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The government option would compete alongside private insurers in areas of the country where competition is limited, Obama said July 11 in JAMA.
Democratic presidential candidate Bernie Sanders, who on Tuesday endorsed presumptive nominee Hillary Clinton, had proposed a federally-administered single payer plan.
Obama proposes a less revolutionary option, calling for a public plan in areas where there are few other options for coverage.
Eighty-eight percent of marketplace enrollees live in counties with at least three issuers, Obama said, in his recommendations for building upon the Affordable Care Act.
But 12 percent of enrollees live in areas with only one or two issuers, he said.
The public option would strengthen the marketplace, give consumers more affordable options and create savings for the federal government, said Obama, who previously proposed such a plan for the ACA.
The public plan did not make it into final legislation for the ACA.
"Now, based on experience with the ACA, I think Congress should revisit a public plan to compete alongside private insurers in areas of the country where competition is limited," he said.
On the high price of drugs, the president said Congress should act on proposals included in the 2017 budget to increase transparency around manufacturers' production and development costs, increase the rebates manufacturers are required to pay for drugs prescribed to certain Medicaid and Medicare beneficiaries, and give the federal government authority to negotiate prices for some high-priced drugs.
He recommended Congressional action to increase financial assistance for middle-class families who have healthcare coverage but who are struggling with premiums.