Obama: Health reform needs public insurer option

By David Alexander and Donna Smith

WASHINGTON (Reuters) - President Barack Obama said on Tuesday his healthcare overhaul needed a public insurance option to enforce market "discipline", but stopped short of saying he would veto legislation without one.

Obama, who has made healthcare reform a top legislative priority, said he would insist Congress pass a plan to control skyrocketing costs and cut the number of uninsured. But he added "we have not drawn lines in the sand" on other issues.

"The public plan, I think, is an important tool to discipline insurance companies," Obama told a White House news conference. "I think there is going to be some healthy debate about the shape that this takes."

The United States spends some $2.5 trillion annually on healthcare, about 16 percent of gross domestic product, but trails many developed countries on important measures of health. Some 47 million Americans are uninsured and have little access to the healthcare system.

Obama, who promised reform during his presidential campaign, has stepped up his efforts to sell the public on his proposals, holding a series of speeches and town hall meetings, including one at the White House set for Wednesday night.

He has proposed allowing those who do not have insurance through their employers and who cannot afford to buy it privately to purchase it from a marketplace where private insurers and a public insurance plan would compete.

Shortly after Obama's news conference, an organization representing private health insurance companies made public its blunt rejection of any state-run health plan, posting a June 19 letter to Democratic Senator Edward Kennedy on its website.

"A government plan option -- in any form -- is unnecessary to achieve comprehensive reform and would have devastating consequences on the health insurance coverage," said the letter from the heads of America's Health Insurance Plans and the Blue Cross and Blue Shield Association.