Forcing free market plans to compete with these government-run programs would create an unlevel playing field and inevitably doom true competition. Ultimately, we would be left with a single government-run plan controlling the market.to back up a bit, obama's health reform proposal during the campaign was essentially the plan that was signed by governor mitt romney and is now in effect in massachusetts. it keeps the existing system of private insurers with government efforts to subsidize those who can't afford coverage and guarantee that everyone has access to the system. individuals (or their employers) could still choose among different health plans and those plans would still compete for customers. one open question in obama's proposal was whether a government run plan like medicare would be one of the options. the edwards plan, for example, was a lot like the obama plan but expressly stated that people would be allowed to choose a private health plan or join a government-offered plan. the obama plan didn't say either way whether a medicare-like option would be in the mix.
behind all of this is the data that indicates that medicare is a lot more efficient than private health insurers. usually medicare is said to have 2% admin costs, with private insurers hovering over 20%. but even if you use some of the most conservative estimates, medicare ends up having less than one-third of private insurer's non-health costs. for example this study (pdf) attempting to count all the "hidden costs" of medicate still found that the program's "true" administrative costs were 5.2% of its budget, whereas private insurers have an average of 16.7% in non-health payment costs. of course, opponents of a single payer system like medicare have pushed back against that claim, argued that the percentages are misleading, et cetera.
which brings me back to the above quote. why do senate republicans fear competition between private and public insurers? why do they think that allowing such a choice would automatically favor the government plan? and not just favor them, favor them to such an extent it would effectively doom the private system! if they really believed that private insurers are better than public insurers, you'd think they would be itching for competition between the two. i mean, if private is really so great, why not let the private companies directly compete? the letter looks to me like a tacit admission that public will kick private's ass if heath care market is allowed to choose.
