Len,
Your question includes two, and for the health care industry (my opinion), hardly reconcilable positions - the free market economy versus government planning.
There is no other planning for freedom and general welfare than to let the market system work. —“Planning for Freedom/Ludwig von Mises”
The alternative is not plan or no plan. The question is: whose planning? Should each member of society plan for himself or should the paternal government alone plan for all?
—“Laissez Faire or Dictatorship”
Let me examine briefly (I do no like “big stories”): Many people perceive a term planning as a synonym for socialism, or communism, or government running system. Planning in this sense means full government control of business. It is the direct opposite of free enterprise, private initiative, and market economy. Planning and capitalism are entirely incompatible. Government planning is conducted according to the government’s instructions, not according to the strategy of capitalists and entrepreneurs ready to profit by best filling the wants of the consumers.
But the term planning is also used in a second sense. Lord John Maynard Keynes and many other distinguished economists and politicians recommend a third system, which, as they say, is as far from socialism as it is from capitalism, which, as a third solution of the problem of society’s economic organization, stands midway between the two other systems, and while retaining the advantages of both, avoids the disadvantages inherent in each.
Now, your question is a part of third solution. The idea of this third solution is very old indeed, and the French have long since baptized it with a pertinent name; they call it interventionism. Through history many countries tried it. Most recently European and Asian countries including China, and not long time ago similar experiment was performed in former Yugoslavia through self-manage concept that requires the management company itself, without external coercion.
The rhetoric of "competition" of “working together” or “cost containment solution” that single payer or government planning fans are using to trim up the "government or centralized planning option" is deeply misleading. Many private sector plans will face extinction as they are pushed into a race with government solution. As a result, the government plan would likely capture a large percentage of the insurance market, marginalizing and undermining private insurance. For example, the Lewin Group estimates that the America's Affordable Health Choices Act, the health reform bill currently under consideration in the House of Representatives, would reduce the number of Americans with private insurance by 83.4 million and that the new public plan would cover 103.4 million people. Coupled with the federal regulatory system that the legislation would impose on the remaining private plans, this would clearly by itself constitute a government takeover of health care. Think about "competing" with Amtrak for passenger rail service and you get the picture of the future of the health care system.
“You said …So if Medicare coverage was extended to all citizens while private insurers handled supplemental coverage, the system would remain mixed. All that would change is the mix between single payer, government funded healthcare and private insurers.”
I would like to cite what Dr. Robert Ouellet, the current president of the CMA said: there's a critical need to make Canada's health-care system patient-centred. His thoughts on the issue are already clear, and he has been saying that "a health-care revolution has passed us by,” that it's possible to make wait lists disappear while maintaining universal coverage and "that competition should be welcomed, not feared."
In other words, Ouellet believes there could be a role for private health-care delivery within the public system. He has also said the Canadian system could be restructured to focus on patients if hospitals and other health-care institutions received funding based on the patients they treat, instead of an annual, lump-sum budget. This "activity-based funding" would be an incentive to provide more efficient care, he has said.
We do not need that kind of hybrid solutions (III Solution above) for the health care reform, were ultimately public option will not be sustainable because it will set in motion a downward spiral in which the more it grows, the more it will raise the costs of private plans. This will drive patients out of these plans and into the public plan, which, in turn, will grow more and eventually drive the private plans out of business. And who is going to suffer…regular Americans.