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Team Obama Drops Public Option? …Update: Sebelius Misspoke

(updated and bumped)
Is this really happening?
Team Obama signalled this weekend that they are ready to drop the public option of government insurance in support of co-ops instead.
The AP reported:

Bowing to Republican pressure and an uneasy public, President Barack Obama’s administration signaled Sunday it is ready to abandon the idea of giving Americans the option of government-run insurance as part of a new health care system.

Facing mounting opposition to the overhaul, administration officials left open the chance for a compromise with Republicans that would include health insurance cooperatives instead of a government-run plan. Such a concession probably would enrage Obama’s liberal supporters but could deliver a much-needed victory on a top domestic priority opposed by GOP lawmakers.

Officials from both political parties reached across the aisle in an effort to find compromises on proposals they left behind when they returned to their districts for an August recess. 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 three core principles of reform.

Health and Human Services Secretary Kathleen Sebelius said that government 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.

Under a proposal by Sen. Kent Conrad, D-N.D., consumer-owned nonprofit cooperatives would sell 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 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.

Health and Human Rights Secretary Kathleen Sebelius told CNN today that the public insurance option is not essential:

Conservatives 4 Palin says: “Beware of Liberals Baring Gifts.”

UPDATE: The nutroots are not pleased— hilartiy ensues.

UPDATE 2: It looks like Sebelius misspoke.
The Atlantic reported:

An administration official said tonight that Health and Human Services Secretary Kathleen Sebelius “misspoke” when she told CNN this morning that a government run health insurance option “is not an essential part” of reform…

A second official, Linda Douglass, director of health reform communications for the administration, said that President Obama believed that a public option was the best way to reduce costs and promote competition among insurance companies, that he had not backed away from that belief, and that he still wanted to see a public option in the final bill.

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