U.S. Health and Human Services Secretary Kathleen Sebelius said Sunday that a new government-run alternative to private health insurance is "not the essential element" of the administration's health-care overhaul.

The White House would be open to co-ops, she said, a sign that Democrats want a compromise so they can declare a victory.

Reforming the U.S. health-care system is arguably Barack Obama's most challenging political fight yet as president, in no small part because of the vast number of diverse stakeholders involved. His goal is to ensure health care for everyone in a country with the world's costliest system.

Obama had wanted the government to run a health insurance organization to help cover the nation's almost 50 million uninsured, but didn't include it as one of his core principles of reform.

Any plan must get through a Democratic-controlled Congress, where many lawmakers are up for re-election next year. Also, there's an ideological fault line between Democrats and Republicans, and liberals and conservatives over the level of government involvement in health care.

"I am confident that when all is said and done, we can forge the consensus we need to achieve this goal," Obama wrote in an opinion piece published Sunday in The New York Times. "We are already closer to achieving health-insurance reform than we have ever been."

He added that there is "broad agreement in Congress on about 80 per cent of what we're trying to do."

Co-ops would compete with private insurers

Under a proposal by Democrat Sen. Kent Conrad of North Dakota, consumer-owned non-profit co-operatives would sell health insurance in competition with private industry, not unlike the way electric and agriculture co-ops operate, especially in rural states such as his own.

With $3 billion US to $4 billion in initial support from the government, the co-ops would operate under a national structure with state affiliates, but independent of the government. They would be required to maintain the type of financial reserves that private companies are required to keep in case of unexpectedly high claims.

"I think there will be a competitor to private insurers," Sebelius said. "That's really the essential part, is you don't turn over the whole new marketplace to private insurance companies and trust them to do the right thing."

Lawmakers have discussed the co-op model for months although the Democratic leadership and the White House have said they prefer a government-run option.

Conrad, chairman of the Senate Budget Committee, called the argument for a government-run public plan little more than a "wasted effort." He added there are enough votes in the Senate for a co-operative plan.

"It's not government-run and government-controlled," he said. "It's membership-run and membership-controlled. But it does provide a non-profit competitor for the for-profit insurance companies, and that's why it has appeal on both sides."

Sen. Richard Shelby, an Alabama Republican, said Obama's team is making a political calculation and embracing the co-op alternative as "a step away from the government takeover of the health-care system" that the Republicans have pummelled.

"I don't know if it will do everything people want, but we ought to look at it. I think it's a far cry from the original proposals," he said.

Republicans wade in

Republicans say a public option would have unfair advantages that would drive private insurers out of business. Critics say co-ops would not be genuine public options for health insurance.

But Rep. Eddie Bernice Johnson, a liberal Texas Democrat, said it would be difficult to pass any legislation through the Democratic-controlled Congress without the promised public plan.

"We'll have the same number of people uninsured," she said. "If the insurance companies wanted to insure these people now, they'd be insured."

Republican Rep. Tom Price said the Democrats' option would force individuals from their private plans to a government-run plan as some employers may choose not to provide health insurance.

"Tens of millions of individuals would be moved from their personal, private insurance to the government-run program. We simply don't think that's acceptable," he said.

A shift to a co-operative plan would certainly give some cover to fiscally conservative Democrats in Congress — many of whom represent Republican-leaning swing districts — who are hardly cheering for the government-run plan.

"The reality is that it takes 60 per cent to get this done in the Senate. It's probably going to have to be bipartisan in the Senate, which I think it should be," said Rep. Mike Ross, an Arkansas Democrat, who added that the proposals still need changes before he can support them.

Obama, in his opinion piece, said political manoeuvre should be excluded from the debate.

"In the coming weeks, the cynics and the naysayers will continue to exploit fear and concerns for political gain," he wrote. "But for all the scare tactics out there, what's truly scary — truly risky — is the prospect of doing nothing."