How will Public and Private Health Plans compete?

A twitter friend @jaymefanucci asked the question "How will the proposed Public and current Private Health Plans compete?"

I made a previous post on June 12th asking this question and the emerging wisdom seems to be in two camps:

WSJ Health Blog (http://blogs.wsj.com/health/2009/06/25/separating-fact-from-fiction-on-health-care-reform) says private health plans are worried that the public plan will under-cut prices and margins because the public plan does not need to make a profit. The counter-point is I once heard the then CEO of Trinity Health (a large non-profit Catholic IDN) say "no margin, no mission".

A friend and astute health care insider at a large very successful mid-western hospital says "the government is basically incompetent at providing this kind of large scale service and so will just act as a Financial back-stop while leaving all the juicy bits to private health insurers".

Either way this works out I expect there will be substantial opportunity and risk in the coming change.