The most controversial feature of President Barack Obama's health-care reform proposal is the "public option" -- the creation of a government agency that would compete against private health insurers.

Those already insured could maintain their coverage, but opponents nevertheless have raised fears that a giant taxpayer-supported agency would drive private insurers out of business and effectively socialize American medicine.

Mr. Obama says such an agency would not be government subsidized, would cover only a small percentage of the population and would hold down costs by keeping private insurers "honest." As with Medicare, this public agency would not provide insurance directly; it would assign patients to contracted private providers.

The current system of private insurers, many of which face no serious competition or regulation, is largely responsible for the grave flaws of our health-care system. These include 46 million people uninsured, the highest costs but among the worst outcomes in the industrialized world, mass fraud, rampant abuse by insurers and mountains of paperwork. About 16 percent of the population lacks coverage and many of those with insurance have plans that require high co-payments and exclude people with pre-existing conditions.

The public systems in Canada and France have been widely discussed during the current health-reform debate but not those of Latin American countries.

For years, public health-care systems served the region reasonably well until, starting with Chile in 1980 under dictator Augusto Pinochet, Latin American countries began implementing free-market health-care reforms aimed at dismantling state monopolies and creating a favorable climate for competing private providers.

The results were largely negative. Chile's private system, lacking regulation and supervision, was plagued with abuses: Insurers charged higher premiums to women than to men (due to maternity care), raised premiums on the elderly and just about everyone else, refused to pay for chronic diseases and neglected preventive measures. Self-employed and rural workers were virtually excluded.

This left the remaining public system loaded with the costliest patients: women, the poor, the elderly, the chronically ill, the self-employed and rural workers. Even some of those who were privately insured used public services for costly surgeries because their co-payments were so high. The public system subsidized the private system and fed its high profits.

With the return of democracy in Chile came the return of more government involvement in the health-care system. The entire population now enjoys coverage for most diseases and the public system provides free care to the poor and subsidized care to low-income people. Age and gender discrimination has decreased. Compulsory coverage is being extended to the self-employed. Premium increases are capped. Prevention and primary care are high priorities. Public subsidies to private insurers have been eliminated. And a supervisory agency regulates and oversees the entire health system.

Three decades of free-market health-care initiatives proved similarly disappointing for other Latin American countries.

True competition among private insurers often doesn't exist (as in Alabama, where a single company covers 90 percent of those who have insurance). Administrative costs are high and increasing. The new, more private systems have become fragmented, impeding economies of scale while money has been siphoned off for marketing costs and profits that were not a consideration in the old public systems. Only countries with public insurance, subsidies and strong government regulation have expanded coverage.

The lesson from Latin American is clear: A properly designed public insurer and greater supervision of private insurers can help extend coverage to more people, reduce abuses, enhance competition, lower costs and provide better health care for the American people.

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