Even as President Barack Obama and the insurance industry move toward open confrontation over the role of government in health care, his administration is telling lawmakers to keep pushing for a bipartisan deal.

Obama on Tuesday dismissed as "not logical" the insurance lobby’s assertion that a new government health plan he backs would dismantle the employer-sponsored coverage most Americans now have. Despite harsh words from the president, senators attending an evening meeting in the Capitol with White House Chief of Staff Rahm Emanuel said the administration was not ready to abandon the search for compromise.

That puts the spotlight on a small group of senators who are trying to find common ground on the issue of giving the middle class the option of joining a government health plan. Republicans are almost unanimously opposed, while Democrats insist it must be part of any final deal.

Dubbed "the coalition of the willing," the Senate group is focusing on nonprofit co-ops as an alternative both to private insurance and full-blown government intervention.

"The co-op proposal is alive and well, and negotiations are ongoing," said Sen. Kent Conrad, D-N.D., who proposed the idea, adding that it’s the only version of a public plan that stands a chance of getting Republican support.

"At the end of the day, you’ve got to have an alternative that gets votes," Conrad said.

Co-ops are "an idea that continues to be explored," Sen. Orrin Hatch, R-Utah, a member of the group, said after a meeting Tuesday with Senate Finance Committee Chairman Max Baucus, D-Mont.

Following the meeting with Emanuel, Baucus said the White House wants a bipartisan plan.

Democratic liberals in Congress are leery of the co-op idea, even if the White House is open to it. Part of the debate centers on whether the co-ops would be part of a national organization, or isolated outposts.

Obama said he thinks a public health plan would be "an important tool to discipline insurance companies."

That’s not what the industry thinks.

In a letter to senators released Tuesday, the two largest industry groups warned in stark terms that a government plan would take over the U.S. health care system.

America’s Health Insurance Plans and the Blue Cross Blue Shield Association also said they didn’t believe it was possible to design a government plan that could compete fairly with private companies in a revamped health care market.

"We do not believe that it is possible to create a government plan that could operate on a level playing field," said the insurers’ letter, signed by AHIP head Karen Ignagni and Blue Cross CEO Scott Serota. "Regardless of how it is initially structured, a government plan would use its built-in advantages to take over the health insurance market."

Nonetheless, recent media polls have found strong public support for the idea. That has emboldened liberals, who are arguing that Democrats shouldn’t compromise on a government plan.

The public plan that most Democrats envision would be offered alongside private plans through a new kind of insurance purchasing pool called an exchange. Individuals and small businesses would be able to buy coverage through exchanges, but eventually businesses of any size might be able to join.

Cost continued to be a big issue. Officials disclosed Tuesday that key Senate Democrats had whittled more than $400 billion off the cost of a health care plan that carried a $1.6 trillion price tag last week. The new cost is below $1.2 trillion, but still above the informal target lawmakers have set. The officials spoke on condition of anonymity, saying they were not authorized to disclose details of the closed-door talks.

Conrad told reporters the reductions were achieved by lowering subsidies designed to make insurance affordable for those who lack it, as well as other changes.

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