"A big part of what led General Motors and Chrysler into trouble were the huge costs they racked up providing healthcare for their workers - costs that made them less profitable and less competitive with automakers around the world.
"If we do not fix our healthcare system, America may go the way of GM - paying more, getting less, and going broke," Mr Obama added.
He outlined his plans for "a health insurance exchange" that would allow Americans to choose between private plans and a public option that will "inject competition into the health care market... force waste out of the system and keep the insurance companies honest".
Many groups - including the AMA - have expressed concern that a public plan would have competitive advantages that would ultimately drive private insurers out of the market.
An AMA board member told a Senate panel hearing last week that the group "strongly opposes" a public, government-run insurance plan that pays physicians at the rates of the Medicare programme for the elderly.
OBAMA'S HEALTH PLAN
"Health insurance exchange" allowing Americans to compare and choose between private and public options
All Americans may be required to get health insurance
Insurance companies barred form denying coverage to people with pre-existing conidtions
Dr Samantha Rosman said the AMA was in favour "of a new option that is market-based and not run by the government".
Many doctors would like to reduce costs by capping the amount of money that can be awarded to patients in the event of medical malpractice.
They say that the fear of malpractice lawsuits sometimes forces doctors to perform unnecessary procedures, driving up costs.
But Mr Obama, in his speech to the AMA, rejected caps on malpractice suits, provoking boos from his audience.
He reiterated that he would be "open" to the idea of requiring all Americans to have health insurance, and stressed that insurance companies would no longer be able to deny coverage to people with pre-existing conditions.
On Sunday, Mr Obama announced $313bn (£190bn) in proposed savings to help reform healthcare.
He said the savings - made by cutting waste in the Medicare programme and the Medicaid programme for poor people - would "rein in unnecessary spending and increase efficiency and the quality of care".
The money comes on top of the $635bn down payment on reform detailed in the budget proposal submitted to Congress this year.
The US spends more than $2 trillion a year on healthcare, although about 15% of the population have no medical cover.
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