Support is lacking, particularly in the U.S. Senate, for a government-run health plan that would compete in the private marketplace, the chief executive of health insurer Aetna Inc said on Tuesday.

Democrats as well as Republicans oppose creating such a plan in their efforts to reform healthcare, because of beliefs about the role of government and concerns it would add to the deficit, Aetna CEO Ron Williams told an investor conference.

I continue to believe that there is not the support, particularly in the Senate, for a government plan, Williams said at a Morgan Stanley healthcare conference, which was broadcast over the Internet.

This is not simply an issue of Republicans and Democrats, but that there are many Democrats I've met who are not supportive and are opposed to the government plan.

The government run health plan, also called a public option, has been at the heart of the debate on Capitol Hill over healthcare reform.

Opponents, including Republicans and some moderate Democrats, say they cannot vote for legislation that includes it for fear it will lead to a government takeover of healthcare, while liberal Democrats say they cannot envision a healthcare overhaul without it.

The health insurance industry also strongly opposes the public plan, with concerns companies would be unable to compete.

Williams said he sees the public plan as primarily a provider issue. Community hospitals would be financially devastated if such a plan was created and they were forced to pay low rates similar to Medicare, the government health plan for the elderly.

The basis for competition would really be paying the providers at Medicare rates, Williams said. If you begin to move any share from the employer-sponsored system to Medicare, the economics of the cost shift just simply don't work.

The smaller, weaker community hospitals, who really don't have negotiating leverage with the plans in their areas, would really suffer significant economic challenges.

He believed such hospitals would default on their bonds as a result.

Williams said Aetna's capabilities and tools would permit us to differentiate ourselves in that marketplace and that we would be able to reasonably compete.

But he said that, over time, employers might very well choose to take advantage of the government rates and that long-term it's not good for the healthcare system.

(Reporting by Lewis Krauskopf; editing by Andre Grenon)

Healthcare Morgan Stanley Medicine