Ms Sebelius said the "public option" plan was "not the essential element"
President Barack Obama's administration has signalled that its healthcare reforms may be diluted, amid pressure from opponents.
Mr Obama has been pressing for a government-run scheme to extend healthcare insurance to some 46 million people in the US.
But Health Secretary Kathleen Sebelius said that this had never been Mr Obama's top priority.
She hinted that he may accept the idea of non-profit insurance co-operatives.
In an interview with CNN, Ms Sebelius said that Mr Obama's government-run insurance plan - a so-called "public option" - was "not the essential element" of the administration reforms.
HEALTHCARE IN THE US
46 million uninsured, 25 million under-insured
Healthcare costs represent 16% of GDP, almost twice OECD average
Reform plans would require all Americans to get insurance
Some propose public insurance option to compete with private insurers
"I think what's important is choice and competition. And I'm convinced at the end of the day, the plan will have both of those," she said.
Separately, White House spokesman Robert Gibbs also refused to say that the "public option" was a make-or-break choice.
Mr Gibbs said Mr Obama's administration would consider an alternative proposal of consumer-owned, non-profit co-operatives that would sell insurance in competition with private industry.
The proposal is currently being fine-tuned in the Senate Finance Committee.
The comments of Mr Obama's senior officials come in contrast to the president's remarks at a "town-hall" speech in Colorado on Saturday that his faith in a public option was strong.
If the administration makes this concession it would probably enrage many of its liberal supporters, correspondents say.
But they say it could also deliver the president a much-needed win on his top domestic priority for 2009.
There has been some progress in the House of Representatives on agreeing a deal on the issue but negotiations in the Senate have stalled.
Both chambers need to agree on a bill before it can become law.
US MEDIA REACTION
Without a robust public option, what the Obama administration and compromised Democrats in the House and Senate are talking about is not "healthcare reform." It's "healthcare deform" that does not begin to address the crisis created by insurance industry profiteering - and that could well make the "cure" worse than the disease.
The Nation magazine's John Nichols
sums up the liberal left's anger at the prospect of losing the public option.
Obviously, I disagree as a matter of both policy and negotiating strategy. But, the public option isn't the main part of the bill, and it's not the hill that health coverage reform should die on.
"Publius", blogging at Obsidian Wings,
advises the left to choose its battles carefully, for fear of losing the entire healthcare reform bill.
My understanding is that the White House's position has always been that it favours a public option, thinks a public option is a good idea, wants to see a public option in a bill, and also wants to sign a health reform bill that passes congress, covers the uninsured, and reduces long-run health cost inflation relative to current baseline projections. I haven't heard anything new from the White House. They never said the president would refuse to sign a bill that doesn't include a public option, and they're not saying now that they don't favour a public option.
The Centre for American Progress's Matthew Yglesias
argues that the administration has not actually changed its position.
The question has never been whether the White House supports the public option. It's whether Congress - and, in particular, the Senate - has the votes to pass it. Sebelius's statement this week does not change the administration's position. But it is being widely reported because it comes in context of the sagging popularity of health-care reform, and the changing conventional wisdom on the legislative politics. Namely, many think it increasingly likely that the White House will have to compromise on the public option because it will not be able to find sufficient votes in the Senate and is growing more desperate for a deal. That may or may not be true, but that's the actual story here.
The Washington Post's Ezra Klein
agrees that this is nothing new, and explains why it is being reported as something new.
The White House - and Democrats - messed this up. Maybe it was inevitable. Somehow... the idea of the public plan became the sine qua non of meaningful reform for a very vocal portion of the Democratic intellectual elite. House Democrats embraced the idea. If you equate health care reform with a public option, then, well, health care reform is dead to you. There are a lot of angry liberals tonight. They are within their rights to feel aggrieved.
The Atlantic's Marc Ambinder
thinks the administration has played its hand badly.
The Obama administration is signaling that the "public option" may not be needed in the healthcare plan. They are retreating to "co-ops". Friends, a cooperative healthcare device is the public option just with a better poll tested name... Do not believe that the public option is going away. Do not believe that the Democrats are going to give up on universal healthcare. They are not. They are going to change the language and keep the same goal and plan. It may take them longer, but they will continue pushing forward.
Conservative blogger Erick Erickson, of Red State,
starts mobilising against the Democrats' proposed alternative to the public option.