The only way to justify this claim is to assume that all hospitals are purely charitable institutions, charging as little as they possibly can. Now, some hospitals may fit this description. But all of them?

What’s more, this argument stands the usual logic of markets on its head: if you believe AHIP’s story, competition raises prices instead of reducing them. And it doesn’t matter where the competition comes from: anyone who gets a better deal, whether it’s Medicare or a private insurer, makes life worse for everyone else. I don’t believe that, and neither should you.

Of course, the report doesn’t mention these implications. The only bad competition it talks about is competition from the government. Specifically, it claims that a public insurance option would be a bad thing  not because it would be inefficient, but because the public plan would negotiate better prices. Isn’t that an argument for, not against, such a plan?

Which brings us to the ways in which AHIP may have done health reform a favor.

As I said, the individual mandate probably should be stronger than it is in the Finance Committee’s bill. But there’s a reason the mandate was weakened: fear that too many people would balk at the cost of insurance, even with the subsidies provided to lower-income individuals and families. So why not address that cost?

Aside from making the subsidies larger, which they should be, there are at least two changes to the legislation that would help limit costs. First, health exchanges  special, regulated markets in which individuals and small businesses can buy insurance  can be made stronger, in effect giving small buyers a better bargaining position. Second, the public option  missing from the Finance Committee’s bill  can be brought back in, giving private insurers some real competition.

The insurance industry won’t like these changes, but that matters less than it did a week ago.

There’s also another point, which House Speaker Nancy Pelosi has stressed. Part of the opposition to a strong individual mandate comes from the sense that Americans will be forced to buy policies from a greedy insurance industry. Giving people, literally, another option  the right to buy into a public plan instead  would defuse that opposition.

Even with stronger exchanges and a public option, health reform would probably increase, not reduce, insurance industry profits. But the insurers wanted it all. The good news is that by overreaching, they may have ensured that they won’t get it.