so that other states may decide for themselves if they wish to institute the program.
If it indeed leads to quicker and more consistent verdicts for victims while lowering malpractice premiums for doctors and healthcare costs for patients, there will naturally be pressure on other states to follow this proven reform. If however it doesn’t have the intended effects, those states may revert to the current system, and the rest of country would be forced to go participate in the experiment. It truly is a laboratory of democracy at its best.