Conventional wisdom in Washington now is that the Democrats have to pass something that they can claim to be health care “reform,” no matter how much or how little actual reform it contains. Democrats can’t risk the appearance of being bested by a rump party with a dwindling base beyond the red state bastions. Moreover, the Democratic base has become wedded to the idea of a public option, even as the specifics of what now seems to be legislatively viable have lost any real connection with its initial rationale.

The rationale, of course, is the need for some sort of market mechanism that will put pressure on the private sector plans to hold down costs. The theory is that a government-sponsored plan, much like Medicare, with its low overhead and established reimbursement rates, would “keep the insurers honest.”

In order for the public option to work as intended, there are a number of requirements it must satisfy. It must operate on a rather large scale in order to gain the sort of competitive negotiating advantages that larger insurance pools now have against doctors, hospitals, and pharmaceutical companies.

It needs to operate in parts of the country where one or only a very few companies account for the lion’s share of the currently insured, and it needs also to be large enough to pool the risks so that a few especially sick enrollees don’t break the bank.

And it needs to be available to those with no insurance and those unhappy with their current insurance as one additional option available through something like a national insurance exchange, where consumers can shop for a variety of available plans.

The risk, both in public policy terms and politically for the Democrats, is that the outcome will be a public option provision that becomes largely a charade, a public option in name only. Consider how things have played out so far.

Sen. Kent Conrad , D-N.D., suggested nonprofit purchasing co-operatives as an alternative to government-run programs. This sort of option might be available through the insurance exchange mechanism, a new option modeled on some nonprofit organizations very much like ones currently in existence in some parts of the country. However, these plans have very little chance of fundamentally altering the competitive situation for most of the country. They have not had great overall effect thus far, in part because they are regional, relatively small, and they have to compete against the for-profit behemoths on their terms.

But more telling is the fact that even the underlying exchange idea has been and will likely remain an object of fierce opposition. Under the 1994 Clinton plan they were first called co-operatives and later purchasing alliances, but they have been opposed in numerous quarters ever since. The reasons are simple. There are many powerful constituencies against setting up any mechanism to broaden the base of competition.

Hospitals, physician groups and pharmaceutical companies have no incentive to empower more purchasing agents to exercise greater bargaining power against them. Large employers keep their costs down by having large pools of insured employees and thereby gaining competitive bargaining advantages not available to others. The current situation of escalating costs of insurance may be less than desirable, but there is natural resistance among both large corporations and unions to the idea of surrendering the special bargaining power they enjoy at the expense of everyone else.

The simple but ugly fact is that those who benefit most from the inherent distortion of markets have no interest in any real, market-based solution that would alter the status quo or erode their unfair purchasing advantages.

If the defenders of free markets were seriously committed to their principles they would support something along the lines envisioned in the proposal by Sens. Ron Wyden , D-Ore., and Robert F. Bennett , R-Utah. Under their plan, insurance exchanges would be opened up for nearly all persons, including those currently insured through their employers.

Instead, every modification of the public option is deliberately calculated to do just the opposite. Every compromise is meant to appease the corporate critics of change by watering down the competitive consequences of anything being proposed.

One modification, in response to industry complaints that the public plan can’t compete against government-sponsored plans is the “level playing field” approach. Instead of a public program that would operate at operational and reimbursement rates set at some percentage (5 percent being the most common suggestion) above the current Medicare rates, the public plan would be organized so that it would stay closer to the cost structure of existing private plans.