Some of the nation's largest companies pushed back against U.S. Democrats' plans to deliver a government-run insurance option in a healthcare overhaul, decrying it as a step backward that would drive up costs for employers and their workers.

The Business Roundtable, comprised of chief executives at Verizon Communications , JPMorgan , General Electric , Wal-Mart and other companies that together employ more than 12 million people, said the federal government is inefficient and would underpay providers. That would result in providers boosting prices for private insurers and employers, the group said on Wednesday.

A public plan would neither manage cost nor encourage innovation, said Antonio Perez, chief executive of Eastman Kodak Co and head of the Business Roundtable's health initiative. We believe it is the wrong direction for fixing our health care system.

On Monday, Senate Majority leader Harry Reid said his bill would include a so-called public option as an alternative to those sold by private insurers. Individual states could opt out against offering the plan.

President Barack Obama, who has made health reform his top priority this year, has said a government alternative will force private insurers to be more competitive.

The U.S. House of Representatives' proposals also contain a public insurance option.

Although an earlier congressional analysis found that about 9 million to 10 million people, most uninsured, would opt for the public plan, the Business Roundtable fears that number will jump as people see their private plan premiums climb.

The costs for all of us in the system will continue to go up and again put pressure on employers to get out of the healthcare system, John Castellani, president of Business Roundtable, told reporters at a news conference.

Other business groups also oppose a public insurance option and are pushing for alternative cooperative exchanges. The U.S. Chamber of Commerce launched television ads on national cable stations and in seven states on Wednesday to fight the government option.

'ORBITZ' FOR HEALTH PLANS?

The United States is the only developed nation that pays for the bulk of its health care through private employers rather than the government, and studies have shown premiums for workers and their companies continue to rise each year.

Health insurers earlier said they would back some reforms as long as a bill included a strong requirement for people to buy health insurance policies, a move they said would spread risk among a wider pool of people and disperse costs. Insurers also vowed to pass through additional taxes and costs onto purchasers.

While details from the final Senate and House bills have yet to emerge, so far the proposals differ somewhat on what penalties either individuals or companies would face for not buying or providing health insurance.

Companies want to offer employees health care to recruit and retain talented workers, said Bruce Josten, a vice president at the Chamber of Commerce.

The chamber backs an national exchange with an Orbitz-like website, Josten told Reuters, referring to a popular travel site that compares deals among various providers.

Even if companies were to drop their health care coverage, employers would likely face higher costs elsewhere in the form of higher taxes and other charges to help the government cover the costs, the Business Roundtable's Perez said.

The group stopped short of dropping its support for healthcare reform but said members would work to press their case to lawmakers.

(Reporting by Susan Heavey; Editing by Tim Dobbyn)

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