Senate Majority Leader Harry Reid announced Monday that a health care bill to be introduced on the Senate floor in the next few weeks will include a government-run insurance plan, otherwise known as a public option.

Reid, who is up for reelection next year, said this key element of the bill would include an "opt-out" provision, meaning individual states could decline to participate. States would have a year after the 2013 phase-in of the government's new health insurance plan to decide whether to opt out of the public option.

Reid's version of the bill calls on the government to negotiate rates with health care companies, whereas payments in the House version of the bill supported by Speaker Nancy Pelosi would be tied to Medicare rates.

The bill came together following a series of meetings between Reid and other key Democratic senators and White House officials who worked to combine two health care bills that the Senate Finance Committee and the Senate Health, Education, Labor and Pension Committee had passed in recent weeks.

The latter panel passed a bill with a public option provision intact. But Baucus said the measure did not have enough votes to pass the senate floor and it was replaced in his committee with a plan to create nonprofit cooperatives to compete with the private sector.

Reid said the plan to create co-ops was included in the wide range of proposals he sent Monday to the Congressional Budget Office (CBO), the nonpartisan agency that will conduct a cost analysis of the proposal.

"The last two weeks have been a great opportunity to work with the White House, [Democratic] Senators [Christopher] Dodd and [Max] Baucus, on this critical issue of reforming our health insurance system," Reid said at a news conference Monday. "We've had productive, meaningful discussions about how to craft the strongest bill ... coming from a meld of the two [senate committee health] bills. I feel good about the consensus that was reached within our caucus and with the White House, and we're all optimistic about reform because of the momentum that now exists."

If the Senate and House pass a bill that includes a public option and President Obama signs it into law, it will represent the most historic piece of legislation to come out of Congress in a generation and the closest the US has ever come to reforming the health care industry.

Health care reform is one of the cornerstones of Obama's domestic agenda. The question of whether the government should compete with private insurers has been one of the most hotly contested issues of the president's short tenure and was the subject of intense debate last summer at town hall meetings across the country, where Republicans and their constituents sought to cast Obama as a socialist.

The furor forced some Democrats and the White House to rethink whether a government-run insurance program of any kind was the way to go. Obama signaled during numerous interviews that the public option was not necessarily a deal-breaker, and said his main concern was being presented with a bill that would provide Americans with affordable health care.

But intense lobbying in recent weeks from liberal Democrats and progressive organizations, as well as recent polls that showed a majority of Americans supporting a government-run insurance program may have helped put the public option back into play.

In a statement, White House Press Secretary Robert Gibbs said Obama is "pleased that the Senate has decided to include a public option for health coverage, in this case with an allowance for states to opt out."

"As he said to Congress and the nation in September, he supports the public option because it has the potential to play an essential role in holding insurance companies accountable through choice and competition," Gibbs added.

At a news conference Monday, Reid said the public option opt-out plan is "the fairest way to go."

"A public option can achieve the goal of bringing meaningful reform to our broken system," Reid said. "While the public option is not a silver bullet, I believe it's an important way to ensure competition and to level the playing field for patients with the insurance industry."

However, moderate Democrats, whose votes would be crucial, said they are not inclined to support a bill with that includes a public option.

"I certainly am not excited about a public option where states would opt out," Sen. Ben Nelson (D-Nebraska), a moderate Democrat, said Sunday on CNN's "State of the Union."

Reid said he believes the bill will have the "the support of [his] caucus." He added that he has the backing of the White House and Baucus, (D-Montana), who chairs the Senate Finance Committee. Baucus' committee passed a health care bill a couple of weeks ago that did not include any of the real reforms progressive Democrats had been lobbying for.

That bill, however, did have the support of a single Republican, Senator Olympia Snowe of Maine. Snowe is a proponent of the "trigger" option, a plan that would phase in a public option if private insurance companies did not meet certain goals to bring down costs.

Reid acknowledged that a plan to include an opt-out provision means Democrats would lose Snowe's support, but Reid said he hopes that Snowe eventually "sees the wisdom of supporting a health care bill after having the opportunity ... to offer amendments."

In a statement, Snowe said she was "deeply disappointed with the majority leader's decision to include a public option as the focus of the legislation."

"I still believe that a fallback safety net plan, to be triggered and available immediately in states where insurance companies fail to offer plans that meet the standards of affordability, could have been the road toward achieving a broader bipartisan consensus in the Senate," Snowe added.

Speaking about the lack of support from Republicans in general, Reid said, in his opinion, GOP lawmakers do not "represent the thought process of Republicans throughout the country, [and] haven't been willing to help us on anything."

"We looked for Republicans on this," Reid said. "It's just a little hard to find them, and we've had to do a lot of this on our own.... We invite Republicans to come and try to improve this legislation.

"You know, one of the things that's been so astounding to me is, when I came here to the Senate, we had a lot of moderate Republicans who worked with us on everything, and we worked with them. But, of course, now, the moderates are extremely limited. I could count them on two fingers. And as a result of that, it makes it ... really hard to get help from them. I think they're making a big mistake, not helping some things ... like unemployment extension, FAA extension, highway extensions, all these things that are some important to the American people, and of course, health care, which Republicans in years past have worked on health care."

Reid said he is confident he could muster up the 60 votes needed to head off a Republican filibuster.

"I believe that we will be - as soon as we get the bill back from CBO and people have a chance to look at it, which we'll have ample time to do that, I believe we clearly will have the support of my caucus to move this bill and start legislating," Reid said.

Sen. Sherrod Brown, a member of the Health, Education, Labor and Pensions Committee and one of 28 senators who introduced a resolution in May calling for a public option, said the inclusion of a government-run health insurance program is "an important victory for taxpayers, middle class families and American businesses."

"A public option will inject much-needed competition into the insurance industry, keep HMOs honest, and ensure that families across the country have a choice between affordable, quality health plans," Brown said. "While the bill would allow a state to opt out of offering the public option to its residents, I am confident that the states will choose to put middle-class families ahead of the insurance industry."

Progressive groups who lobbied hard over the summer for a public option, something they see as the closest thing to universal health care, lauded Reid's reversal on the issue.

"Over the last several weeks, Senate Majority Leader Harry Reid was forced to choose between the urgent need that everyday Americans have competitive choices when they buy health insurance or the insurance industry pressure to maintain its stranglehold on our health care," said Tom McMahon, acting executive director of Americans United for Change. Reid's announcement "shows that he has refused to buckle in the face of withering pressure from the big insurance companies and sided instead with everyday health care consumers."

Alan Charney, program director for USAction, an organization part of Health Care for America Now, the nation's largest health care reform campaign, said Reid, Speaker of the House Nancy Pelosi "and many of their colleagues in the House and Senate leadership have brought us within reach.