July 1 (Bloomberg) -- President Barack Obama stepped up his drive to overhaul the health-care system, saying that the U.S. economy has been “weakened by the crushing cost” of care and the economy will “just sputter along” without changes.

Obama also urged Americans to “get informed” about the complexities of the health-care debate to inoculate themselves against “scare tactics” of those who oppose his efforts.

The president targeted the health-insurance industry, which has raised questions about his goal of creating a government-run insurance plan as an alternative to private companies.

“So they’ll tell you that we’re trying to take over health care,” Obama said during a town-hall meeting at Northern Virginia Community College in the Washington suburb of Annandale, his second such event in eight days. “I don’t want to take over health care. Don’t let people scare you out of reforming a system that we know is not working.”

Karen Ignagni, president and chief executive officer of America’s Health Insurance Plans, rejected the criticism.

She said in a telephone interview that her industry is committed to an overhaul and was among the first stakeholders in the current debate to make specific commitments to help propel the drive, such as guaranteed issuance of policies regardless of a person’s medical condition.

“This is an industry that decided early on to constructively engage in the health care-reform discussion,” Ignagni said. “We are helping the country move toward reform by doing the work that was necessary to say, ‘Here’s what needs to be done.’ And we will continue to do that.”

Cancer Patient

In a moment of drama at Obama’s town-hall meeting, Debby Smith, 53, of Appalachia, Virginia, fought tears at the town- hall meeting as she recounted her fight with cancer.

Smith said she is unable to work, has no insurance and is “just trying to figure out” how to hang on for nine years, until she can qualify for government assistance.

Obama invited Smith forward and hugged her, while ordering his aides to get the particulars of her situation. “Without knowing all the details, I’m not going to give you an answer right now about exactly how we can help,” Obama told her.

‘Perfect Example’

He called her “a prefect example” of what is wrong with the current health-care system.

In his opening remarks, Obama vowed anew to enact comprehensive health-care legislation this year.

“We are going to pass health-care reform not 10 years from now, not five years from now, we are going to pass it this year,” he said.

“It’s also time to finally provide Americans who can’t afford health insurance with more affordable options,” he said. “It is a moral imperative and it is an economic imperative.”

While Obama is pressing Congress to send him comprehensive legislation by October, lawmakers have struggled in their efforts to reach a compromise. A lack of consensus in the Senate Finance Committee prompted Chairman Max Baucus, a Montana Democrat, to postpone initial action on a bill until next week.

Among the issues dividing lawmakers is whether to create a government-run entity to compete with private insurers, the so- called public option that Republicans say would cripple the industry. Obama has promoted the public-insurance plan, although he has left open accepting variations of such an approach.

Obama, in response to a question, said it could be “hugely disruptive” to replace the entire health-care system with a government-paid one.

‘American Solution’

“This is one-sixth of our economy and we’re not just completely going to upend the system,” he said. “We should be able to find a way to create a uniquely American solution to this problem.”

In framing health-care overhaul as an economic imperative, Obama has said repeatedly that rising costs are threatening U.S. competitiveness and draining government budgets while leaving 46 million people uninsured.

“We should change the warped incentives that reward doctors and hospitals based on how many tests or procedures they prescribe, even if those tests or procedures aren’t necessary or result in medical mistakes,” he said.

Benefits for Virginia

Obama chose Virginia for today’s event in part to make the case that the state’s residents would benefit from a bill that expanded coverage while it cut costs.

About 4.8 million Virginians receive employer-provided insurance, at an average-family premium of $13,302 -- a 99 percent increase since 2000, the White House estimated. At the same time, 21 percent of middle-income families in the state spend more than 10 percent of their income on health care, according to the administration estimates.

The cost of expanding insurance coverage nationwide is another potential deal-breaker in Congress.

Last month, the Congressional Budget Office said the options before the Senate Finance Committee would cost $1.6 trillion over 10 years, sparking protests from lawmakers of both parties. Since then, Baucus said he has brought the number down to his goal of $1 trillion.

Obama said today that “whatever we do, we have to pay for,” and that the measure mustn’t increase the federal deficit over the next 10 years. “About two-thirds of the reform we’re proposing is just reallocating money,” he said.

The Senate Health, Education, Labor and Pensions committee is also working on legislation. The finance and health panels will need to reconcile their bills before going to the Senate for floor votes.

At the same time, three committees in the House are crafting versions of health-care measures. Those bills must also be reconciled before one is taken up by the full House.

New Polls

Two new polls this week found public support for his push to revamp the system.

In a Quinnipiac University poll, respondents said they trust Obama over Republicans to handle health care by 53 percent to 33 percent. The poll also showed 69 percent favored a government-run insurance pool to compete with private industry.

A CNN/Opinion Research Poll found 51 percent supported Obama’s goals, while 45 percent opposed them. At the same time, in a potentially negative sign for the White House, 54 percent said they expected their health-care costs would increase if Obama’s plan is enacted, while 17 percent said they would decrease.

At the town-hall meeting, some questions were submitted during the event in Web chats hosted by the White House on Facebook and Twitter. The on-site audience comprised about 200 people, invited by the college and the White House.

Valerie Jarrett, a senior Obama adviser, moderated the gathering.

To contact the reporters on this story: Kate Andersen in Washington at kandersen7@bloomberg.netEdwin Chen in Washington at echen32@bloomberg.net.

Last Updated: July 1, 2009 17:00 EDT