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NEW YORK (CBS) ― President Barack Obama and his top aides signaled retreat over the weekend on proposals for a provision under which consumers could choose from health insurance policies sold by the federal government as well as those marketed by private companies.

At a town hall style meeting in Grand Junction, Colo., Obama said that the government option provision is not "the entirety of health care reform."

Proposals for creation of nonprofit cooperative ventures have emerged as an alternative over the weekend. So what would a public option look like in comparison to a cooperative?

The public option, as proposed, would be run by the Department of Health and Human Services which also oversees Medicare, CBS News reports. With lower administrative costs, the government could offer lower insurance premiums than the private sector -- giving uninsured Americans a more affordable option.

"One version of a public option would be like the way the Medicare program is run today where the government pays directly for health care. It sets regulated prices, it's take it or leave it for the doctors and it's big enough so the health care providers generally have to take it," said Mark McClellan, former director of the Centers for Medicare and Medicaid Services.

Cooperatives, on the other hand, would be started with government seed money before being turned over to the members themselves to manage. Because the co-ops would be not-for-profit, any money left over from members' annual payments would be reinvested -- theoretically bringing costs down for everyone.

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"The co-op is, in a sense, sort of halfway there," said Dr. Peter Kongstvedt of George Mason University. "It's part of the way there, it's not run by a private company, it's run by the community."

Hundreds of health care co-ops were established in the 1930s and 40s, but only a handful exist today -- like the one run by Dr. David Ores for 800 restaurant workers in New York City.

"Once they're out of the way, the for-profit private insurance companies like Oxford and Aetna -- once they're not involved, the cost goes down by 80 percent," Dr. Ores said.

Proponents of the public option argue that the smaller co-ops could never compete with private insurance the way a government plan could. For that reason, Obama's seeming concession has angered liberals.

"You really can't do health reform" without allowing the government to compete with private insurers, said Howard Dean, a former Democratic Party chairman. "Let's not say we're doing health reform without a public option," he added in a slap at the administration's latest move.

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His remarks were echoed by lawmakers as well as AFL-CIO President John Sweeney, who said the option was the only way to force "real competition" on the insurance industry.

Meanwhile, Republicans don't seem to have paid the cooperative idea much attention at all, and they continued to ratchet up attacks Monday. Rep. John Boehner of Ohio, the House GOP leader, likened the administration to a schoolyard bully intent on stealing lunch money, and accused the nation's drug makers of "cutting a deal with the bully."

In a letter to Billy Tauzin, the head of the Pharmaceutical Research and Manufacturers of America, Boehner said the industry had agreed to a deal with the White House "in hopes of securing favorable treatment and future profits."

PhRMA agreed to pick up no more than $80 billion in costs for health care overhaul over the next decade, under a deal with the White House. It also will spend as much as $150 million in the next few months on television ads to promote health care legislation.

The bill faces numerous obstacles when lawmakers return to the Capitol after Labor Day.

In the House, where Democrats hold a 256-178 majority, passage of legislation will hinge on the ability of the administration and Democratic leaders to satisfy liberals who favor a robust government option and centrists who prefer the co-op approach.

Because they cannot realistically count on any Republican votes, the margin for error is reduced. At the same time, House leaders want to protect their rank-and-file centrists, who tend to come from swing districts, and whose victories in 2006 and 2008 helped give the party its large majority.

In a statement, Speaker Nancy Pelosi said, "There is strong support in the House for a public option," adding it is the best way "to lower costs, improve the quality of health care, ensure choice and expand coverage."

But the statement did not rule out legislation that lacks a government option.
There are similar Democratic divisions in the Senate, where the party controls 60 seats to 40 for the Republicans. A bipartisan group of six senators has been meeting for weeks on a possible compromise that would not include a government option. It is not clear whether they will be successful in reaching a final agreement.

While the president says he favors a bipartisan approach, he has also said it may ultimately be necessary for Democrats to produce a bill more to their own liking.

Jim Manley, spokesman for Senate Majority Leader Harry Reid, said the Nevada lawmaker "supports a public option" because it could keep insurance companies in check. "But he also knows that 60 votes will be needed to get anything done. Senator Reid recognizes there are different proposals on the table that could accomplish this goal," the spokesman said, a clear reference to the co-op alternative.

Dean made his remarks in interviews on NBC and CBS. He and Obama are not close, and the administration snubbed the former party chairman earlier this year when it did not invite him to be present when his successor was named.

"Leaving private insurance companies the job of controlling the costs of health care is like making a pyromaniac the fire chief," said Rep., Anthony Weiner, D-N.Y. Weiner is one of dozens of Democrats who favor creation of a so-called "single payer" approach under which the government would take over the health care system. For many of them, the government option represents a significant retreat.

Rep. Barbara Lee, D-Calif., who chairs the Congressional Black Caucus, issued a statement that called the weekend administration statements deeply troubling. "The Congressional Black Caucus remains committed to ensuring that health reform is meaningful, and that means making sure that a public option is part of the package," she said.

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