Majority Leader Harry Reid says health care legislation headed to the Senate floor will include an option for government-run insurance.
Reid says states will have the prerogative of opting out of the program if they choose.
Reid noted that polls show widespread public support for giving the government a role in the overhauled health care system envisioned by President Barack Obama and his allies in Congress.
Meantime, the head of the AFL-CIO said Monday he's willing to consider a tax on high-end health insurance plans to help pay for President Barack Obama's health care overhaul, as long as middle-class workers aren't hurt.
The comments by AFL-CIO President Richard Trumka indicated new flexibility on the issue from a powerful Democratic constituency as House and Senate leaders scramble to finalize sweeping health care legislation. Trumka last month dismissed the proposed insurance plan tax as "outrageous."
The tax is the Senate's preferred method to pay for covering the uninsured, but labor leaders have worried their workers would be affected even though lawmakers were aiming the proposed tax at insurance plans offering the richest benefits - what Obama has called "Cadillac" plans.
"If you show me a definition of a Cadillac plan that hits the Cadillac plans and not the middle class, then we'd take a look at that, of course," Trumka told reporters on a conference call. "If you wanted to tax the Goldman Sachs plans, I think that's fine," he said.
Trumka declined to say at what level he could support the tax.
As approved by the Senate Finance Committee, the tax to be levied on insurance companies would be equal to 40 percent of total premiums paid on insurance plans costing more than $8,000 annually for individuals and $21,000 for families. Retirees over age 55 and people in high-risk professions would be allowed to have somewhat more valuable plans before they're taxed.
The Finance version already reflected compromises in response to labor's concerns, and senators have said the values of plans to be taxed will be even higher in the final bill the Senate will debate.
Trumka emphasized he continued to view the insurance tax plan as bad policy, saying that labor's preferred approach to pay for the $900 billion, 10-year legislation is the one taken by the House, which would raise income taxes on individuals earning more than $500,000 a year and households making more than $1 million.
Christina Romer, the head of Obama's Council of Economic Advisers, gave the proposal for a tax on expensive health care plans a strong endorsement Monday, citing it as one of the "key innovations" that would likely stem the expanding cost of health care.
"A policy along these lines, designed carefully, would encourage both employers and employees to be more watchful health care consumers," Romer said in a speech at the Center for American Progress. "It will discourage insurance companies from offering higher-priced plans that would otherwise eat up larger and larger shares of workers' wages."
Trumka declined to support a version of that plan currently contemplated by Reid, which would establish a so-called "public option" insurance plan nationally but allow states to opt out.
"We support a robust public option. We think that's a step in the right direction but ... it's not there yet," Trumka said.
Sen. Bill Nelson, D-Fla., told reporters Monday while traveling with Obama on Air Force One to Florida that he thinks it will be hard for Reid to muster 60 votes for a public option plan in which states can opt out. He said at least four key senators seem opposed.
If an opt-out plan can pass, he said, he hopes states would not be able to exercise the opt-out for at least two years. Otherwise, Nelson said, the powerful insurance lobby "will convince state legislatures to opt out at the very beginning," before a public option plan has had a chance to prove its worth.
Nelson was Florida's elected insurance commissioner from 1994 to 2000.
Trumka also said that the federation supports requiring employers to provide insurance to their workers or pay a penalty. Instead of imposing such a requirement Reid is looking at charging large companies significant penalties if any worker needed government subsidies to buy coverage on their own.
In general, the bills taking shape in both houses are intended to expand coverage to millions who lack it, ban insurance industry practices such as denial of coverage for pre-existing medical conditions and slow the growth in medical spending nationally.
They would create a new federally regulated marketplace, termed an exchange, where individuals and families could purchase insurance sold by private industry. Federal subsidies would be available to help those at lower incomes afford the cost.
Subsidies would also be available to smaller businesses as an incentive for them to provide insurance.