Trade groups representing health insurance underwriters warned Senators Tuesday that inclusion of a public plan in any health care reform legislation would have “devastating consequences” on the private healthcare delivery system.

Meanwhile, President Barack Obama stepped up his efforts to build support for healthcare reform legislation.

A government-run plan ultimately would add to the federal budget deficit, stated Karen Ignagni, president and CEO of America’s Health Insurance Plans, and Scott Serota, president and CEO of the Blue Cross Blue Shield Association, in a letter to members of the Senate Health, Education, Labor and Pension Committee.

No matter how it is initially structured, a government-run plan “would dismantle employer-based coverage, significantly increase costs for those who remain in private coverage, and add additional liabilities to the federal budget,” Ignagni and Serota told the Senators, who are continuing work today to mark up their version of health care reform legislation.

But sustaining the current private system, albeit with “strong market rules and consumer protections,” would ensure that “nobody falls through the cracks without disrupting the coverage of tens of millions of Americans who like and want to keep their current health plans,” the letter added.

Also on Tuesday, President Obama said at a press conference that he would not insist that a public plan be included in any health care reform legislation he signs.

But he also sent a loud message to the industry that one of the ways healthcare reform legislation would be paid for is through cuts in the Medicare Advantage program.

“We have not drawn lines in the sand other than that reform has to control costs and that it has to provide relief to people who don’t have health insurance or are under-insured,” the president said in a response to a question at his news conference. “You know, those are the broad parameters that we’ve discussed.”

As for Medicare Advantage, he added, “If we’re spending $177 billion over 10 years to subsidize insurance companies under Medicare Advantage, when there’s no showing that people are healthier using that program than the regular Medicare program, well, that’s not a good deal for taxpayers.”

Obama also plans an address to the nation tonight on the issue in a televised speech on ABC.

The HELP Committee, which is led by Sen. Chris Dodd, D-Conn., in the absence of its chairman, Sen. Edward Kennedy, D-Mass., says it plans to complete work on its bill by Friday.

But members of the Senate Finance Committee, which is chaired by Dodd, are also working on their own version of the legislation. That committee’s members do not expect to complete work on their version until after Congress returns from its July 4th recess.

Sen. Richard Durbin, D-Ill., a member of the Senate Democratic leadership, said late Tuesday that a completed public-option compromises would likely not appear until next month, and Finance Committee members were also expecting the same timetable, according to sources.

In their letter, Ignagni and Serota also denounced efforts at crafting a compromise that would provide a public plan by other means.

“We do not believe that it is possible to create a government plan that could operate on a level playing field,” the letter stated. Regardless of how it is initially structured, “a government plan would use its built-in advantages to take over the health insurance market,” it added.

Ignagni and Serota said they were “particularly concerned” that a government-run plan would undermine efforts to move to a high-quality health care delivery system. In addition, they expressed fear “that creating a government-run health insurance plan for the broader population would result in tens of millions of Americans being enrolled in a new coverage option that lacks a meaningful commitment to care coordination, disease management, health promotion, and other proactive initiatives that have been successfully implemented by private sector health plans.”

They also warned that a government-run plan would exacerbate the cost-shifting that already occurs from public programs to private payers as a result of low reimbursement rates that Medicare and Medicaid pay to hospitals and physicians. To offset these low payments, providers pass on higher costs to individuals, families and employers in the private sector, they said.

“If Congress establishes a new government-run health plan, this hidden tax on consumers could undermine the entire health care financing system,” the letter said. In addition, “as the insured population migrates from employer coverage to the new government-run plan because of the lower payment rates (and therefore lower premiums), providers would have a declining base to shift costs to in the remaining commercial market.

“Eventually, this dynamic would accelerate with rising costs in the private market because of the exacerbating cost shift, causing further declines in private coverage and leaving hundreds of billions of dollars to be covered by the federal budget,” the letter added.