WASHINGTON Liberal Democrats warned President Barack Obama on Monday that a retreat on support for a government-run health insurance plan could endanger passage of major healthcare reform in Congress this year.
In the face of intense Republican opposition, the White House signaled over the weekend it was not wedded to a public insurance option as long as the final healthcare measure increases choices for consumers and competition for insurers.
But the liberal backlash highlighted Obama's difficult task in winning Republican support for a healthcare overhaul, his top domestic priority, without alienating Democrats who must also be on board to pass it.
"A public option is the best option to lower costs, improve the quality of healthcare, ensure choice and expand coverage," House of Representatives Speaker Nancy Pelosi said in a statement that cited strong House support for a government-run plan.
Howard Dean, a former Democratic National Committee chairman and a vocal supporter of an overhaul, said the public option was vital to any reform of the costly and complex U.S. healthcare system.
"I don't think it can pass without the public option," Dean said on CBS' "Early Show."
The head of the Congressional Progressive Caucus, which represents more than 80 members of the House of Representatives and two senators, said a majority of the group would oppose any bill that did not include a government-run insurance plan.
"The public option is central to healthcare reform," said Representative Raul Grijalva, chairman of the group.
The White House's shift in emphasis on a public insurance plan lifted shares of managed care companies and relieved investors who feared companies could not compete with such a plan.
The furor erupted on Sunday when Health and Human Services Secretary Kathleen Sebelius said a public option was "not the essential element" of any overhaul, and non-profit cooperatives being considered by a Senate panel could also fulfill the White House goal of creating more competition on insurance.
In Colorado on Saturday, Obama also had said the public option was "just one sliver" of healthcare reform.
Obama has repeatedly stated a preference for a government-administered public insurance plan that would create competition for insurers, but the administration has signaled before that it was open to compromise.
The White House painted the comments from Sebelius as nothing new.
"The goals are choice and competition. His preference is a public option. If there are other ideas, he's happy to look at them," White House spokesman Robert Gibbs told reporters on board Air Force One as Obama returned from an appearance in Arizona. "Nothing's changed."
The overhaul is designed to rein in costs, improve care and extend coverage to most of the 46 million uninsured Americans, but it has run into stiff opposition from Republican and conservative groups and elements of the healthcare industry.
Republicans say a public plan, which has become the focus of their warnings about a government healthcare takeover, would unfairly compete with private plans and cripple the insurance industry.
Six members of the Senate Finance Committee -- three from each party -- have been negotiating a reform package that would feature member-controlled non-profit cooperatives instead of the government-run plan.
Members of the cooperatives would join together and purchase insurance for themselves.
Democratic Senator Kent Conrad, one of the so-called "Gang of Six" negotiators, said there are not enough votes in the Senate to pass a bill that includes a public option.
The debate over healthcare reform will resume in Congress when lawmakers return to work in September after a month-long recess, but it is unclear whether dropping the public option would be more likely to attract enough Republican votes to ensure passage or alienate enough Democrats to endanger it.
The option is included in all three healthcare bills passed by House committees before the recess, and a measure passed by one Senate committee. The version being developed by the Senate Finance panel, which is unlikely to include a public option, is considered a possible framework for an ultimate compromise.
Republicans were pleased by signs there might be a shift on the issue, although some questioned whether the co-ops would be another form of a public plan.
"I am heartened by what the secretary of health and human services said yesterday, that she doesn't think necessarily that a government takeover of health care is a necessary component," Representative Eric Cantor, the second-ranking House Republican, said in a CNBC interview.
The insurance industry also was pleased and shares of health-insurance companies rose.
The S&P Managed Health Care index of large U.S. health insurers increased 2.6 percent. UnitedHealth Group Inc shares rose 1.5 percent, WellPoint Inc jumped 2.9 percent, Aetna Inc increased 4.8 percent, and Coventry Health Care rose 4.4 percent.
(Editing by Phil Stewart and Todd Eastham; Washington newsroom, 202-898-8300)